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Rating Action:

Moody's assigns (P)Ba1 rating to CGG's new term loan; negative outlook

24 Jun 2015

London, 24 June 2015 -- Moody's Investors Service has today assigned a (P)Ba1 rating to CGG SA's envisaged issuance of USD350 million of senior secured term loan due 2021 at CGG Holding (U.S.) Inc, a direct subsidiary of CGG SA.

CGG's corporate family rating (CFR) at B1, probability of default rating (PDR) at B1-PD, Ba1 ratings on the senior secured bank facilities are unchanged and B2 ratings on the senior notes are unchanged. The outlook on all ratings remain negative.

Moody's issues provisional ratings in advance of the final sale of securities. Upon closing of the transaction and a conclusive review of the final documentation, Moody's will endeavour to assign definitive ratings. A definitive rating may differ from a provisional rating.

RATINGS RATIONALE

Net proceeds from the new term loan after fees and expenses will be used to repay nearly all outstanding amounts under the company's various revolving credit facilities (RCFs) and for general corporate purposes. The new term loan credit facility will rank pari passu with the company's existing senior secured bank credit facilities issued by CGG SA and CGG Holding (U.S.) Inc. and benefit from the same security and guarantee package. Pro-forma for the transaction the company's leverage as measured by Debt / EBITDA minus multi-client amortization will increase to 5.7x from 5.5x as at end of March 2015.

Moody's views this level of leverage as high for the B1 category with limited visibility on deleveraging prospects over the next 18 months reflecting Moody's expectations that the seismic industry will remain soft for an extended period of time. Moody's expects bottom-of-cycle margins in contract seismic due to further pricing pressures and low level of vessel active time because of higher idle time and/or steaming time between two jobs. In multi-client surveys, Moody's expects late sales to remain difficult to predict as customers delay purchases while pre-funding rate for new surveys should be in line with the company's target level of 70% or above. The weak seismic will also take a toll on equipment sales, notably marine equipment which will also be impacted by vessel retirements by CGG and other market participants. On the other hand, the subsurface imaging business should remain resilient but external sales will be impacted by higher level of internal activity.

In 2014, CGG downsized its marine fleet from 18 to 13 3D vessels. This vessel capacity reduction in addition to headcount reduction and other cost efficiency initiatives resulted in a run-rate decrease in the group's cost base of 23% compared to 2013. The cold-stacking of another two vessels as well as lower fuel costs and positive impact from the stronger USD vs. EUR will reduce the cost base further in 2015. However, this is unlikely to be sufficient to offset the decline in seismic demand.

The rating also continues to be supported by the group's position as global leader in seismic equipment (through Sercel) and among the largest players in marine seismic services worldwide as well as the group's strong capabilities in sub-surface imaging and reservoir.

The transaction will also increase the size of the company's liquidity sources. Pro-forma for the transaction, the company will have unrestricted cash balance of approximately USD304 million and approximately USD568 million available under its RCFs. However, whilst the company has currently sufficient headroom under its financial maintenance covenants with notably the leverage covenant at 2.5x as of end of March 2015 compared to a covenant of 3.75x, Moody's notes that this financial covenant will step-down to 3.5x in December 2015, which the company may find it challenging to meet in view of the current market trends. However, Moody's believes that the company is likely to be able to waive any breach and/or reset its covenants if necessary. On the positive side, the rating reflects that CGG has no material debt maturity over the next couple of years.

RATING OUTLOOK

The negative outlook reflects the current weak rating positioning and the continued softening of market conditions combined with the lack of visibility around an eventual recovery, while the credit metrics are expected to remain weak for the rating category over the foreseeable future.

WHAT COULD CHANGE THE RATING UP/DOWN

A downgrade of the CFR could occur over the coming quarters in the event of limited improvement in operating performance, resulting in a trajectory of credit metrics indicating that leverage will likely remain sustainably over 5.5x at year-end 2015 and in 2016 or material deterioration in the company's liquidity position in the coming quarters.

The outlook could be stabilised following improvement in market conditions and operating performance. Over time, the rating could be upgraded if leverage falls towards 4.0x on a sustained basis and the company maintains a solid liquidity profile. Any potential upgrade would also include an assessment of market conditions.

PRINCIPAL METHODOLOGIES

The principal methodology used in this rating was Global Oilfield Services Industry Rating Methodology published in 2014. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Headquartered in France, CGG ranks among the top three players in the seismic industry, with revenues of USD 3.1 billion in 2014. It is listed on both Euronext Paris and the New York Stock Exchange.

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

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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.

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

Peter Firth
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 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
SUBSCRIBERS: 44 20 7772 5454

Moody's assigns (P)Ba1 rating to CGG's new term loan; negative outlook
No Related Data.
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