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Rating Action:

Moody's assigns (P)Caa2 rating to KCA Deutag's (formerly known as Abbot) proposed notes; negative outlook

28 Jul 2010

London, 28 July 2010 -- Moody's Investors Service has assigned a provisional (P)Caa2 rating to the proposed USD500 million senior notes due 2018 (the "Notes") to be issued by Turbo Beta Plc (the "Issuer"), the indirect parent company of KCA Deutag Drilling Group Limited ("KCA Deutag"), formerly known as Abbot Group Ltd. The rating outlook is negative.

The use of proceeds of the Notes is to (i) refinance part of the USD573 million of mezzanine facilities (the "Mezzanine Facilities") that were raised by the Issuer in 2008 to fund in part the purchase of Abbot Group Ltd (predecessor of KCA Deutag); and (ii) pay the costs of issuing the Notes. Due to tightening of the covenant tests of its senior and mezzanine facility agreements, the group has been at risk of breaching its financial covenants in 2010. Shareholders have therefore agreed to inject USD200 million of equity to prepay at par a portion of the group's USD1.625 billion senior facilities (the "Senior Facilities") in exchange for an amendment to the Senior Facilities which is expected to reset the financial covenant tests to provide for adequate headroom. Whilst consent from the senior lenders has been received, a condition precedent to the amendment agreement becoming effective is that either the Mezzanine Facilities are repaid in full or the financial covenants under the mezzanine facility agreement are also reset. Shareholders have agreed to inject an additional USD103 million of equity to repay the remaining portion of the Mezzanine Facilities.

The assigned (P)Caa2 rating, two notches below the Issuer's corporate family rating (CFR) of B3, reflects the contractual subordination of the Notes to the Senior Facilities of Turbo Alpha Ltd, the holding company of KCA Deutag. The Notes will be guaranteed on a senior subordinated basis by Turbo Alpha Ltd, Turbo Alpha II Ltd (an Issuer's subsidiary and the immediate parent of Turbo Alpha Ltd) and a number of group subsidiaries (together, the "Guarantors") that accounted for 85% of consolidated revenues, 88% of consolidated EBITDA and 78% of consolidated total assets as at 31 December 2009. In addition, the Notes will be secured, among other things, by a second-ranking pledge of the shares of Turbo Alpha Ltd and a first-ranking pledge of the shares of Turbo Alpha II Ltd.

The indenture contains debt incurrence covenants based around a Fixed Charge Coverage Ratio of 2.25x and restricted payments covenant based around a basket based on 50% of Consolidated Net Income. It also permits incurrence of certain indebtedness, such as credit facilities for an aggregate outstanding amount not exceeding USD1.4 billion (including the existing Senior Facilities), of which USD50 million can be incurred at non-Guarantor Restricted Subsidiaries, USD15 million for obligations such as capital leases plus a general basket equal to the greater of USD25 million and 0.75% of Total Assets. The Senior Facilities have various maintenance financial covenants that tighten progressively.

In assigning the (P)Caa2 rating to the Notes, Moody's has left unchanged the current 37% group Loss Given Default (LGD) assumption, which reflects the group's all-bank debt capital structure pre-transaction. The (P)Caa2 rating thus stems from the combination of the Issuer's Caa1 Probability of Default Rating (PDR) and a LGD assessment of LGD 4 (69%). Upon a closing of the Notes offering, Moody's will likely restore the group LGD at the standard 50% average and align the PDR with the CFR to reflect the mixed composition of the group's revised capital structure. Whilst this would also result in a revision of the LGD assessments relative to individual debt instruments, this is not expected to impact ratings of the Senior Facilities or the Notes.

The negative outlook reflects the uncertainty associated with the Senior Facilities amendment agreement becoming effective, which is conditional upon (i) the closing of the Notes offering, or (ii) the reset of the maintenance financial covenants of the Mezzanine facilities. Indeed, failure to either refinance the Mezzanine Facilities or obtain a covenant reset shortly would likely result in a multi-notch downgrade. Conversely, the rating outlook will likely be moved to stable upon successful refinancing of the Mezzanine Facilities.

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

Moody's last rating action on Turbo Beta Plc and its subsidiaries was on 17 November 2009, when the rating agency downgraded to Caa1 from B3 the probability of default rating (PDR) of Turbo Beta Plc. At the same time, Moody's affirmed the B3 corporate family rating of Turbo Beta Plc and the B2 rating on the USD1.625 billion Senior Facilities of Turbo Alpha Ltd.

The principal methodology used in rating Turbo Beta Plc was the Global Oilfield Services Rating 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.

Registered in England/Wales, UK, Turbo Beta Plc is a holding company for KCA Deutag, a provider of onshore and offshore drilling services to both IOCs and NOCs in the Eastern Hemisphere. Its ultimate owner is a consortium led by First Reserve Corporation, a US private equity firm specialised in the energy industry. In 2009, Turbo Beta Plc reported consolidated revenues of around USD1.6 billion.

London
David G. Staples
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service Ltd.
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

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

Moody's assigns (P)Caa2 rating to KCA Deutag's (formerly known as Abbot) proposed notes; negative outlook
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