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Rating Action:

Moody's concludes rating reviews for five European OFS companies

11 Mar 2016

London, 11 March 2016 -- Moody's Investors Service (Moody's) has today concluded rating reviews on five European oilfield services (OFS) companies. Moody's confirmed the B3 corporate family rating (CFR) and B3-PD probability of default rating (PDR) of Bibby Offshore Holdings Ltd, negative outlook; downgraded KCA Deutag Alpha Ltd's CFR and PDR by one notch to Caa1/Caa1-PD from B3/B3-PD with stable outlook, CGG SA's CFR and PDR by one notch to Caa1/Caa1-PD from B3/B3-PD with negative outlook, Welltec A/S's CFR and PDR by one notch to B2/B2-PD from B1/B1-PD with negative outlook, and Petroleum Geo-Services ASA's CFR and PDR by three notches to Caa1/Caa1-PD from B1/B1-PD with negative outlook. These actions conclude the rating reviews begun on January 22, 2016.

On 22 January 2016, Moody's placed the ratings of 32 integrated oil, exploration and production (E&P), and oilfield services companies in the EMEA region on review for downgrade. This reflected the substantial drop of oil prices and the continued oversupply in the global oil markets. Moody's also lowered its oil price estimates on January 21, 2016 and assumes Brent oil price to average $33/boe in 2016 and $38/boe in 2017, with a slow recovery for oil prices over the next several years. The drop in energy prices and corresponding capital markets concerns will also raise financing costs and increase refinancing risks for OFS companies.

The drop in oil prices and weak natural gas prices have caused a fundamental change in the energy industry, and its ability to generate cash flow has fallen substantially. Moody's believes this condition will persist for several years. As a result, Moody's is recalibrating the ratings of many energy companies globally to reflect this industry shift. However, the impact of the drop in oil prices and low natural gas prices will vary substantially from issuer to issuer. Therefore, Moody's confirmed the current ratings of some companies, while downgrading others sometimes by multiple notches.

For the five rated European OFS companies, the reduction in capex initiated by the Exploration and Production (E&P) companies to adapt to the low oil price environment put pressure on both volumes and pricings in 2015, significantly impacting their operating and financial performance. For 2016, we expect the market conditions to remain very challenging and oil prices to remain low and volatile. Despite the ongoing cost reduction and restructuring measures implemented by all OFS companies, we anticipate revenues and EBITDA for the five companies to keep falling next year while Moody's-adjusted debt/EBITDA ratios are expected to increase given the poor prospects for cash flow generation. However, we anticipate that the credit metrics of the best positioned issuers will start to improve in 2017 as a result of a combination of recovering oil and gas markets as well as internal adaptation plans.

RATINGS RATIONALE

Bibby Offshore Holdings Ltd

Moody's Investors Service has today confirmed the B3 CFR and B3-PD probability of default rating (PDR) of Bibby Offshore Holdings Limited's (Bibby Offshore). Concurrently, Moody's also confirmed the B3 rating of Bibby Offshore Services Plc GBP175 million senior secured notes due 2021. The outlook on all ratings is negative.

The B3 CFR reflects the deteriorating credit metrics of the company due to difficult market conditions resulting in a 30% sales decline and a lower total fleet utilization rate of 77% compared to 89% last year as of 30 September 2015. Over the same period, EBITDA as reported by the company was down 42% year-on-year at GBP33 million. Moody's does not assume a recovery this year.

Furthermore, Moody's expects leverage to increase over the next 12 months due to lower level of activity and further pricing pressures. As of 30 September 2015, Bibby Offshore's Moody's-adjusted leverage stood at 3.2x including an adjustment for operating lease and charter costs compared to 2.7x at year-end 2014. However, we now expect leverage to increase to about 6.0x in 2016.

Moody's expects the company's liquidity to weaken in 2016 due to the expected negative free cash flow, albeit it should remain adequate overall. As at 30 September 2015, the company had cash of GBP93 million and access to an undrawn super senior RCF of GBP20 million. Whilst the company still benefits from some headroom under its springing covenant tested only when the RCF is drawn by at least 25%, Moody's cautions against a potential tightening of the headroom below the minimum covenant level which would restrain the company's ability to draw under its RCF.

Bibby Offshore, headquartered in Aberdeen, UK, is a leading provider of offshore and subsea project management services in the UK North Sea. The company offers an integrated service portfolio that encompasses engineering, procurement and subsea construction and intervention services to build, maintain, extend and decommission subsea oil fields. Its clients include independent oil companies, larger oil majors as well as a range of national oil companies.

