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Rating Action:

Moody's affirms PGS' Ba2 ratings; outlook stable

21 Feb 2014

London, 21 February 2014 -- Moody's Investors Service, ("Moody's") has today affirmed Petroleum Geo-Services ASA's (PGS) Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR) and its Ba2 USD450 million senior unsecured notes due 2018. Moody's assigned Ba2 instrument ratings of PGS's envisaged USD400 million senior secured term loan credit facility due 2021 (to be effected by way of an amendment and extension to its USD471 million senior secured term loan credit facility due 2015), and PGS' USD500 million revolving credit facility (RCF) due 2018 (also effected by way of an amendment, extension and upsizing of its USD350 million RCF due 2015). The rating outlook remains stable.

RATINGS RATIONALE

The extended senior secured bank credit facility will continue to be guaranteed on a senior basis by all the operating subsidiaries that guarantee the senior unsecured notes accounting in aggregate for almost all of the group's EBITDA.

PGS' CFR and PDR are affirmed at Ba2 and Ba2-PD respectively. This reflects its size and scale, its leading market position, its geographic diversification, and its high quality fleet. PGS' high-end specification fleet provides greater earnings stability since it positions PGS within the strongest demand segment of the seismic acquisition business sector. However, the rating also considers that seismic acquisition is a highly cyclical business directly related to capital spending by oil and gas producers, which is highly volatile and dependent on oil and natural gas prices. Also, as the ability to provide newer technologies becomes increasingly important to customers, despite its strong intellectual property position, PGS is under continuous competitive pressure to enhance its product slate.

The extended senior secured bank credit facility will have no material impact on PGS's leverage (calculated as Moody's adjusted debt/EBITDA less MC amortization). In the event that the extended senior secured bank credit facility is not upsized from USD400 million, the company will repay the USD71 million of the senior secured bank facility which is not extended from its existing cash balance.

PGS's liquidity profile is good for its near-term requirements. As of December 31, 2013, its cash balance was approximately USD186 million, pro-forma for the extended facility, and its senior secured RCF, which remains fully available, was increased in September 2013 to USD500 million and its maturity extended to 2018 from 2015. PGS is expected to generate negative free cash flow over the next twelve months, due to high capital expenditures (including new builds), and the company intends to fund all capital expenditures for the next twelve months from cash flow and the drawdown of its second USD125 million export credit financing loan. As of December 31 2013, PGS was in compliance with all maintenance covenants and PGS is expected to remain in compliance with all covenants for the next twelve months.

RATING OUTLOOK

The stable outlook reflects Moody's expectation that (i) PGS will continue to maintain solid operational performance and liquidity; and (ii) management will continue with prudent financial policies that attempt to mitigate the cyclical nature of the business.

WHAT COULD CHANGE THE RATING UP

The CFR could face positive pressure if PGS reduces adjusted debt/ (EBITDA - MC amortization) to below 2.5x on a sustained basis and there continues to be an improvement in contract volumes and prices. Any potential upgrade would also include an assessment of market conditions.

WHAT COULD CHANGE THE RATING DOWN

PGS' rating could come under pressure if earnings decline substantially resulting in a material increase in its financial leverage, or any other significant leveraging event such as an acquisition or shareholder friendly action.

PRINCIPAL METHODOLOGY

The principal methodology used in this rating 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.

Headquartered in Norway, Petroleum Geo-Services ASA is a technologically leading oilfield services company specializing in reservoir and geophysical services, including seismic data acquisition, processing and interpretation, and field evaluation. PGS maintains an extensive multi-client seismic data library. For the year ended 31 December, 2013, PGS reported revenues of $1.50 billion.

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.

Peter Firth
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Chetan Modi
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's affirms PGS' Ba2 ratings; outlook stable
No Related Data.
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