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Rating Action:

Moody's affirms the Baa3 ratings and changes the outlook to negative of the senior secured notes of Brazilian rated drilling vessels

18 Dec 2014

New York, December 18, 2014 -- Moody's Investors Service (Moody's) affirmed the Baa3 ratings and changed the outlook to negative from stable of the senior secured notes of:

Lancer Finance Company (SPV) Limited

Senior secured global notes due December 2016;

Approximately US$ 80 million of debt affected

Schahin II Finance Company (SPV) Limited

Senior secured global notes due September 2022;

Approximately US$ 675 million of debt affected

Odebrecht Drilling Norbe VIII/IX Limited

Senior secured global notes due June 2021;

Approximately US$ 1.31 billion of debt affected

Odebrecht Offshore Drilling Finance Limited

Senior secured global notes due in October 2022

Senior secured global notes due in October 2022;

Approximately US$ 2.2 billion of debt affected

QGOG Atlantic / Alaskan Rigs Limited

Senior secured global notes due July 2018;

Approximately US$ 372 million of debt affected

RATINGS RATIONALE

The negative outlook reflects our evolving view that the continuously deteriorating credit ratings of the sole offtaker Petroleo Brasileiro S.A. ('Petrobras') (Baa2/NEG), including the recent corruption allegations could pose significant pressure on Petrobras' liquidity and ability to fulfill its contractual obligations; furthermore, a negative outcome of these investigations poses a risk to the issuers' ability to continue to provide services to Petrobras, pursuant to their respective charter and services agreements.

Our view also reflects the change in the economic fundamentals underlying the projects such as falling oil prices, which could dampen demand for drilling vessels on a worldwide basis, therefore impacting the ability to re-contract them in the extreme case that charter and services agreements are terminated prior to debt maturity. The decline of oil prices could also pressure asset values, an important security feature in these projects.

On the other hand, we note that the assigned ratings are supported by the fact that (i) the issuers have not been directly mentioned in the investigations by Brazilian authorities, (ii) the vessels are essential to the offshore oil exploration program of Petrobras in Brazil's offshore coast, (iii) transaction accounts waterfall structures provide an adequate liquidity cushion in case the assets need to be relocated domestically or overseas to service a new off-taker. We believe that the below-market charter day rates of these rated drilling vessels are credit positive should they need re-chartering. However, if oil prices continue to collapse as they have in recent months, operating revenues, cash flows and asset values could face downward pressure in the event re-chartering takes place at lower day rates.

Lancer Finance Company (SPV) Limited

The project is based on the charter agreement for the use of the S.C. Lancer drilling vessel between Petrobras S.A. and the Turasoria S.A., L.L.C.. Under the agreement, Petrobras pays the lessor a daily rate according to a schedule of whether the vessel is actively drilling, is engaged in another activity such as moving to another job site, waiting to get a drilling assignment, or is unable to operate due to bad weather. The issuer will service the debt on the notes according to a schedule that comprises set interest payments and target principal amortization until the expected repayment of the notes in June 2016. The legal final amortization date of the notes is December 2016.

In the period from January to October of this year, asset performance measured by the uptime rate has been above average at 100%, reflecting a significant increase compared to our base case scenario (93%).

Schahin II Finance Company (SPV) Limited

Schahin II Finance Company (SPV) Limited ("the Issuer"), is a special purpose company established in the Cayman Islands, the activities of which are limited to the issuance and repayment of the Notes. Dleif Drilling LLC., the owner of the vessel ("the Owner"), is a Delaware limited liability company, the activities of which are limited solely to owning and chartering the vessel. Schahin P&G will be the operator of Sertão, as well as of a sister drilling vessel called the Cerrado, for which net revenues at the bottom of its waterfall are pledged to this transaction to help support the payments of the debt of the Issuer. Schahin P&G is wholly owned by Schahin through Schahin Holding S.A. The Notes were issued in 2012, and are due in September 2022.

In the period from January to October 2014, Schahin II uptime performance has been steadily ramping-up on a monthly basis, with an average of 93.6% for the period.

Odebrecht Drilling Norbe VIII/IX Ltd

Odebrecht Drilling Norbe VIII/IX Limited is a wholly-owned subsidiary of Odebrecht Oil and Gas S.A. ("OOG" or the "Company", unrated), organized as a limited liability company under the laws of the Cayman Islands. The activities of Odebrecht Drilling Norbe VIII/IX Limited are limited to the issuance of the Notes and making the corresponding loan to each of the Project Companies, Odebrecht Drilling Norbe Eight Gmbh and Odebrecht Drilling Norbe Nine Gmbh, domiciled in Austria which own, respectively, the vessels Norbe VIII and Norbe IX. Each of the Project Companies has a 10-year Charter Agreement with Petrobras, which began at the start of operation of each drilling vessel under which Petrobras pays a contracted daily rate for the use of each vessel. Both the Charter and the Services Agreements signed with Petrobras are extendable, upon mutual agreement between OOG and Petrobras, for additional 10 years at the end of the original expiration.