Welltec A/S

Moody's Investors Service has today downgraded Welltec A/S 's (Welltec) CFR and PDR by one notch to B2/B2-PD from B1/B1-PD. Concurrently, Moody's downgraded the rating on the senior secured notes due 2019 to B2 from B1. The outlook on all ratings is negative.

The downgrade is primarily driven by the concern that persisting challenging market conditions and high volatility are likely to continue affecting its financial profile and credit metrics in 2016. Notwithstanding the efforts of the company to reduce costs to mitigate a 28.7% drop in revenues to $246 million, 2015 Moodys-adjusted EBITDA fell by nearly 40% to $84 million, increasing gross adjusted leverage to 4.5x from 2.5x in 2014, and decreasing Moodys-adjusted EBIT/Interest ratio towards 1.1x from 2.7x. For 2016, Moody's anticipates a double digit drop in revenues, which would then translate into a further decline in EBITDA, in spite of cost saving actions being implemented by management. The downgrade reflects Moody's view that the financial profile and main credit metrics of Welltec are likely to deteriorate further in 2016, from already weak levels in 2015. In particular, we expect gross adjusted leverage to rise towards 5.0x and EBIT/Interest ratio to fall to just below 1.0x. The negative outlook reflects the high risks to the downside and lack of sufficient visibility at this stage, also due to the short term nature of Welltec's backlog of jobs, which remains exposed to risks of deferral and/or cancellation by customers.

As an important mitigating consideration, liquidity is adequate, as it is supported by a cash balance of approximately $60 million at the end of 2015, full availability under the committed undrawn $40 million revolving credit facility, as well as some modest positive free cash flow generation. A much weaker liquidity position, and/or a further material deterioration in key credit metrics beyond the levels Moody's is anticipating for 2016, will exert downward rating pressure.

Headquartered in Allerød, Denmark, Welltec is an oil and gas services company specializing in well intervention using proprietary equipment developed, tested and manufactured in-house. The company's services improve well production performance and increase the amount of recoverable oil and gas reserves in reservoirs. In October, Summit Partners LP sold its 26% Welltec stake to 7-Industries Holding BV and EXOR S.p.A. (unrated), a European investment company owned by the Italian Agnelli family. At year-end 2015, it reported revenues of approximately $246 million.

KCA Deutag Alpha Ltd

Moody's Investors Service has today downgraded KCA Deutag Alpha Ltd's ("KCA Deutag") CFR to Caa1 from B3 and probability of default rating (PDR) to Caa1-PD from B3-PD. Moody's also downgraded the ratings on the revolving credit facility and term loan at KCA Deutag Alpha Ltd, the senior secured notes at Globe Luxembourg SCA, and the senior secured notes at KCA Deutag UK Finance plc to Caa1 from B3. The outlook on all ratings is stable.

This action takes into account Moody's updated oil price assumptions for 2016/2017, high price pressure on services for offshore platform and land drilling, and reflects the company's high leverage that Moody's expects to increase in 2016, with Moody's-adjusted gross leverage reaching 6.3x. The downgrade to Caa1 also reflects Moody's view that KCA Deutag's credit metrics should deteriorate further over the next twelve months due to continued pricing pressures and lower level of new drilling activity.

Moody's regards KCA Deutag's liquidity as adequate for its near-term requirements albeit free cash flow generation will remain constrained by high maintenance capex requirement and high interest burden. The ratings are also based on the assumptions that the company will be able to alleviate any liquidity pressure by accessing the remaining shareholder funding, and that the committed shareholder funding including the $50 million drawn earlier this year could be used to cure a potential covenant breach if required. Finally the additional $80 million facility in Oman recently closed adds to the liquidity cushion.

The stable outlook reflects Moody's view that the implemented cost reduction should support profitability and cash flow.

Headquartered in the UK, KCA Deutag is a provider of onshore and offshore drilling services as well as engineering services to both IOCs and NOCs in international markets. Its ultimate owner is a consortium led by Pamplona Capital Management. In 2014, KCA Deutag reported revenues of $2.1 billion.

CGG SA

Moody's Investors Service has today downgraded CGG SA ("CGG") CFR and probability of default rating (PDR) to Caa1 and Caa1-PD respectively from B3 and B3-PD. Concurrently, Moody's has also downgraded the ratings on the senior secured French revolving credit facility issued by CGG SA to B2 from B1, the senior secured US revolving credit facility and the senior secured term loan B issued by CGG Holding (U.S.) Inc to B2 from B1 and (P)B1 respectively as well as the ratings on the senior notes issued by CGG SA to Caa2 from Caa1. The outlook on all ratings is negative.

