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Global Credit Research - 31 Jan 2011
Offering of $1.1 billion of senior unsecured notes
New York, January 31, 2011 -- Moody's Investors Service assigned a Baa1 rating to Noble Holding
International Limited's (NHIL) offering of $1.1 billion
of senior notes. The senior notes are unconditionally guaranteed
by Noble Corporation (Cayman Islands) (Noble) and the proceeds are expected
to be used to repay the company's share of joint venture debts and
to fund 2011 growth capital expenditures. The outlook remains stable.
"Noble is using the notes proceeds to fund the construction of new
ultra-deepwater and jackup rigs that will add more premium assets
to its fleet," commented Pete Speer, Moody's Vice
President. "However, we have concerns regarding the
pace and funding of any additional newbuild commitments and the potential
for further increases in Noble's leverage metrics."
Noble is increasing the quality of its fleet through the recent commitments
to build two new ultra-deepwater drillships and two high specification
jackup rigs. This follows the July 2010 acquisition of FDR Holdings
Limited (Frontier) that also added two newbuild drillships and other floating
rigs to the fleet. The recent sector downcycle has enabled the
company to make these growth investments at significantly lower costs
than the last newbuild cycle preceding the global financial crisis.
These transactions represent the acceleration of Noble's multi-year
investment in floating rigs, thereby reducing the relatively high
proportion of jackup rigs in its fleet.
Only one of the six drillships under construction and the two new jackup
rigs are being built without long-term customer contracts,
which is a manageable amount of speculative newbuild risk for the company.
Despite the negative effects of the deepwater drilling moratorium in the
U.S. Gulf of Mexico (GOM) and current regulatory uncertainty
in that important market, secular growth in deepwater and ultra-deepwater
drilling demand still looks favorable over the medium and long-term.
Premium jackup rigs have also been able to maintain high utilization and
strong dayrates. Noble's contracted revenue backlog totaled
approximately $12.7 billion at December 31, 2010,
with approximately $2.3 billion and $2.1 billion
of backlog for 2011 and 2012, respectively.
However, with this senior notes offering and the debt funded acquisition
of Frontier, Noble has significantly increased its adjusted debt
levels and leverage since the beginning of 2010, albeit from very
low levels. We estimate pro forma debt/EBITDA will be around 2.3x
at December 31, 2010. In addition to paying off the company's
$346 million share of secured debt at its Bully I and Bully II
rig joint ventures assumed in the Frontier acquisition, the senior
notes proceeds will help fund around $1 billion of anticipated
negative free cash flow in 2011. The recent customer declaration
of force majeure on the Noble Jim Day deepwater rig, reduced utilization
of jackup rigs by Petroleos Mexicanos (PEMEX), and the ongoing uncertainty
regarding the timing for resumption of activity in the U.S.
GOM could potentially result in lower earnings for Noble in 2011 compared
to 2010. This lower operating cash flow combined with increased
2011 capital expenditures related to the newbuilds is driving the large
negative free cash flow expectation.
Noble has options with shipyards for the construction of two additional
drillships and four additional premium jackup rigs. If the company's
revenues fall short of its expectations and/or more new rigs are ordered,
then additional debt funding could be required further elevating the company's
leverage metrics. It is important for the Baa1 rating and stable
outlook that the company meets its cash flow forecasts and manages the
pace of new rig commitments and the level of speculative risk being assumed
in these investments to avoid significant increases in its leverage metrics.
If Debt/EBITDA were to exceed 3x the outlook could be changed to negative
or the ratings downgraded. Given the higher leverage metrics and
weaker earnings expected this year, a positive rating action in
2011 is unlikely.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The principal methodology used in this rating was Global Oilfield Services
Rating Methodology rating methodology published in December 2009.
Noble Corporation (Cayman Islands) is a wholly owned subsidiary of Noble
Corporation, a publicly traded offshore drilling contractor based
in Zug, Switzerland that operates in major offshore markets around
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's assigns Baa1 rating to new Noble senior notes
250 Greenwich Street
New York, NY 10007
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