Investing.com -- S&P Global Ratings has lowered its issuer credit rating on Texas-based hydraulic fracturing equipment and services provider, ProFrac Holding Corp., to ’CCC+’ from ’B’, citing reduced liquidity and a negative outlook. The rating on the company’s senior secured notes was also lowered to ’B’ from ’BB-’, reflecting the reduced issuer credit rating. The ’1’ recovery rating remains the same.

Commodity price volatility has led to weaker demand for ProFrac’s services, impacting its operating performance. The company also faces significant debt amortization requirements, which are expected to constrain its liquidity over the next 12 months. S&P Global Ratings has withdrawn its rating on ProFrac Holdings LLC, as it now rates the company at the ProFrac Holding Corp. level.

The downgrade reflects concerns about further liquidity deterioration or the possibility of ProFrac entering into a distressed transaction. S&P Global Ratings lowered its price assumptions for crude oil in April 2025 due to trade uncertainty and increased production from OPEC+ members. This has led many oil and gas exploration and production companies to cut back on capital spending, particularly in onshore areas where ProFrac operates, such as West Texas.

Despite expectations that natural-gas-focused development will fare better, it is not believed to be enough to offset the lower demand related to oil. As a result, ProFrac’s total revenue is forecasted to decline 4%-5% in 2025, compared to the previously expected growth of 4%-5%. Free operating cash flow for the year is also expected to be lower than previously anticipated, at about $140 million.

ProFrac’s $566 million senior notes and subsidiary PF Proppant Holding LLC’s $335 million term loan require substantial amortization payments of approximately $132 million over the next 12 months. With other required debt maturities, the company is estimated to have around $150 million in total debt due over the next year. This is expected to necessitate drawing down its asset-based lending credit facility, which had $66 million available as of March 31, 2025.

Despite these challenges, ProFrac is seen to benefit from its high-quality fleet and geographical footprint. Its well stimulation fleet includes dual fuel and electric assets, which are expected to see higher demand than legacy diesel assets, given the focus on operational efficiency and lower emissions. ProFrac’s operations in regions with a higher proportion of natural gas production, including the Haynesville shale and Appalachia, could also provide a relative advantage.

However, the negative outlook reflects expectations that ProFrac’s liquidity will remain constrained over the next 12 months. The company is facing weaker demand for its core pressure pumping services amid ongoing commodity price volatility and significant mandatory debt amortization of about $130 million over the next 12 months.

S&P Global Ratings could lower its ratings on ProFrac over the next 12 months if it believes the company will enter into a distressed transaction or if liquidity weakens further. A revision to a stable outlook or a rating increase could occur if liquidity is viewed as adequate and funds from operations to debt remains above 12% on a sustained basis.

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