CGG's Caa1 CFR reflects the company's high Moody's-adjusted leverage of approximately 6.6x at year-end 2015 as measured by debt/EBITDA minus multi-client amortization combined with our expectations that leverage could rise towards 8.2x by the end of the year. There is limited visibility on deleveraging prospects in 2017 due to the continued deterioration of market conditions in the seismic industry. CGG's core seismic market will continue to be challenging in the current low oil price, while visibility on the company's cash flow remains weak.

Moody's views CGG SA's liquidity as adequate post equity raise and the recently performed capital structure management (bond exchange offer and Fugro loan refinancing). Pro-forma for the €350 million (c. $370 million) equity raise, CGG had liquidity of $790 million as of year-end 2015 (cash balance and undrawn revolving credit facilities). However, approximately $300 million of the new equity is earmarked to fund the expected cash cost related to the new transformation plan ($200 million in 2016 and $100 in 2017 and thereafter).

CGG ranks among the top three players in the seismic industry. In 2014, CGG generated USD3 billion in revenues. It is listed on both Euronext Paris and the New York Stock Exchange. The company is organized around three divisions: Contractual Data Acquisition, Geology, Geophysics and Reservoir or GGR, and Equipment. The Contractual Data Acquisition division comprises (i) offshore seismic acquisition and (ii) land seismic and multi-physics. The GGR division offers a multi-client library, a processing and imaging business, as well as geology and basins consulting and reservoir characterisation through the Robertson, Hampson-Russell and Jason brands. The Equipment division consists of the manufacture and sale of equipment used for seismic data acquisition, such as recording and transmission equipment (via its fully owned subsidiary Sercel).

Petroleum Geo-Services ASA

Moody's has today downgraded the CFR of Petroleum Geo-Services ASA (PGS) to Caa1 from B1 and probability of default rating (PDR) to Caa1-PD from B1-PD. Concurrently, Moody's has also downgraded the ratings of the senior notes and the senior secured bank facilities to Caa1 from B1. The outlook on all ratings is negative.

Today's rating action reflects the company's high Moody's-adjusted leverage of approximately 6.6x at year-end 2015 as measured by adjusted debt/EBITDA minus multi-client amortization. Moody's expects that market conditions in the seismic industry will remain challenging throughout 2016 and 2017 with limited visibility on the timing of a potential market recovery and deleveraging prospects.

The company had liquidity of approximately $560 million as of 31 December 2015 including cash balance of $82 million and $475 million available under its revolving credit facility maturing in September 2018. Moody's assessment of PGS' liquidity profile is affected by an expected tightening of covenant headroom. In October 2015, PGS received consents from its lenders to reset the total gross leverage financial maintenance covenant under its revolving credit facility to 4.00x from 2.75x until 31 March 2017. As of 31 December 2015, the company's leverage as per the covenant calculation was 2.56x. The company's ability to access its revolving credit facility could become constrained as covenant headroom is likely to tighten given Moody's expectation of an increase in leverage. The current rating assumes that PGS will take relevant steps to mitigate a potential covenant breach sufficiently in advance.

Petroleum Geo-Services ASA (PGS) is a technologically leading oil services company specializing in reservoir and geophysical services, including seismic data acquisition, processing and interpretation, and field evaluation. PGS also maintains an extensive multi-client (MC) seismic data library. In the 12 months ended 30 September 2015, the company reported revenue of $1.2 billion.

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in December 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.

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 credit rating action on the support provider and in relation to each particular credit 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 credit rating action, and whose ratings may change as a result of this credit 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 below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead analyst and the Moody's legal entity that has issued the ratings.

The person who approved CGG SA, CGG Holding (U.S.) Inc, KCA Deutag Alpha Ltd, Globe Luxembourg SCA, KCA DEUTAG UK Finance plc and Petroleum Geo-Services ASA credit ratings is Peter Firth, Associate Managing Director, Corporate Finance Group, Journalists Tel: 44 20 7772 5456, Subscribers Tel: 44 20 7772 5454. The person who approved Bibby Offshore Holdings Ltd, Bibby Offshore Services Plc and Welltec A/S credit ratings is Anke Richter, Associate Managing Director, Corporate Finance Group, Journalists Tel: 44 20 7772 5456, Subscribers Tel: 44 20 7772 5454.

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

Anke N Richter, CFA
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 concludes rating reviews for five European OFS companies
No Related Data.
© 2018 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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