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Rating Action:

Moody's changes Willbros outlook to stable from positive

22 Dec 2014

Approximately $400 million of debt affected

New York, December 22, 2014 -- Moody's Investors Service changed Willbros Group, Inc.'s (Willbros) outlook to stable from positive and affirmed the B3 corporate family rating, B3-PD probability of default rating and SGL-3 speculative grade liquidity rating. At the same time, Moody's withdrew Willbros' term loan B rating and affirmed the Willbros United States Holdings Inc.'s asset-based lending facility rating of B1.The term loan B rating was withdrawn since the loan has been repaid and terminated. The change in Willbros rating outlook reflects the recent deterioration in operating results and credit metrics driven by execution issues on two pipeline projects, which resulted in the restatement of its financial results for the first six months of 2014.

Outlook Actions:

Issuer: Willbros Group, Inc.

Outlook, Changed to Stable from Positive

Outlook Actions:

Issuer: Willbros United States Holdings Inc.

Outlook, Changed to Stable from Positive

Affirmations:

Issuer: Willbros Group, Inc.

Corporate Family Rating, Affirmed B3

Probability of Default Rating, Affirmed B3-PD

Speculative Grade Liquidity Rating, Affirmed at SGL-3

Issuer: Willbros United States Holdings Inc.

$150 Million Asset-Based Lending Facility, Affirmed B1 (LGD2)

Withdrawals:

Issuer: Willbros Group, Inc.

$250 Term Loan B, Withdrawn at Caa1 (LGD5)

RATINGS RATIONALE

Willbros' B3 corporate family rating reflects its small size, low profit margins, relatively low short-term backlog, exposure to highly competitive and cyclical end markets and track record of inconsistent project execution. The company has historically struggled to generate consistent profitability and has produced very weak EBITDA margins due to the competitive nature of the engineering and construction industry, periodic execution and productivity issues and its inability to effectively execute its growth strategy. As a result, the company's EBITDA margins have ranged from 3.4% to 5.7% over the past four years.

Willbros was required to restate its financial results in the first half of 2014 to account for $30 million of additional costs, which proved it continues to lack the ability to consistently bid and execute projects without incurring unforeseen issues. Willbros had reported improved operating results in the first half of 2014 driven by significantly reduced losses in its Oil & Gas division. However, that proved to be fleeting since the results did not accurately reflect execution issues the company was experiencing on two pipeline projects. The restatement along with the company's decision to take on additional term loan borrowings also indicated that its low profit margins and weak interest coverage were not likely to materially improve in the short term. Willbros EBITDA margin remained low at only 4.8% and its interest coverage (EBITA/Interest Expense) weak at only 1.2x for the trailing twelve months ended September 30, 2014.

The restatement of Willbros financial statements and the resulting delay in the filing of its third quarter financial statements put the company in violation of certain covenants and required a waiver from its credit facility lenders, which was received in December 2014. Willbros also amended its term loan facility in November 2014 to obtain covenant relief since it would have breached the minimum interest coverage covenant. Willbros then established a new $270 million term loan with KKR Credit Advisors and repaid its previous term loan B, which had an outstanding balance of $214 million as of September 30, 2014. The new term loan increases the company's liquidity and provides it with additional financial flexibility, but it also increases its leverage and interest costs.

Willbros operating results are likely to improve in 2015 as it benefits from cost reduction initiatives and reduced losses in its Oil & Gas division due to more conservative bidding and improved execution as it refocuses on its core competencies. However, this will be tempered by its relatively low backlog of orders and lower oil industry exploration and production activity and the associated infrastructure build out due to the recent 45% decline in oil prices. Willbros is likely to produce relatively stable credit metrics in 2015 with its leverage ratio (Debt/EBITDA) remaining at about 4.3x and its interest coverage relatively flat at around 1.2x due to increased borrowings and higher interest costs. These ratios could improve if Willbros is successful in its attempt to sell non-core assets. The company has identified several non-core assets that it has been trying to sell or plans to market for sale to generate cash to pay down debt.

Willbros speculative grade liquidity rating of SGL-3 reflects its adequate liquidity. The company had $102 million of liquidity on September 30, 2014 consisting of about $49 million in cash and $53 million of borrowing availability. Willbros' liquidity increased to about $148 million in mid-December including approximately $95 million in cash and around $53 million of borrowing availability. The increase in liquidity was attributable to the company establishing a new term loan facility. The company is expected to maintain adequate liquidity over the next 12 to 18 months as it utilizes the proceeds from its upsized term loan and free cash flow to fund the remaining $32.7 million WAPCo legal settlement and modestly reduce its term loan debt.

Willbros stable outlook assumes its management is able to improve the oversight of project bidding and execution and substantially reduce the number of unforeseen negative issues that have arisen periodically on projects in the past. The outlook also reflects the expectation that its operating results and credit metrics will improve over the next 12 to 18 months.

Willbros rating is not likely to experience upward pressure in the near term, but could be upgraded should the company grow its backlog of orders and sustain adjusted leverage (Debt/EBITDA) below 4.5x and interest coverage (EBITA/Interest Expense) above 2.0x.

Downward rating pressure could develop if Willbros sustained its adjusted leverage above 5.5x or its interest coverage below 1.0x. Downward rating action could also occur if its margins deteriorate substantially, its liquidity is significantly reduced or the company does not maintain compliance with its bank covenants.

The principal methodology used in these ratings was Construction Industry published in November 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.

Willbros Group, Inc, headquartered in Houston, Texas, provides engineering and construction (E&C) services to the oil, gas and power industries primarily in North America. Willbros reports its results in four segments: Oil & Gas (43% of revenues; 13% of backlog) is focused on the US market and specializes in pipelines and associated facilities and provides maintenance and turnaround services for refineries; Utility T&D (19%; 53%) provides end-to-end infrastructure construction services, primarily for the electric and natural gas utility end-markets; Canada (20%; 16%) provides maintenance and E&C services to the oil sands industry; and Professional Services (18%; 18%) provides engineering and design, project management, line locating and pipeline integrity services. Willbros' revenue for the 12 months ended September 30, 2014 was $2.15 billion and its backlog totaled $1.5 billion, of which $814 million was expected to be realized over the next twelve months. Approximately 86% of Willbros' backlog is in the US and 14% in Canada.

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.

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.

Michael Steven Corelli
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Brian B Oak
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's changes Willbros outlook to stable from positive
No Related Data.
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