TEXT-Fitch affirms Transocean's IDR at 'BBB-'
Aug 29 - Fitch Ratings has affirmed the Issuer Default Rating and senior unsecured debt ratings of Transocean Inc. and its affiliates at 'BBB-'. Additionally, Fitch has affirmed the Short-Term IDR and commercial paper ratings of Transocean Inc. at 'F3'. A full list of ratings follows at the end of this release. The Rating Outlook remains Negative. The ratings reflect the company's solid and sizable asset base, cash flow profile supported by a robust contract backlog and a somewhat levered balance sheet. Transocean is the by far largest offshore driller in the world and has many of the premier deepwater drilling rigs in the industry. It has 127 offshore drilling units with 48 of those being high-spec floating rigs. As of July 18, 2012, contract backlog was approximately $22.9 billion and has been rising recently reflecting more robust industry conditions. As of June 30, 2012, balance sheet debt stood at approximately $12.8 billion with Fitch adjusted latest-twelve-month (LTM) EBITDA of $3.1 billion resulting in debt/EBITDA of 4.15X. Cash and cash equivalents of $4.0 billion and restricted cash investments of $857 million bring net debt down to approximately $8.0 billion. Given the trend in year to date results, Fitch expects improvements in EBITDA to continue in the near term. This would likely result in leverage below 3.5X calculated relative to current debt levels. Total current liquidity is $5.9 billion as of June 30, 2012 consisting of nearly $4 billion of cash and cash equivalents and almost $2 billion of capacity on its unsecured revolver due 2016. Since the company cut the annual dividend from $1 billion per year to zero, Fitch would expect free cash flow of over $1 billion annually given current capex expectations and a continuation of modest industry conditions. Convenants on the revolver include a maximum debt/tangible capitalization ratio of 0.6X, and as of June 30, 2012 this ratio was 0.5X. Maturities over the next twelve months as of June 30, 2012 are approximately $2.8 billion and include the $1.7 billion in putable convertible notes late this year and two issuances of notes due in the first quarter of 2013 totaling approximately $750 million. The next significant maturity is the $1.1 billion of the 4.95% senior due 2015. The Negative Outlook reflects the uncertainties surrounding Transocean's potential liability exposure related to the Macondo accident and oil spill in the U.S. Gulf of Mexico in 2010 combined with still relatively weak operating cash flow and resulting high leverage metrics for the rating. Additionally, current litigation related to a potential work stoppage following a minor spill in Brazil is a concern; however, that likely remains an outlier risk in Fitch's opinion. As of June 30, 2012, RIG has increased its total loss contingencies accrued for Macondo related damages to $2.0 billion. A large judgment or settlement could have a material impact on the credit profile. Other concerns include: --The possibility of continued higher operating costs and increased downtime as a result of new regulations in the U.S. Gulf of Mexico; --Pressure to reward shareholders before reducing leverage; --The potential for a significant deterioration in oil prices leading to a decrease in the demand for drilling rigs; and --The potential for additional newbuilds and the associated capex involved which could come at the expense of further debt reduction. WHAT COULD TRIGGER A RATING ACTION Negative: --A large, adverse liability or settlement outcome well beyond what already has been reserved relating to the Macondo incident. --A significant change in the situation in Brazil leading to work stoppages that last long enough to have a material impact on revenue and FCF. --A large share repurchase program, reinstatement of the dividend, or a new large newbuild program that leads to significantly higher debt levels. --A significant regression in operations that leads Fitch to believe the downtime issues are an intractable 'new normal' in the deepwater industry rather than a temporary issue. --A material and extended drop in oil prices that drives new dayrates and contracting significantly lower. Positive: --Resolution and/or much better visibility of Macondo/Brazil related issues. --Continued operational improvement, much stronger industry conditions and resulting cash flow or substantial debt reduction. Fitch affirms Transocean Inc.'s and its affiliate's ratings as follows: Transocean Inc. --Long-term Issuer Default Rating (IDR) at 'BBB-' ; --Senior unsecured notes at 'BBB-'; --Senior unsecured bank facility due 2016 at 'BBB-'; --Short-term IDR at 'F3'; --Commercial paper at 'F3'. GlobalSantaFe Inc. --Long-term IDR at 'BBB-'; --Senior unsecured notes at 'BBB-'. The Rating Outlook remains Negative. Additional information is available at 'www.fitchratings.com'. The ratings above were solicited by, or on behalf of, the issuer, and therefore, Fitch has been compensated for the provision of the ratings. Applicable Criteria and Related Research: --'Corporate Rating Methodology' (Aug. 8, 2012); --'Short-term Ratings Criteria for Non-Financial Corporates' (Aug. 9 2012); -- 'Updating Fitch's Oil & Gas Price Deck' (Aug. 15, 2012). Applicable Criteria and Related Research: Corporate Rating Methodology Short-Term Ratings Criteria for Non-Financial Corporates Fitch Oil & Gas Price Deck -- 2010 Update
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