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Announcement:

Moody's changes Rowan's outlook to negative

02 Jul 2010

Approximately $500 million of debt securities affected

New York, July 02, 2010 -- Moody's Investors Service changed Rowan Companies, Inc.'s (Rowan) outlook to negative in response to its announcement that it intends to acquire Skeie Drilling and Production ASA (SKDP). Moody's also affirmed the company's Baa3 senior unsecured rating.

"The negative outlook reflects the significant amount of secured debt Rowan is assuming in conjunction with its acquisition of Skeie Drilling and Production ASA," said Moody's Vice President, Ken Austin. "Having a large proportion of secured debt in the capital structure places the senior unsecured notes in a disadvantaged position and is not typical of an investment grade profile."

The $530 million of debt at SKDP that Rowan will assume is secured with either a first or second lien on the rigs owned by SKDP. This secured debt places the senior unsecured notes in a structurally subordinated position and therefore, could be notched down. However, the final financing plans for this acquisition have not been finalized, and management has stated that it fully intends to refinance that debt as soon as possible. If this assumed debt is either refinanced with senior unsecured debt or repaid in a reasonable timeframe then notching of the senior notes could be avoided.

Furthermore, this transaction adds to Rowan's leverage as the rigs it is acquiring do not have contracts. Pro forma for the acquisition of 100% of SKDP, Rowan would assume $530 million of debt. This added debt, without the benefit of firm contracts will push Rowan's adjusted leverage to approximately 2.6x, which is on the higher end for the rating. While this class of rig is capable of drilling in harsh environments and can support deep drilling programs, the ability to obtain long-term contracts at supportive dayrates is important to improving the leverage trend and returning the outlook to stable.

On July 1,2010, Rowan announced that it has entered into share purchase agreement with certain shareholders of SKDP to purchase their shares in the company. The sellers that have agreed to sell their shares to Rowan collectively own 48.8% of the outstanding shares and Rowan had previously acquired 1.5% of SKDP's shares, bringing its pro forma ownership to 50.3%. Rowan will issue shares of its stock to acquire the SKDP stock and will assume $530 million of secured debt. SKDP owns and manages the construction of three high specification jack-up rigs, designated "N-class", designed and being built by Keppel FELS Ltd in Singapore. Rowan also expects the three rigs will require an additional $420 million for completion, which it expects to fund out of cash and cash flow.

More specifically, the move back to a stable outlook would require a cleaner capital structure with much less secured debt, putting the senior unsecured notes in a much improved position in the capital structure. The company also needs to contract at least two of the acquired rigs under long-term contracts that would provide visible earnings and cashflows that offset the added debt and leverage.

The Baa3 rating reflects Rowan's position within the offshore drilling market as a leading provider of premium jack-up rig services. Although still smaller than many of peers in terms of the number of rigs that it provides, even after this acquisition and recent newbuilds, the quality of the fleet largely serves as a mitigating factor.

The Baa3 rating is tempered by the company's still relatively smaller fleet size, its focus on the more volatile jack-up, and the added volatility of the land rig and manufacturing businesses.

The last rating action for Rowan Companies, Inc. was on July 15, 2009 when we assigned new ratings to the company.

The principal methodology used in rating Rowan was Moody's 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.

Rowan Companies, Inc. is headquartered in Houston, Texas, and is a leading provider of offshore drilling services, drilling rig manufacturing services, and land drilling services.

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

New York
Kenneth Austin
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Rowan's outlook to negative
No Related Data.
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