QBS Parent Inc. Outlook Revised To Negative On Low Oil Prices And Weaker Macroeconomic Outlook; 'B-' Rating Affirmed

  • S&P Global has revised its U.S. real GDP growth expectations for 2020 to negative 0.5%-0%, and its West Texas Intermediate price expectation or the remainder of 2020 and 2021 to $35 per barrel (bbl) and $45/bbl respectively.
  • We expect this macroeconomic and oil price downturn will impair the operating performance of QBS's customer base and may lead to revenue declines and higher leverage if customers are unable to pay or reduce demand for QBS's products.
  • Nevertheless, we believe that QBS has sufficient liquidity and recurring revenues to endure a weak operating environment in 2020.
  • We are revising our outlook on QBS to negative from stable, and affirming our 'B-' rating on the firm.
  • The negative outlook reflects our view that weaker macroeconomy and tighter IT spending environment among oil and gas companies will weigh on QBS' operating results, and that we could view the company's capital structure as unsustainable if the oil and gas industry sustains a significant downturn.
NEW YORK (S&P Global Ratings) March 25, 2020—S&P Global Ratings today took the rating actions listed above. The outlook revision to negative reflects our view that QBS Parent Inc. is exposed to substantial downside risk over the next 12 months due to significant declines in oil prices, and that free cash flow may turn negative for the year.
The negative outlook reflects the challenges from the macroeconomy and oil and gas end markets we believe QBS will face over the next 12 months and the resulting weaker operating results relative to our previous expectations.
We could lower our rating on QBS if we believe it will not able to generate positive free operating cash flow in the next 12 months, or if it faces weaker demand, sales, and profitability than we currently expect. This could result from end-market turmoil or sustained low commodity prices. We could also lower the rating if the company has less-than-adequate liquidity or if the capital structure is unsustainable.
We could revise our outlook to stable if we see minimal impact on company's operating performance. This could occur if commodity prices and the oil and gas end markets stabilized. An outlook revision would also require us to believe that the company can generate no less than $10 million of free operating cash flow annually, while maintaining a sustainable capital structure, mid-20% margins, and at least adequate liquidity.
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