Rating Action: Moody's changes Exterran's rating outlook to positive following Enerflex acquisition announcementGlobal Credit Research - 24 Jan 2022New York, January 24, 2022 -- Moody's Investors Service (Moody's) affirmed Exterran Energy Solutions, L.P.'s (EESLP or Exterran) B1 Corporate Family Rating (CFR), B1-PD Probability of Default Rating (PDR) and B3 senior unsecured notes rating. The SGL-3 Speculative Grade Liquidity Rating remains unchanged. The rating outlook was changed to positive from stable.This rating action follows Exterran's announcement that it has agreed to be acquired by Enerflex Ltd. (Enerflex) in a stock-for-stock transaction . The transaction, which is expected to close in the second or third quarter 2022, is subject to shareholder approvals, regulatory approvals and other customary closing conditions."Enerflex's announced acquisition of Exterran is credit positive and should benefit Exterran's credit metrics, supported by increased size and scale of the combined company," commented Amol Joshi, Moody's Vice President and Senior Credit Officer.Affirmations:..Issuer: Exterran Energy Solutions, L.P..... Corporate Family Rating, Affirmed B1.... Probability of Default Rating, Affirmed B1-PD....Senior Unsecured Regular Bond/Debenture, Affirmed B3 (LGD5)Outlook Actions:..Issuer: Exterran Energy Solutions, L.P.....Outlook, Changed To Positive From StableRATINGS RATIONALEThe positive outlook reflects Moody's expectation that the announced acquisition by Enerflex will place the company on the path of meaningful deleveraging, while industry conditions improve and gross margins in contract operations remain robust. The merger's strategic rationale is sound, consolidating the two companies' global presence and increasing scale. Exterran's limited North American exposure is complemented by Enerflex's meaningful US operations, enhancing diversification. Enerflex's $925 million bridge loan facility is sufficient to support the takeout of existing Exterran debt including its senior unsecured notes, likely leading to Moody's withdrawing EESLP's ratings. If EESLP's notes remain outstanding, the rating on the EESLP notes could change depending on its ranking in the new capital structure and the availability of separate financial statements. If separate financial statements and sufficient disclosures are not made available to support the maintenance of ratings, Moody's will likely withdraw EESLP's ratings.EESLP's B1 CFR reflects its elevated debt leverage, a business mix which has become increasingly exposed to project construction risk, offset to an extent by the stable and robust gross margins attributable to its contract operations (natural gas compression and processing) business segment. Contract operations, however, require ongoing capital investment and is subject to contract renewal risk. Customer retention has proven to be sticky (given high equipment switching costs), and there is considerable flex in operating costs and capital spending requirements sufficient to keep high gross margins intact and stable. Product sales' order rate and backlog are subject to periods of volatility and exposed to natural gas market conditions. While its product sales are largely self-financed through customer progress payments, the projects themselves are subject to construction and execution risk. The company's third operating segment, aftermarket services, tends to generate low volatility revenues and margins.EESLP's senior unsecured notes are co-obligations of EES Finance Corp., and are fully and unconditionally guaranteed by Exterran Corporation (EXTN), as well as by its principal domestic operating subsidiaries. EESLP is a wholly-owned limited partnership through which EXTN owns its operating subsidiaries. The notes are rated B3, two-notches below the B1 CFR, reflective of the notes' junior position relative to the priority claim of the company's relatively large senior secured revolving credit facility.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSRatings could be upgraded if Exterran significantly grows EBITDA while debt/EBITDA falls below 3x. Should Exterran experience significant additional challenges in project execution or should leverage increase above 4x, the ratings could be downgraded.Exterran Corporation is headquartered in Houston, Texas and provides contract compression services to the oil and gas industry outside the US as well as processing and compression equipment manufacturing and aftermarket services. The company was spun off in November 2015 from Exterran Holdings, now Archrock, Inc. EESLP is a Delaware limited partnership and an indirect wholly owned subsidiary of Exterran Corporation. EES Finance Corp. is a Delaware corporation and a direct wholly owned subsidiary of EESLP formed to serve as co-issuer of certain debts.The principal methodology used in these ratings was Oilfield Services published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277306. 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