According to Moody’s the credit profiles of mining service companies has weakened further and several could default.

It points to those companies declining revenues, with most of the five Moody’s rates – Ausdrill, Barminco, BIS Industries, Emeco and Onsite – suffering major revenue falls over the past two years.

Moody’s said Emeco and Bis Industries faced the highest likelihood of failing to meet their financial obligations.

Over the past 18 months the credit agency has downgraded the five mining service companies it rates.

Both Emeco and Bis Industries have gone down the most: to Caa1 negative.

Moody’s also downgraded Ausdrill to B1 negative and Barminco and Onsite Rental Group both to B2 negative.

“Financial flexibility, debt maturity profile, liquidity and headroom available within debt-facility covenants will determine how well a mining-services company weathers the current environment,” the credit rating agency said.

“We expect the probability of default by Ausdrill, Barminco and Onsite to be lower compared with their rated peers because of their lower leverage and adequate liquidity buffers.”

Part of the problem facing the five was driven by poor forecasting.

“Our rated mining services companies raised debt after the peak of the current commodities cycle, expecting, the growth they had experienced prior to 2012 to continue,” Moody’s said.

“However, the rise in debt has come amid a sustained fall in commodity prices and poor pricing power and the financial standing of these companies has worsened as a result.”

The news does not get any better going forward. Moody’s reckons the credit profile of those companies will remain under pressure in the next 12-18 months as conditions become more challenging.

Miners are continuing to cut their spending amid weakness in prices and supply-demand fundamentals for commodities.

Mining services companies draw the bulk of the revenue from orders from miners.

Unfortunately those miners growth prospects have dried up, which means the prospect of extra orders has dried up too.

Miners have cut back on expansion activities because the commodity price environment does not support it. At the same time they have carried out extensive cash rationalisations to cut the cash cost per unit produced.

To preserve their margins and liquidity miners have renegotiated contracts with mining services providers, reduced project scopes and also taken up some of the previously outsourced activities themselves.

None of these things has benefited mining services players.

According to an Australian Bureau of Statistics survey of mining chief financial officers in April and May, mining companies expect to cut investments by 34% in the next 12 months.

“We have negative outlooks on all five rated mining services companies, reflecting our view that further downside risk remains at an elevated level owing to potential contract deferrals and/or cancellations,” Moody’s said.

“Business conditions for these companies will remain weak through 2016 as mining companies focus on cost-savings programs and defer non-essential capital expenditure.

“This increases the uncertainty around mining services companies’ ability to increase earnings and delever.

“Mining services companies are price takers with limited bargaining power, which increases the pressure on their business profiles in the current market.”