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Rating Action:

Moody's downgrades Bibby Offshore to Caa2 from B3; negative outlook

14 Nov 2016

London, 14 November 2016 -- Moody's Investors Service, ("Moody's") today downgraded Bibby Offshore Holdings Ltd's (Bibby Offshore) Corporate Family Rating (CFR) to Caa2 from B3 and the Probability of Default Rating (PDR) to Caa2-PD from B3-PD. Concurrently, Moody's also downgraded the rating of Bibby Offshore Services Plc GBP175 million senior secured notes due 2021 to Caa2 from B3. The outlook on all ratings is negative.

RATINGS RATIONALE

Today's action reflects the heightened stress on the company's operating performance, cash flow and the deterioration of the liquidity profile. Moody's expects Bibby Offshore market environment to remain difficult next year, with lack of visibility around an eventual recovery of prices. Moody's believes that the company will report a negative EBITDA this year in the range of GPB20 million to GBP25 million with limited improvement for 2017. The company's backlog remains low at GBP30 million at the end of September 2016, giving little visibility on revenue trend past 3 months. While Moody's expects some improvements in volumes next year, the rating agency believes that Bibby Offshore will continue to face pricing pressure as customers continue to cut costs in this low oil price environment. Moody's also anticipates higher idle time between jobs owing to lower visibility on tenders and hence, greater difficulty in optimizing vessel utilization.

Bibby Offshore cash generation has been negative since the beginning of the year resulting in a reduction of cash on balance sheet of approximately GBP40 million out of the GBP97.1 million it had at the start of the year. Moody's believes that cash generation will remain negative in 2017 to approximately GBP30 million with increased pressure in the first half of 2017 due to seasonality. Cash generation in the second half of 2017 should slightly improve due to the anticipated positive effects of the renegotiation of charter rates.

While Moody's notes that the company does not have any debt maturing before 2021 when the senior secured notes are due, the Bibby Offshore liquidity profile is weak. As at 30 September 2016, the company had cash of GBP55.7 million and a super senior RCF of GBP20 million (unrated), currently used for performance bonds for an amount of GBP2.9 million. Moody's believes that the company has limited access to the RCF because of the financial covenant. Given the expected negative free cash flow, Moody's remains cautious about the level of available cash to service the debt next year.

Moody's expects an adjusted EBITDA of GBP12 million for this year (including Moody's standard adjustment for operating leases), at which Moody's adjusted leverage increases to levels above 20x from 4x at the end of 2015, which is high and outside the levels expected for the B rating category.

More positively, the ratings reflect: (1) the company's position as a leading regional competitor with control of key operating assets; (2) its project track record and exposure to less cyclical opex related projects and less risky reimbursable type contracts; and (3) its ability to scale investment spend to changing demand.

RATING OUTLOOK

The negative outlook reflects the weak market conditions and low day rates, which pressurize cash generation.

WHAT COULD CHANGE THE RATING - UP

Although unlikely in the short term, there could be positive pressure if (1) Moody's-adjusted debt/EBITDA ratio is below 6.0x on a sustained basis; (2) the company improves its operating performance resulting in sustained positive reported EBITDA; (3) free cash flow generation turns positive and (4) liquidity profile improves with notably pressure on covenant to access RCF alleviated. Any potential upgrade would also include an assessment of market conditions.

WHAT COULD CHANGE THE RATING - DOWN

We could downgrade the ratings in the event of continued deterioration in operating performance and/or weakening liquidity position including negative FFO, restricted access to the RCF due to financial covenant and an unsustainable capital structure.

PRINCIPAL METHODOLOGY

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

Bibby Offshore Holdings Ltd, headquartered in Aberdeen, UK, is a leading provider of offshore and subsea services in the UK North Sea. For the financial year ended 31 December 2015, Bibby Offshore reported revenues of approximately GBP241 million. Bibby Offshore is wholly owned by Bibby Line Group Limited, a diversified group of companies with international interests in shipping, marine services, logistics, financial services, offshore services and retailing, with revenue of GBP1.4 billion for the year ended 31 December 2015.

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.

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.

Hubert Allemani
Vice President - Senior 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

No Related Data.
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