Uptime levels for ODN VIII have shown volatility in 2013 and 2014 (up to the 3rd quarter), at 82.8% and 87% respectively; nevertheless, we expect uptime levels to continue ramping-up in 2015, with lower volatility, with the improvement of operational practices. ODN IX has shown high levels of uptime performance, at 97.6% and 99.8% for 2013 and 2014 (up to the 3rd quarter) periods, respectively, well above our base-case scenario.

Odebrecht Offshore Drilling Finance Limited

Odebrecht Offshore Drilling Finance Limited ("OODFL" or "Issuer") is an exempted company organized under the laws of the Cayman Islands, indirectly owned by Odebrecht Oil and Gas (not rated).

The Project consists of the securitization of future flows of the Charter and Services Agreements between Petrobras and ODN I GmbH and ODN Six GmbH, which solely own OODFL, associated with a state of the art, brand new 3-asset portfolio: two drillships ODN I and ODN II, and one semisubmersible rig, Norbe VI.

On February 14, 2014 OODFL completed a $580 million note offering, which added ODN Tay IV, a semisubmersible rig to the collateral package. ODN Tay IV is a fifth generation ultra-deepwater, purchased by OOG in 2011, at which time it was operating in Nigeria for Total SA.

ODN I and ODN II have presented average uptime performances of 92.7% and 98.2%, respectively, in the period from January to September 2014. Norbe VI uptime performance has been above target levels, with an average of 103.1% in the same period.

Although ODN I, ODN II and Norbe VI have presented satisfactory uptime levels, ODN Tay IV uptime performance has been below expected adequate levels for the same period. According to the Issuer, the downtime was mainly caused by BOP hydraulic controls issues which started in May 2014, and led to a non-scheduled maintenance docking, which started on July 15, 2014. Docking works included several inspections and equipment repairs in the dynamic positioning system (DP), drilling system (including the BOP), mooring, safety/naval and telecom. The rig restarted operations on September 12, 2014.

QGOG Atlantic / Alaskan Rigs Limited

QGOG Atlantic / Alaskan Rigs Limited, ("QGOG A/A" or the "Issuer") is a special purpose vehicle organized under the laws of the British Virgin Islands. The Issuer is jointly owned in equal parts by Alaskan Star Ltd (BVI) and Star International Drilling Ltd (Cayman Islands), both of which are wholly owned by Hopelake Services Limited (BVI).

The Alaskan Star and the Atlantic Star are mid-water drilling moored rigs. Both rigs are currently operating in Brazil under charter with Petrobras, with the charter agreement for the Alaskan Star ending November 2016, while the charter agreement for the Atlantic Star will end in July 2018. The US$700 million senior secured notes were issued by QGOG A/A in July 2011, and are due in July 2018.

Uptime performance of QGOG Atlantic / Alaskan has been 99.6% in the period from January to September 2014, above our base case scenario of 93%.

What Could Change the Rating - Up

A rating upgrade or the stabilization of the rating outlook in the near term is unlikely given the uncertainties surrounding Petrobras, the sole offtaker. The projects' credit profiles are exposed to the outcome of investigations by the Brazilian authorities, as well as to the potential deterioration of the off-taker's credit rating despite the issuers' generally satisfactory performance.

What Could Change the Rating - Down

The project ratings could face downward pressure reflecting: (i) a further deterioration of Petrobras' rating; (ii) a negative outcome of the bribery investigations by the Brazilian authorities which could negatively impact the issuers and/or its sponsors; (iii) lower than historic and projected up-time performance of the drilling vessels, which could cause debt service coverage ratios (DSCR) to fall below expectations.

The principal methodology used in these ratings was Generic Project Finance Methodology published in December 2010. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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.

Alexandre G De Almeida Leite
VP - Senior Credit Officer
Infrastructure Finance Group
Moody's America Latina Ltda.
Avenida Nacoes Unidas, 12.551
16th Floor, Room 1601
Sao Paulo, SP 04578-903
Brazil
JOURNALISTS: 800-891-2518
SUBSCRIBERS: 55-11-3043-7300

Chee Mee Hu
MD - Project Finance
Infrastructure 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 affirms the Baa3 ratings and changes the outlook to negative of the senior secured notes of Brazilian rated drilling vessels
No Related Data.
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