S&P hikes ratings on Allis-Chalmers Energy to 'B+'

NEW YORK—Standard & Poor's Ratings Services on Thursday raised its ratings, including the corporate credit rating, for oilfield services company Allis-Chalmers Energy Inc. to "B+" from "B."

S&P also changed its outlook on Allis-Chalmers to stable from positive. An outlook is a long-term view of the company's ratings, and a stable outlook implies the rating is not likely to change.

"The upgrade reflects expected improvements in operating performance as a result of strong industry conditions during the second half of 2008, adherence to its stated financial policy, and meaningful improvements in the company's scale and product offerings during the past year," analyst Amy Eddy said in a release.

Allis-Chalmers Energy's adjusted earnings, before income taxes, depreciation and amortization -- a measurement commonly known as EBITDA -- likely will jump to about $300 million from less than $200 million in 2007, after its completes its buyout of Bronco Drilling Company Inc., the ratings agency said.

Despite the upgrade, S&P said the rating reflects several weaknesses at the Houston-based company, including softer operating performance during the fourth quarter of 2007 and first quarter of 2008, which hurt cash flow.

"While the acquisitions have improved Allis' scale and scope of operations, they also raise questions as to whether management has the ability to effectively manage such rapid growth," S&P said.

Shares fell 59 cents, or 3.9 percent, to close Thursday at $14.48.