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Rating Action:

Moody's assigns B3 rating to CGG, stable outlook

13 Mar 2018

London, 13 March 2018 -- Moody's Investors Service, ("Moody's") has today assigned B3 Corporate Family Rating (CFR) and B3-PD Probability of Default Rating (PDR) to CGG SA (''CGG''). Concurrently, Moody's has also assigned B2 rating to the $663.6 million first lien senior secured bond due 2023 issued by CGG Holding (U.S.) Inc, a subsidiary of CGG SA and Caa1 rating to the $451.5 second lien senior secured notes due 2024, issued by CGG SA. The outlook on all ratings is stable.

RATINGS RATIONALE

The assignment of B3 rating to CGG SA reflects the successful completion of its debt restructuring on 21st February 2018, thereby reducing gross debt from $2.8 billion to $1.2 billion post restructuring, resulting in adjusted gross debt/EBITDA (excl. multi-client capex) to fall to around 5.5x in 2018 from 10.7x as of last twelve months September 2017. The B3 rating reflects the company's stronger balance sheet and lower debt burden, as the company is now better positioned until there is a stronger recovery in the seismic market. The rating also reflects marginal recovery in the seismic market in 2018, mainly in the equipment segment for CGG.

The company filed for insolvency proceedings in France and US in June 2017 and successfully implemented its debt restructuring in February 2018. As part of this process, senior unsecured notes and convertible debt totaling $2.0 billion were fully equitized, $663.6 million of first lien senior secured notes were issued in exchange of $814 million of secured debt with an upfront payment of $150 million and the maturity of this debt was extended by 5 years to 2023. In addition, $375 million of new second lien senior secured notes were issued and $86 million of accrued interest was converted into second lien interest bond. An equity raise of $125 million from rights offering was also completed. The B3 rating reflects the company's improved liquidity profile as a result of the debt restructuring as there are no debt maturities until 2023, which is an important driver for the rating given the weak industry conditions.

Seismic market conditions are expected to recover marginally in 2018. Exploration spending and drilling have been significantly reduced in the past years due to low oil prices. Investment is expected to pick up over time to ensure reserve life is maintained for integrated oil companies and independent exploration & production companies, which should result in better demand conditions for seismic companies. Schlumberger's exit from the seismic acquisition market should reduce supply from the market. This supported by increasing oil prices, should help in balancing the fundamentals for the seismic market in 2018, however, the timing of a full market recovery remains uncertain. Moody's expects limited recovery for the seismic market in 2018, however, market conditions should begin to improve during the year.

Moody's expects a marginal recovery in 2018, resulting in adjusted EBITDA (excl. multi-client capex) of around $350-400 million, mainly as a result of some recovery anticipated in the Equipment segment. Free Cash Flow (FCF) after paid cost of debt and Transformation Plan is expected to remain negative at around $-150 million. Following the successful completion of the debt restructuring in February 2018, adjusted gross debt/EBITDA (excl. multi-client capex) is expected to decline to around 5.5x in 2018 from around 11.0x in 2017, with further deleveraging in 2019, depending on market conditions. The company is expected to have a pro-forma cash balance of around $575 million post completion of the transaction (after payment of financial restructuring fees). With no debt maturities in the near term, CGG should demonstrate an adequate liquidity profile in the coming 12-18 months.

STRUCTURAL CONSIDERATIONS

CGG's new debt structure post-restructuring consists of $663.6 million first lien senior secured bond due 2023 issued by CGG Holding (U.S.) Inc, a subsidiary of CGG SA and $451.5million second lien senior secured notes due 2024, issued by CGG SA. The first lien senior secured bond is rated B2, one notch above the CFR. This bond is (i) guaranteed on a senior secured basis by CGG SA and a number of operating companies (ii) secured on all US assets including Multi-Client Libraries and by a first ranking pledge on the shares of the operating companies.

The second lien senior secured notes are rated Caa1, one notch below the CFR. Whilst the notes benefit from the same guarantees and security package as the first lien debt, the one-notch discount to the CFR reflects their effective subordination to the aforementioned first lien obligations.

RATING OUTLOOK

The stable outlook reflects the successful completion of CGG's debt restructuring process resulting in lower debt burden with adjusted gross debt/EBITDA (excl. multi-client capex) expected at around 5.5x in 2018. The outlook also reflects expectations that the company should be able to maintain its adequate liquidity profile at all times.

WHAT COULD TAKE THE RATING UP

An upgrade of the rating is highly dependent on the recovery of the market conditions, leading to an improvement in the financial profile of the company such that adjusted EBIT margin turns positive trending above 5% and adjusted debt/EBITDA (excl. multi-client capex) is below 4.5x on a consistent basis. An upgrade would also require a good liquidity position and return to positive FCF generation on a sustainable basis.

WHAT COULD TAKE THE RATING DOWN

The B3 rating could come under pressure if the market remains weak resulting in negative EBIT margin and adjusted debt/EBITDA (excl. multi-client capex) is above 6.0x on a consistent basis. The rating could also be downgraded if there is a deterioration in the liquidity profile of the company.

RATING METHODOLOGY

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

COMPANY PROFILE

CGG ranks among the top three players in the seismic industry. In 2017, CGG generated $1.3 billion in revenues. The company is organized around three divisions: Contractual Data Acquisition, Geology, Geophysics and Reservoir or GGR, and Equipment. The Contractual Data Acquisition division comprises (i) offshore seismic acquisition and (ii) land seismic and multi-physics. The GGR division offers a multi-client library, a processing and imaging business, as well as geology and basins consulting and reservoir characterisation through the Robertson, Hampson-Russell and Jason brands. The Equipment division consists of the manufacture and sale of equipment used for seismic data acquisition, such as recording and transmission equipment (via its fully owned subsidiary Sercel). It is listed on both Euronext Paris and the New York Stock Exchange and its market capitalization was as $1.1 billion as of 12th March 2018.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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.

Shruti Kulkarni
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anke N Richter, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 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
Client Service: 44 20 7772 5454

No Related Data.
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