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Announcement:

Moody's confirms Transocean's Baa3 senior unsecured rating with a negative outlook

Global Credit Research - 23 May 2012

Approximately $10.5 billion of debt securities affected

NOTE: On June 20 2012, the press release was revised as follows: The issuer name in the first paragraph has been corrected to Transocean Inc. from Transocean Ltd. Revised release follows:

New York, May 23, 2012 -- Moody's Investors Service confirmed Transocean Inc.'s (Transocean) senior unsecured debt rating at Baa3, senior unsecured shelf rating at (P)Baa3, and senior subordinate shelf rating at (P)Ba1. In addition, the ratings for the Commercial Paper rating was affirmed at P-3, and the ratings for the unsecured notes issued by Transocean Worldwide Inc. and Global Marine Inc. were withdrawn. The outlook for the long term ratings is negative. This action concludes the rating review for possible downgrade that was announced on November 9, 2011. The ratings were confirmed because Transocean has taken significant steps in the last six months to reduce leverage and increase liquidity, an important cushion for the unknown costs of the Macondo litigation.

RATINGS RATIONALE

Transocean's Baa3 senior unsecured rating is supported by its leading market share in the global offshore drilling industry, tempered by expectations for elevated debt leverage and a history of shareholder friendly initiatives. Moody's expects leverage to decline significantly in 2012 as Transocean's cash flow recovers from the lost revenue in 2011 associated with the excessive rig down-time caused by the retrofitting and re-certification of the vast majority of the company's deepwater rig fleet. The steps taken to increase liquidity in the last six months including the issuance of $1.2 billion of equity and the suspension of shareholder distributions at least through the first quarter of 2013 are clearly credit positive. However, risk still remains around the execution of the company's de-leveraging plan, as well as the potential liability associated with the Macondo incident.

"It appears that the worst is over for Transocean's operating performance now that most of upgrade work on its deepwater fleet has been completed," said Stuart Miller, Moody's Vice President -- Senior Analyst. "Our rating action reflects the prospects for improved cash flow, and also acknowledges the steps taken by company management over the last six months to build financial flexibility. These actions should better position the company to handle the contingent liabilities associated with the Macondo incident, and eventually, to increase investment in its fleet."

The ratio of debt to EBITDA at the end of the first quarter was 4.6x including Moody's adjustments. This leverage is considered very high for the current Baa3 rating. However, Moody's believes that leverage could decline to 3.5x by the end of 2012 because of improvements in trailing EBITDA and if the repayment of current debt maturities is made with internal sources of cash. The 3.5x leverage level marginally supports Transocean's Baa3 rating only because of its large scale and leading market position, but it also leaves little room for the investment needed to keep pace with its deepwater competitors.

Transocean maintains a good liquidity profile with approximately $4.0 billion in cash and nearly 100% availability under its $2.0 billion 5-year revolving credit facility. Moody's expects the company to generate just over $1 billion of free cash flow over the next twelve months. The free cash flow, supplemented by opportunistic asset sales and a portion of the cash on hand, should be sufficient to repay the $2.7 billion of debt that matures in the next year assuming none of the debt is refinanced.

The negative outlook reflects the risk that management de-prioritizes the importance of reducing Transocean's highly leveraged financial position in light of its corporate history of shareholder friendly initiatives. For this reason, continuing progress in management's plan to reduce long term debt to less than $9 billion is necessary to stabilize the rating outlook. While not expected in the near term, the quantification of the Macondo liabilities to an amount that could be paid without any new debt issuance would provide additional grounds to stabilize the rating outlook earlier. A downgrade would be likely if new information indicates that leverage may remain above 4.0x for an extended period of time either because of new operational issues or new, quantifiable, negative developments associated with the Macondo litigation. An upgrade will be considered once the Macondo contingent liability is materially resolved and when there is better visibility for sustained leverage below 3.0x.

The withdrawal of the ratings for Transocean Worldwide Inc. and Global Marine Inc. was driven by the fact that there is insufficient information available to maintain these ratings. Neither subsidiary provides audited financial statements and the parent company does not provide guarantees for the debt of these subsidiaries.

The principal methodology used in rating Transocean was the Global Oilfield Services Ratings Industry Methodology published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Transocean, Inc. is a leading provider of offshore contract drilling for oil and gas companies around the world. The company is a wholly-owned subsidiary of Transocean Ltd. which is headquartered in Zug, Switzerland

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant 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 relevant 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 relevant 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.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Stuart Miller
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

Steven Wood
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 confirms Transocean's Baa3 senior unsecured rating with a negative outlook
No Related Data.

 

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