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Rating Action:

Moody's assigns (P)B3 rating to RDS Ultra-Deepwater's senior secured notes

 The document has been translated in other languages

15 Feb 2010

Approximately USD260 million in rated debt instruments affected

Mexico City, February 15, 2010 -- Moody's Investors Service assigned a provisional (P)B3 rating to RDS Ultra-Deepwater, Ltd.'s (RDS UDW) proposed USD260 million senior secured second lien notes due 2017. At the same time, Moody's assigned a provisional (P)B2 Corporate Family Rating (CFR) to the issuer's parent, Rubicon Drilling Services-Alguer de Equipamentos Tecnológicos, Unipessoal, LDA (Zona Franca da Madeira) (RDS), an entity registered under Portuguese law. Moody's has assigned the ratings on a provisional basis pending the successful issuance of the proposed notes and the review of the final project documentation. This is the first time that Moody's has rated RDS. The rating outlook is stable.

RDS UDW is a special purpose finance subsidiary of RDS that conducts no business operations and will lend the net issuance proceeds to RDS on terms that mirror those of the proposed notes. RDS will use the issuance proceeds to partly finance the purchase of a new sixth generation ultra-deepwater semi-submersible drilling rig, PetroRig III, which it plans to lease to Petroleos Mexicanos (PEMEX, Baa1, stable) for use in the Gulf of Mexico under a five-year charter contract. The rig is currently in final stages of construction in the Jurong shipyard in Singapore, with delivery scheduled for around March 16, 2010. Shortly after delivery, RDS plans to transport the rig to Mexican waters with delivery to PEMEX for acceptance on July 1, 2010, the expected start date of the charter contract.

The (P)B2 Corporate Family Rating reflects RDS's material financial leverage, lack of direct operating history, dependence on a single asset, exposure to price risk during three out of five years under the PEMEX charter contract, and the refinancing and re-contracting risk as the contract's life falls short of the notes' seven-year tenor. The ratings also incorporate Grupo R's so far limited experience in ultra-deepwater drilling and PEMEX's unproven strategy in this area.

These credit challenges are partly balanced by the expectation of solid longer term demand for ultra-deepwater rigs (which should support currently healthy dayrate trends), the rig's state-of-the-art design, and the short but generally favorable performance history of several rigs of similar build that are owned by other operators. The rating also reflects certain structural provisions which, while generally weaker than those of other project financings, somewhat enhance the visibility for RDS' financial profile compared to corporate peers. RDS and its various related entities are limited purpose vehicles created exclusively for the purchase and operation of PetroRig III.

RDS will severally and unconditionally guarantee the notes on a senior secured second lien basis. RDS will finance the balance of the purchase price and transaction-related costs with a USD225 million senior secured first lien term loan (not rated) with BBVA Bancomer and a USD170 million equity contribution from the project's sponsors, José Ramiro Garza Cantú and José Ramiro Garza Vargas (the Garza family). The Garza family owns Grupo R, a conglomerate of privately-held Mexican oilfield services companies with substantial history as a supplier to PEMEX, including the provision of drilling services since the late 1980s.

RDS expects PEMEX to assign the charter contract over the coming weeks to Grupo R Exploración Marina, S.A. de C.V. (GREM), a newly formed entity that is part of Grupo R and also owned by the Garza Family. GREM will assign the charter contract payments to a trustee who will then pay GREM's operating expenses and will direct the remaining funds to a waterfall to service RDS's debt obligations, among other things.

Noteholders have no recourse to Grupo R except for obligations related to certain defined corporate services under a sponsor agreement with IPC, Grupo R's main drilling company. The notes issuance is conditional on the concurrent closing of the term loan and the Garza equity contribution. It also requires that no later than April 16, 2010 Jurong will deliver the rig to RDS and GREM will enter the PEMEX charter contract.

The (P)B3 rating on the proposed second lien notes is one notch below the (P)B2 CFR to reflect the notes' reduced recovery prospects in the case of default because of the existence of material senior first lien bank debt. The gap between the notes' rating and the CFR is limited to one notch given the expectation that senior bank debt will be reduced over the coming year, gradually improving the notes' recovery prospects. The notes' rating also reflects relatively solid coverage of debt by the rig's estimated commercial value. Using the lower end of reviewed desk appraisals, USD485 million of total debt at inception would be covered around 1.1 times.

Under the PEMEX contract, RDS will receive a fixed dayrate of USD495 thousand for the first two years and variable dayrates in years three to five, with the annual dayrate resetting once a year to an average of the worldwide high limits for dayrates for ultra-deepwater rigs reported by ODS-Petrodata in its Offshore Rig Locator publication. PEMEX has the option of extending the charter contract after year five by around one year without budget approval.

RDS will initially have material financial leverage, with Debt/Capitalization of 74%, although its base case cash flow scenario implies full repayment of the first lien term loan by early 2013 and thus improving credit metrics over the next several years. Under the RDS base case, Debt/EBITDA, Debt/Capitalization and EBIT/Interest would average around 2.5 times, 49% and 2.1 times, respectively, from 2011 to 2014. Using a more conservative dayrate forecast of USD375 thousand for years three to five under the contract (Moody's case), these average metrics would look weaker although still acceptable at 3.2 times, 52% and 1.3 times.

Moody's issues provisional ratings in advance of the final sale of securities and these ratings reflect Moody's preliminary credit opinion regarding the transaction only. Upon a conclusive review of the final documentation, Moody's will endeavour to assign a definitive rating to the notes. A definitive rating may differ from a provisional rating.

The principal methodology used in rating RDS was the Global Oilfield Services Industry methodology, published in December 2009, and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Rubicon Drilling Services-Alguer Equipamentos Tecnologicos, Unipersonal, LDA (Zona Franca Madeira) (RDS) and its various related entities are limited purpose vehicles created exclusively for the purchase and operation of PetroRig III, a new sixth generation ultra-deepwater semi-submersible drilling rig. RDS plans to charter the rig to Petroleos Mexicanos (PEMEX) under a five-year contract commencing on July 1, 2010.

Mexico City
Sebastian Hofmeister, CFA
Vice President - Senior Analyst
Corporate Finance Group
Moody's de Mexico S.A. de C.V
Telephone:+52-55-1253-5700

New York
Steven Wood
Managing Director
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns (P)B3 rating to RDS Ultra-Deepwater's senior secured notes
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