S&P rates Itron loan BB-

Standard & Poor's assigned a BB- rating to Itron Inc.'s proposed $240 million senior secured credit facilities. The outlook is stable.

S&P said the bank facilities are rated the same as the company's corporate credit rating, reflecting the likelihood of a meaningful recovery of principal in the event of a default or bankruptcy, despite potentially significant loss exposure.

Irton's ratings reflect its sizable leverage resulting from the debt-financed acquisition of SEM and its moderate size, which limits debt capacity and financial flexibility, S&P said. Ratings also take into account Itron's leading market positions in the meter-data collection and electricity-meter industry, strong operating performance and stable and fairly predictable free cash flow generation.

The acquisition of SEM improves Itron's business position, provides Itron with a leading presence in the electricity metering business and provides opportunities for international expansion while complementing its existing solid position in meter data collection and management, S&P said.

While there are risks associated with the integration of SEM, which is significantly larger than Itron's past fold-in acquisitions, the risks are considered manageable given SEM's existing use of AMR technology licensed from Itron and management's knowledge of the electricity meter business.

Itron's financial policies are considered aggressive, reflected in a growth strategy that has included five acquisitions since 2000 and the exclusive use of debt for the SEM acquisition, S&P said. Debt leverage (adjusted for leases) was about 3.2x pro forma for the acquisition and EBITDA interest coverage was 4x. S&P expects Itron to reduce leverage over the near term with total debt to EBITDA to average around 3x and EBITDA interest coverage to improve to the 4.5x to 5x area as the company applies free cash flows toward debt repayment.

S&P rates Basic Energy loan B

Standard & Poor's assigned a B rating to Basic Energy Services LP's proposed senior secured credit program, which consists of a $130 million term loan B maturing in November 2009 and a $40 million revolving credit facility maturing in November 2008. The outlook is stable.

S&P said that in a distressed scenario there is the likelihood of substantial recovery of principal on the loan in the event of default or bankruptcy but the value of the collateral in a distressed situation may not fully cover the amount of secured debt.

Basic Energy's ratings reflect the company's position as the third-largest participant in a volatile, cyclical, capital-intensive, and highly competitive industry, combined with an aggressive growth strategy and a substantial debt burden, S&P said.

Although Basic has good customer relations and leading market positions in certain local markets, the well services industry is highly cyclical and extremely competitive, S&P noted. Nevertheless, near-term conditions should remain buoyant because there are little signs of demand reduction. Furthermore, industry consolidation has helped. Key Energy Services Inc. and Nabors Industries Inc. now control more than 60% U.S. of capacity, which, along with lofty hydrocarbon prices, has likely helped to support margins in recent years. Industry consolidation bodes well for Basic's capacity to reduce debt in the near term, although a downturn in oil and gas prices would probably revive competitive spirits.

With pro forma total debt to total capitalization of about 56%, Basic is highly leveraged, particularly when compared with Key and Nabors, S&P said. Given Basic's aggressive growth strategy and recent financial results (about $42 million of EBITDA for the past 12 months ending Sept. 30, 2003, pro forma for acquisitions), S&P is not expecting substantial deleveraging in the near term.

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