S&P revises Nabors Industries outlook to negative on refinancing risk

S&P Global Ratings revised Nabors Industries' outlook to negative from stable, affirming its 'B-' rating, citing heightened refinancing risk for upcoming debt maturities, particularly the $700 million due in 2027. The agency expressed concern over potential liquidity constraints if these notes are not refinanced by May 2026, compounded by expected negative free operating cash flow in 2025 due to high capital expenditures for its SANAD joint venture and declining U.S. upstream spending. While the Parker Wellbore acquisition and stable international activity are projected to increase Nabors' EBITDA and funds from operations in 2025, the negative outlook reflects the critical need for successful debt refinancing and robust liquidity management.

Analysis

S&P Global Ratings has revised its outlook on Nabors Industries (NBR) to negative from stable, affirming the 'B-' rating, primarily due to heightened refinancing risk associated with its $700 million notes due in May 2027 and $390 million notes due in January 2028. The rating agency highlights a potential liquidity squeeze if the 2027 notes are not refinanced before becoming current in May 2026. This concern is amplified by a projected negative free operating cash flow for 2025, a consequence of substantial capital expenditures forecasted at $725 million-$775 million annually for 2025-2026, largely for new builds in its Saudi Arabian SANAD joint venture. The company's financial position is further strained by a credit facility that is over 50% drawn following the Parker Wellbore acquisition and a cash balance of nearly $400 million, of which a significant portion ($230 million) is held within the joint venture. Operationally, Nabors faces a challenging North American market, with S&P projecting U.S. upstream capital spending to fall 5%-10% and Nabors' U.S. rig utilization to decline to approximately 35% in 2025. While international diversification provides a partial buffer and the Parker Wellbore acquisition is expected to lift 2025 adjusted EBITDA to approximately $925 million, these positive factors are currently overshadowed by the significant cash burn and looming debt maturities.

Key Decisions for Investors

• Investors should treat the May 2026 deadline for refinancing the 2027 notes as a critical catalyst; failure to secure favorable terms by this date could trigger a credit downgrade and significant stock price pressure.
• Monitor quarterly free cash flow and liquidity very closely, paying specific attention to the cash burn rate from capital expenditures and the accessibility of cash held in the SANAD joint venture.
• Evaluate the company's performance based on the dichotomy between its declining U.S. operations and its stable, but capital-intensive, international business, as the ability to manage this balance is key to navigating the current financial pressures.
• Given the negative outlook and significant refinancing risk, a cautious or underweight position may be prudent until there is clear evidence of a successful debt refinancing and an improvement in the free cash flow trajectory.