Approximately $2.0 billion of rated debt affected
New York, May 08, 2013 -- Moody's Investors Service, (Moody's) assigned a B2 Corporate
Family Rating (CFR) and a B3-PD Probability of Default Rating (PDR)
to Pacific Drilling SA (PacDrilling) in conjunction with its proposed
$1.5 billion debt offering. The debt will be a combination
of senior secured notes and a senior secured term loan B. Proceeds
will be used for general corporate purposes and to repay approximately
$1.35 billion of project finance debt that is secured by
four operating drill ships. Moody's assigned a B1 rating
to the proposed senior secured debt. The existing rating of the
secured debt at Pacific Drilling V Ltd. (PacDrilling V) was upgraded
to B2 from B3. The outlook is positive.
"The refinancing of Pac Drilling's project finance loan marks an
evolutionary step forward in the company's capital structure,"
said Stuart Miller, Moody's Vice President. "While collateral
is still segregated and assigned to individual debt instruments,
cross-default provisions and guarantees between the parent and
its subsidiaries creates a more level playing field for the various creditor
groups, especially for creditors that were previously outside the
project finance ring-fencing where the operating drillships were
located."
A complete list of rating actions is as follows:
Ratings assigned
..Pacific Drilling SA
....Assigned a CFR of B2
.Assigned a PDR of B3-PD
.Assigned a senior secured note rating of B1 (LGD2-26%)
.Assigned a senior secured term loan B rating of B1 (LGD2-26%)
.Assigned a Speculative Grade Liquidity rating of SGL-3
Ratings upgraded
..Pacific Drilling V Ltd.
.Upgraded senior secured rating to B2 (LGD3-39%)
from B3
Change in rating outlook
..Pacific Drilling SA
.Assigned a positive outlook
Ratings Withdrawn
..Pacific Drilling V Ltd.
.Withdrew CFR
.Withdrew PDR
.Withdrew SGL
RATINGS RATIONALE
The B2 CFR for PacDrilling reflects the company's very high financial
leverage (debt to EBITDA of 8.5x as of December 31, 2012),
and its small but emerging scale within the deepwater offshore drilling
industry. The rating also considers the capital intensive nature
of the deepwater drilling market, which requires significant upfront
capital several years before cash flow is generated from the investment.
With four rigs operating and four rigs at various stages of construction
there are significant start-up risks in any forward looking projection,
especially with two of the rigs un-contracted. The rating
is supported by PacDrilling's very high quality fleet of rigs,
its diversified geographic presence in three major offshore markets,
and strong operating track record and high dayrates. PacDrilling's
$3.4 billion backlog is comprised entirely of investment
grade operators, including Chevron Corporation (Aa1 stable),
Total SA (Aa1 negative), and Petrobras (A3 negative). We
also consider the strong fundamentals in the deepwater offshore drilling
market, where all of PacDrilling's current and future drillships
will operate. The positive outlook for PacDrilling reflects the
expectation that the rig fleet will grow from four to six in the next
twelve months as two of the drillships that are under construction are
delivered and begin to generate cash flow.
PacDrilling V is a wholly owned subsidiary of PacDrilling. Its
creditworthiness is closely linked to PacDrilling through cross-defaults
and cross guarantees. The upgrade of PacDrilling V's senior
secured debt reflects the greater value associated with the PacDrilling
guarantee once the project finance restrictions were lifted, as
well as the nearing completion of the construction of the Khamsin drillship,
the primary collateral for PacDrilling V's debt. The positive
outlook for PacDrilling V is primarily based on the linkage with its parent,
PacDrilling and its positive outlook.
The senior secured notes and the term loan B at PacDrilling are rated
B1, one notch higher than the B2 CFR. The notes and term
loan benefit from a first lien on the four operating drillships as well
as a security interest in the equity of its subsidiaries that own the
four rigs that are under construction. The pledge of the equity
interest in the subsidiaries is subordinated to the $1.5
billion of debt that is at the subsidiary level. The $500
million of senior secured notes at PacDrilling V is rated B2, one
notch lower than the debt at PacDrilling to reflect its first lien against
a drillship that is not yet generating cash flow as well as the unsecured
guarantee of PacDrilling.
