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Rating Action:

Moody's assigns (P)Ba3 rating to CGGVeritas' new senior Notes due 2021

24 May 2011

London, 24 May 2011 -- Moody's Investors Service has today assigned a provisional (P)Ba3 rating to the USD600 million senior Notes, due 2021, to be issued by Compagnie Generale de Geophysique-Veritas ("CGGVeritas"). Moody's has also affirmed the Ba3 ratings on the company's 9.5% USD350 million senior notes due 2016, and the 7.75% USD400 million senior notes due 2017.

Moody's has also affirmed the Ba2 Corporate Family Rating ("CFR") and Probability of Default Rating ("PDR"). It has concurrently upgraded to Baa3 from Ba1 the ratings on the USD140 million senior secured RCF due 2012 at CGGVeritas Services Inc and the USD200 million senior secured RCF due 2014 at CGGVeritas. The rating outlook remains negative.

The proceeds of the senior Notes issuance are intended to fully repay the senior secured term loan B maturing in 2014 and 2016 as well as the remaining principal amount outstanding under its 7.5% senior Notes due 2015.

RATINGS RATIONALE

The (P)Ba3 rating on the new senior Notes reflects that they will rank pari passu with the existing senior Notes. The 2021 Notes will be guaranteed on the same unsecured basis as the existing notes by operating subsidiaries accounting in aggregate for 45% of the group's revenue as of FY 2010, 98% of consolidated total assets and substantially all of the group's operating income before eliminations. Whilst the notes benefit from the same unsecured guarantees as the bank debt, the one notch discount to the CFR reflects their ranking behind the group's secured obligations, including the RCFs -- as well as the group's negative ratings outlook.

CGGVeritas' CFR and PDR remain unchanged at Ba2. This reflects (i) CGGVeritas' high level of fixed costs and exposure to the highly cyclical seismic industry; and (ii) weakening financial metrics driven by the current over-capacity in the marine seismic business and the contraction in demand and pricing in the highly-commoditized land seismic business. At the same time, ratings are supported by (i) the group's position as leader in seismic equipment (through Sercel) and among the three largest players in marine seismic services worldwide; (ii) its geographic diversification; and (iii) its strong liquidity position, further reinforced by the recent extension of its debt maturities, including this issuance of 2021 Notes.

The upgrade of the senior secured RCFs to Baa3 from Ba1 solely reflects the change to a capital structure largely consisting of unsecured bonds, including the EUR360 million convertible note issued in January 2011 which is also subordinated to the senior Notes as it does not benefit from any upstream guarantees.

In 2010, CGGVeritas reported Services revenue down 12% and operating income down 82%, mainly as a result of overcapacity affecting the marine segment. Sercel revenues and operating income increased by 17% and 56% respectively and the division has shown strong margin improvements in recent quarters. Net debt to EBITDA less multi-client investments (as adjusted by Moody's) rose to 3.8x and FCF was negative. Despite strong results seen in 4Q 2010, 1Q 2011 results showed some weakness including declines in multi-client revenues and a reduction in the group's backlog to USD1.2 billion.

The negative outlook reflects Moody's expectation that, absent a rapid and material market recovery, leverage will remain high for the current rating category in the near term.

There is limited potential for upward pressure on the CFR in the intermediate term given the current weak operating environment. Conversely, a downgrade of the CFR could occur if over-capacity in offshore seismic exerted further downward pressure on CGGVeritas' margins and delayed any sustainable market recovery, translating into through-the-cycle leverage materially above 3x.

The Ba3 rating on the Notes incorporates the weak positioning of the CFR shown by the negative rating outlook. If the outlook were subsequently to revert to stable, then the Notes and the bank facilities could be upgraded. Commensurately, a downgrade of the CFR by one notch may not lead to a downgrade of the Notes.

Ratings assigned today:

Issuer: Compagnie Generale de Geophysique-Veritas

- New senior Notes rating assigned to new USD600 million Notes at (P)Ba3.

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 Compagnie Generale de Geophysique-Veritas was the Global Oilfield Services Rating Methodology, published December 2009. Other methodologies used include Loss Given Default for Speculative Grade Issuers in the US, Canada, and EMEA, published June 2009.

CGG Veritas ranks among the top four players in the seismic industry. It is listed on both Euronext Paris and the New York Stock Exchange, with a market capitalisation of approximately EUR3.7 billion.

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London
Douglas Crawford
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

London
Chetan Modi
Senior Vice President
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Moody's Investors Service Ltd.
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Moody's assigns (P)Ba3 rating to CGGVeritas' new senior Notes due 2021
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