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Rating Action:

Moody's assigns Ba2 CFR to Boart Longyear; outlook stable

11 Mar 2011

Approximately $250 million senior unsecured notes rated

New York, March 11, 2011 -- Moody's Investors Service assigned Ba2 corporate family and probability of default ratings to Boart Longyear (Boart) Limited. At the same time, Moody's assigned a Ba2 rating to the company's $250 million of senior unsecured notes and an SGL-2 speculative grade liquidity rating. The rating outlook is stable. This is the first time Moody's has rated Boart.

RATINGS RATIONALE

The Ba2 corporate family rating reflects Boart's position as a leading global supplier of drilling services and drilling products, principally to the mineral mining industry but also to the environmental and infrastructure industries. While the company provides drilling services for a number of metals, gold remains the largest exposure, accounting for approximately 40% of drilling services revenue, with copper, nickel, and iron ore also being important. In addition, while drilling services accounts for the majority of revenue, the company's products segment, which manufactures and provides drilling consumables and drilling rigs for a number of other companies and contributed approximately 27% of revenue in 2010, provides a degree of diversification, although end markets served are comparable.

The rating also acknowledges the company's improving financial metrics and relatively low leverage as measured by the debt/EBITDA ratio of approximately 1.1x at year-end December 31, 2010. This follows a significant deleveraging of the company in 2009 when the company raised just under $700 million in equity and repaid approximately $647 million of debt. We expect these improving trends to continue through 2011 and 2012 given the level of exploration and development activity in the mining sector, as evidenced by Boart's strengthening rig utilization trends and order inflow.

However, the rating also considers the company's sensitivity to mining and metals fundamentals, the cyclicality of the major industry it serves, and its relatively small size. For example, Boart's performance in 2009 reflected the impact of a significant pull back in exploration and drilling activity in the mining industry with revenues falling about 47% and EBITDA dropping 73% to about $96 million before Moody's standard adjustments. Reflecting the benefits of a corporate restructuring undertaken the last several years to reduce costs and increase efficiency, as well as the increase in drilling activity in 2010, Boart's performance rebounded significantly in 2010. Given our expectations for increasing investment activity in the mining industry, we anticipate that Boart's performance will continue to strengthen over the next two years.

The stable outlook incorporates our view that fundamentals for Boart's business will continue strong in the near- to mid-term as drilling activity in the mining and other industries served increases following the curtailments taken in 2009 and given the need to continue to replace depleting resources and production. The outlook also anticipates that the company will continue to be more disciplined in the management of its capital structure with more manageable debt levels than in the past. However, we do expect working capital requirements to grow given the growing revenue base.

The SGL-2 speculative grade liquidity rating reflects our expectation that Boart should be able to cover the majority of expenditure requirements over the next twelve months from internal funds with only minimal need to access the revolver. The company currently has an $85 million unsecured revolver maturing February 2012 and a $200 million unsecured revolver expiring April 2012. Both facilities contain a debt/EBITDA covenant and an EBITDA/interest covenant as well as covenants stipulating that at least 70% of consolidated EBITDA be generated by the borrowers and guarantors. Covenants are tested twice a year and Boart remains comfortably in compliance. We expect that the company will renegotiate its revolving credit facilities in advance of their expiration dates thus ensuring liquidity over the medium term. All debt is unsecured with the exception of some minimal lease facilities.

Cyclicality in the company's business, industry concentration, and size are limiting factors to an upgrade. However, should the company be able to sustain debt/EBITDA below 2.5x, EBITDA minus capex/interest of at least 4x and be free cash flow generative, an outlook or rating change could be considered.

Downward pressure could result should the company significantly relever such that debt/EBITDA exceeded 3.5x, or EBITDA less capex/interest fall below 3x. Downward pressure would also result from an erosion in the company's core business should there be a shift in the competitive environment in which the company operates.

The notes are rated at the same level as the corporate family rating as all debt in the capital structure is unsecured.

Assignments:

..Issuer: Boart Longyear Pty Limited

.... Probability of Default Rating, Assigned Ba2

.... Speculative Grade Liquidity Rating, Assigned SGL-2

.... Corporate Family Rating, Assigned Ba2

....Senior Unsecured Regular Bond/Debenture, Assigned a Ba2; LGD4 - 56%

The principal methodology used in this rating was the Global Business & Consumer Service Industry Rating Methodology rating methodology published in October 2010.

Headquartered in South Jordan, Utah, Boart Longyear is incorporated in Australia and listed on the Australian Securities Exchange Limited. The company provides drilling services, and drilling products and equipment principally for the mining and metals industries. Revenues for the year ended December 31, 2010 were $1.5 billion.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Carol Cowan
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Glenn B. Eckert
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns Ba2 CFR to Boart Longyear; outlook stable
No Related Data.
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