PacDrilling's SGL-3 rating indicates adequate liquidity through
the end of 2014. Through this period, capital expenditures
are projected to total approximately $1.8 billion.
With nearly $450 million of cash on hand, an estimate of
$300 million to $350 million of cash flow from operations
through the end of 2014, and $1.2 billion of availability
under committed lines of credit, PacDrilling has sufficient liquidity
to meet its progress payments for the drillships under construction.
The most restrictive set of covenants is found in the $1 billion
senior secured credit facility that will be used to finance the construction
of PacDrilling's sixth and seventh drillships that are scheduled
for delivery in the fourth quarter of 2013 and the second quarter of 2014.
This credit facility requires PacDrilling to maintain leverage below 5.5x
beginning at the end of 2013, dropping to 5.0x in mid-2014.
We project that the company will comply with these covenants, however
we cannot rule out the need to seek covenant relief if there is a delay
in the delivery in any of the rigs under construction. Alternate
liquidity sources are limited as all of the drillships are mortgaged.
PacDrilling's rating could be upgraded upon the timely contracting
and mobilization of the three newbuild drillships under construction,
and if we continue to expect that debt to EBITDA will fall below 5.5x
by the end of 2014. PacDrilling's outlook could be stabilized
or the rating could be downgraded if there is a material delay in delivery
of the three drillships under construction. In addition,
extended downtime for any of the four operating drillships could lead
to a downgrade. These ratings triggers would also apply to the
rating of PacDrilling V's debt as the lack of diversification at
PacDrilling V translates into increased reliance on the unsecured guarantee
from the parent organization. In addition, protracted operational
issues with PacDrilling V's drillship could result in a downgrade
of PacDrilling V's rating.
The principal methodology used in rating PacDrilling was the Global Oilfield
Services Rating Methodology published in December 2009. Other methodologies
used include Loss Given Default for Speculative-Grade Non-Financial
Companies in the U.S., Canada and EMEA published in
June 2009. Please see the Credit Policy page on www.moodys.com
for a copy of these methodologies.
Pacific Drilling S.A., a Luxembourg based company,
is a provider of deepwater drilling services to the oil and gas industry.
Its fleet consists of four operating drillships, all constructed
since October 2010, along with four drillships in various stages
of construction. Pacific Drilling V Ltd. is a wholly owned
subsidiary of PacDrilling with one drillship under construction,
which is scheduled for delivery in the second quarter of 2013.
Pacific Drilling is majority owned and controlled by the Quantum Pacific
Group, an investment holdings group with investments in fertilizers
and specialty chemicals, energy, shipping and transportation.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt or pursuant to a program for which the ratings
are derived exclusively from existing ratings in accordance with Moody's
rating practices. For ratings issued on a support provider,
this announcement provides certain regulatory disclosures in relation
to the rating action on the support provider and in relation to each particular
rating action for securities that derive their credit ratings from the
support provider's credit rating. For provisional ratings,
this announcement provides certain regulatory disclosures in relation
to the provisional rating assigned, and in relation to a definitive
rating that may be assigned subsequent to the final issuance of the debt,
in each case where the transaction structure and terms have not changed
prior to the assignment of the definitive rating in a manner that would
have affected the rating. For further information please see the
ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
For any affected securities or rated entities receiving direct credit
support from the primary entity(ies) of this rating action, and
whose ratings may change as a result of this rating action, the
associated regulatory disclosures will be those of the guarantor entity.
Exceptions to this approach exist for the following disclosures,
if applicable to jurisdiction: Ancillary Services, Disclosure
to rated entity, Disclosure from rated entity.
Please see www.moodys.com for any updates on changes to
the lead rating analyst and to the Moody's legal entity that has issued
the rating.
Please see the ratings tab on the issuer/entity page on www.moodys.com
for additional regulatory disclosures for each credit rating.
Stuart Miller
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's assigns B2 CFR to Pacific Drilling and B1 to proposed sr. sec'd debt; PacDrilling V notes upgraded to B2
