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Rating Action:

Moody's assigns B1 corporate family rating to Abbot; stable outlook

15 Apr 2008
Moody's assigns B1 corporate family rating to Abbot; stable outlook

London, 15 April 2008 -- Moody's Investors Service has today assigned a B1 corporate family rating to Turbo Beta Ltd (consolidated with its subsidiaries, "Abbot"), the ultimate holding company for drilling contractor Abbot Group Ltd. At the same time, Moody's assigned a Ba3 rating to the USD1.55 billion of Senior Facilities raised by Turbo Alpha Ltd, the immediate holding company of Abbot Group plc. The outlook for all ratings is stable. This is the first time that Moody's has assigned ratings to Abbot.

The B1 rating assigned to the parent company of Abbot Group Ltd reflects the group's exposure to the highly competitive and cyclical drilling industry which remains prone to the risk of over-capacity potentially developing (both onshore and offshore) but which has been demonstrating robust growth in the recent past on the back of increased investments by international oil companies (IOCs) and national oil companies (NOCs). The rating also factors in Abbot's relatively small scale -- it owns only 60 rigs, although it operates 110 -- and high operating leverage, as is customary within this industry. Moody's adds that the B1 rating remains constrained by Abbot's highly leveraged capital structure following its acquisition by First Reserve, which resulted in a pro-forma net adjusted debt to adjusted EBITDA ratio of 6.0x in 2007.

At the same time, the B1 corporate family rating is supported by the group's strong geographic diversification and focus on international markets, which are characterised by generally higher barriers to entry -- and hence less volatile drilling activity -- than North America. The rating also incorporates Abbot's solid competitive positions in its various markets combined with the good quality of both its land and jack-up rigs, further supported by its solid reputation as operator. Moody's notes that Abbot benefits from the favourable characteristics of its medium-term day rate drilling contracts, thereby reducing asset redeployment risk and providing visibility over future cash flows, which should in turn support deleveraging in the near term.

The proceeds of the USD1.55 billion Senior Facilities were used to finance part of the acquisition of Abbot Group Ltd by Turbo Alpha Ltd, a holding company established for the purpose of this transaction by First Reserve Fund XI, a private equity fund managed by First Reserve Corporation. The transaction valued Abbot Group plc at close to USD3.3 billion, with the rest of the purchase price funded through a mix of equity, shareholder loan and Mezzanine Facilities that are expected to be refinanced with Senior Notes.

The Ba3 rating assigned to the Senior Facilities stems from the combination of the overall probability of default of Abbot, to which Moody's has assigned a Probability of Default Rating (PDR) of B1, and a Loss Given Default assessment of LGD 3 (32%). It reflects their contractual senior ranking to the Mezzanine Facilities / Senior Notes (and any other potential subordinated debt) under the terms of the Intercreditor Agreement. The Senior Facilities are guaranteed by Turbo Alpha Ltd, Turbo Alpha II Ltd (an intermediate holding company between Turbo Alpha Ltd and Turbo Beta Ltd) and a number of subsidiaries of Abbot Group plc incorporated in the UK, Germany, Singapore, Norway, the Netherlands and Cyprus (subject to any legal limitations that may apply). Guarantors are also required under the Senior Facilities Agreement to provide security over substantially all their assets and shares (subject to any legal limitations that may apply). There are a number of financial covenants that apply under the terms of the Senior Facilities, including EBITDA to Net Interest, Net Debt to EBITDA, Cashflow to Debt Service, as well as limitations on the annual amount of capex spend.

The stable outlook reflects, on the one hand, Abbot's highly leveraged capital structure post-acquisition by First Reserve and, on the other hand, Moody's expectation that its substantial future order book (over USD2.5 billion with a further USD1.5 billion in optional extensions) will allow it to deleverage in the near term to below 4.5x net adjusted debt to EBITDA.

Headquartered in Aberdeen, UK, Abbot Group Ltd is a provider of onshore and offshore drilling services to both IOCs and NOCs in the Eastern Hemisphere. Its ultimate owner is First Reserve Corporation, a US private equity firm specialised in the energy industry. In 2007, Abbot reported revenues of USD1.5 billion.

London
Stuart Lawton
Managing Director
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Paul Marty
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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