Rating Action: Moody's rates Goodnight Water Solutions' new term loan B3; outlook positiveGlobal Credit Research - 28 Jan 2022$400 million new rated term loan BNew York, January 28, 2022 -- Moody's Investors Service ("Moody's") assigned first time ratings to Goodnight Water Solutions, LLC ("Goodnight"), including a B3 Corporate Family Rating (CFR), B3-PD Probability of Default Rating (PDR) and B3 rating to the proposed $400 million senior secured term loan B due 2027. The outlook is positive.Goodnight will use net proceeds from the term loan to repay borrowings on its existing revolving credit facility. Concurrent with the issuance of the term loan, the company is establishing a new $50 million super priority senior secured revolving credit facility due 2026 (unrated)."Goodnight Water Solutions' ratings reflect our expectation for volume growth in 2022 to drive increased EBITDA and lower leverage on the company's scalable midstream platform," said Jonathan Teitel, a Moody's analyst.Assignments:..Issuer: Goodnight Water Solutions, LLC.... Corporate Family Rating, Assigned B3.... Probability of Default Rating, Assigned B3-PD.... Senior Secured Term Loan B, Assigned B3 (LGD4)Outlook Actions:..Issuer: Goodnight Water Solutions, LLC.... Outlook, Assigned PositiveRATINGS RATIONALEGoodnight's B3 CFR reflects the company's relatively small size as well as Moody's expectation for volume growth, rising EBITDA and lower leverage in 2022. Goodnight owns and operates produced water midstream infrastructure critical for oil production. Oil and gas producers' operations result in large amounts of produced water. The company's integrated saltwater disposal solutions are supported by a scalable network of water gathering and transportation pipelines, as well as saltwater disposal wells in the Bakken shale in North Dakota, the Permian Basin in Texas and New Mexico, and the Eagle Ford region of Texas (the first two basins generate the vast majority of EBITDA). Contracts with customers are long-term and carry fixed fees. Under the substantial majority of contracts, customers dedicate specific acreage which results in volumes that are highly sensitive to capital spending by producers (several contracts have minimum volume commitments). Deleveraging depends on growth in volumes driving increased revenue and EBITDA.Moody's expects Goodnight to maintain adequate liquidity. At the close of the refinancing transaction, the company will have an undrawn $50 million revolver due 2026. Moody's expects that the company will rely on the revolver during 2022 because of growth capital expenditures in support of increased customer volumes that drives modestly negative free cash flow, at least through the first half of the year. The revolver's financial covenants will include a maximum net leverage ratio (with step-downs over time), a maximum super priority leverage ratio, and a minimum interest coverage ratio (with step-ups over time). The term loan will include a minimum debt service coverage ratio. Moody's expects Goodnight will maintain cushion to comply with these covenants through 2022.Goodnight's proposed $400 million senior secured term loan B due 2027 is rated B3. The $50 million senior secured revolving credit facility due 2026 (unrated) has a super priority preference over the term loan with respect to the collateral that secures the loans. Since the revolver is small and the term loan comprises the preponderance of debt, the term loan is rated the same as the CFR.As proposed, the new term loan facility is expected to provide covenant flexibility that if utilized could negatively impact creditors. Notable terms include the following items. Incremental debt capacity up to the greater of $96.1 million and 100% of Consolidated EBITDA, plus unlimited amounts subject to the greater of the Consolidated First Lien Net Leverage Ratio of 4.1x and the Consolidated First Lien Net Leverage Ratio immediately prior to incurrence (if pari passu secured). No portion of the incremental may be incurred with a maturity date earlier than the initial term loans except amounts constituting a bridge facility. The credit agreement permits the transfer of assets to unrestricted subsidiaries, up to the carve-out capacities, subject to prospective "J. Crew" provisions to be mutually agreed. Non-wholly-owned subsidiaries are not required to provide guarantees; dividends or transfers resulting in partial ownership of subsidiary guarantors could jeopardize guarantees, with no explicit protective provisions limiting such guarantee releases. There are no express protective provisions prohibiting an up-tiering transaction. The above are proposed terms and the final terms of the credit agreement may be materially different.The positive outlook reflects Moody's expectation for Goodnight's volumes to grow over the next 12-18 months driving increased revenue and EBITDA and lower leverage, and for positive free cash flow by late 2022. However, there are some uncertainties and risks to sustainable volume growth driving the expected increase in EBITDA and correspondingly lower leverage.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSFactors that could lead to an upgrade include sustainable volume and revenue growth; maintenance of debt/EBITDA below 5x; and positive free cash flow generation while maintaining adequate liquidity.Factors that could lead to a downgrade include EBITDA/interest below 2x or weakening liquidity.Goodnight, headquartered in Dallas, Texas, is a privately owned company that owns and operates produced water midstream infrastructure critical for oil production. The company is majority owned by Tailwater Capital.The principal methodology used in these ratings was Midstream Energy published in December 2018 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1147839. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Jonathan Teitel, CFA Asst Vice President - Analyst Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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