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Rating Action:

C.A.T.oil AGMoody's confirms CAToil's Ba3 rating; stable outlook

Global Credit Research - 01 Jun 2015

London, 01 June 2015 -- Moody's Investors Service, (Moody's) has today confirmed the Ba3 corporate family rating (CFR) of C.A.T.oil AG (CAToil), an independent oilfield services (OFS) company with a strong position in fracturing, sidetracking and high class drilling services. The outlook on the rating is stable. This concludes the review for downgrade initiated by Moody's on 23 December 2014.

RATINGS RATIONALE

Today's confirmation of CAToil's Ba3 rating reflects Moody's expectation that the company's robust business model with a well-invested modern asset base, track record of strong financial performance and sound liquidity profile will provide it with sufficient flexibility to weather risks related to (1) the challenging macroeconomic environment in Russia; (2) adverse market conditions, with the drop in oil prices leading to more conservative budget planning process of oil companies; and (3) exposure to significant rouble devaluation due to currency mismatch between CAToil's rouble revenues and debt, 90% of which is in euro.

Moreover, the rating action takes into account Moody's understanding that CAToil will continue to adhere to its historically conservative financial policy and prudent approach to development strategy following the recent change of the ultimate controlling shareholder, Mr. Maurice Dijols, who currently indirectly holds an 87% stake in the company. In this regard, CAToil has already scaled down its 2015 investment programme to maintenance capex only, as a response to challenging financial and market conditions. CAToil plans to make a final decision regarding the investment programme in 2016-17 by the end of summer 2015; the actual size of future investments will ultimately depend on operating requirements as well as market and rouble exchange rate developments. The company's new management has confirmed that CAToil will come back to its traditional dividend policy after 2015 and internal leverage targets will remain unchanged, with the maximum level of debt/EBITDA in the peak of investment cycle not to exceed 2.0x.

Overall, Moody's expects that CAToil's operating performance and financial metrics will remain fairly resilient to the ongoing market downturn and significant rouble devaluation, with its EBITDA margin remaining above 20% and debt/EBITDA materially below 2.0x on a sustainable basis (all metrics are Moody's-adjusted). Moody's also expects that the company will not incur any additional financial liabilities in connection with the recent change in the shareholder structure.

CAToil's Ba3 rating is further supported by (1) its strong market position, due to well-established customer relationships, regional expertise and a top-quality equipment fleet; (2) its fairly strong 2015 order book, comprised of a material amount of long-term contracts, which provides for revenue visibility; (3) its comfortable debt maturity profile with no material debt due until December 2018 and a flexible capex programme; and (4) the overall strong longer-term fundamentals of the OFS sector in Russia.

At the same time, the rating remains constrained by (1) the lack of sufficient track record of the company adhering to its historically conservative approach towards financial policy, shareholder distributions, and development strategy following the change of the controlling shareholder; (2) CAToil's small size compared with that of its peers and concentrated customer base; as well as (3) exposure to risk factors related to the CIS region. The rating also incorporates the inherent volatility of the OFS industry and its dependence on potential changes in oil & gas market conditions, including the oil price environment and adverse regulatory initiatives.

RATIONALE FOR STABLE OUTLOOK

The stable rating outlook reflects Moody's expectation that CAToil will continue to (1) demonstrate healthy operating and financial results during market downturn; and (2) maintain a strong liquidity profile and conservative financial policy, with adjusted debt/EBITDA below 2.0x.

WHAT COULD CHANGE THE RATINGS UP/DOWN

A positive pressure may develop on the rating if CAToil were to (1) build a solid track record of adhering to conservative financial policy under the new shareholder; (2) continue to successfully grow its business, focusing on smooth organic expansion with a balanced capital expenditure (capex) programme predominantly funded through its growing operating cash flow; (3) maintain strong operating and financial results within Moody's guidelines for the rating; and (4) further enhance its liquidity profile to support the potential expansion.

The rating could come under downward pressure if (1) CAToil's leverage materially increases either as a result of more aggressive debt-financed capex and shareholder distributions or due to lower profitability, such that adjusted debt/EBITDA exceeds 2.0x on sustained basis; (2) the company's operating performance deteriorates as a result of the loss of a major customer; or (3) exploration and production activity in the region declines with a negative impact on business fundamentals, by exerting significant pressure on the company's market position or capacity to generate sufficient cash flow to enable it to maintain a solid liquidity profile.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating was Global Oilfield Services Industry Rating Methodology published in December 2014. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

Based in Austria, C.A.T. Oil AG is an independent OFS company that services the major oil & gas companies in Russia and to a lesser extent in Kazakhstan. The company is a niche player in the overall OFS market, with a strong position in fracturing, sidetracking and high-class drilling services as a result of its high-quality modern fleet. In 2014, CAToil generated sales of EUR411.5 million and adjusted EBITDA of around EUR121.4 million.

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.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Ekaterina Lipatova
Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Victoria Maisuradze
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
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United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

C.A.T.oil AGMoody's confirms CAToil's Ba3 rating; stable outlook
No Related Data.
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