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07 Apr 2014
London, 07 April 2014 -- Moody's Investors Service today downgraded CGG (or the company) corporate
family rating (CFR) to Ba3 from Ba2 and probability of default rating
(PDR) to Ba3-PD from Ba2-PD. Moody's has also affirmed
the Baa3 ratings on the $325 million senior secured French revolving
credit facility and the $165 million senior secured US revolving
credit facility (RCF) issued by CGG and CGG Holding (U.S.)
Inc respectively, and the Ba3 rating on their senior notes due 2016,
2017 and 2021. The outlook was changed to stable from negative.
RATINGS RATIONALE
The rating action follows CGG's weaker operating performance in
2013 compared with Moody's expectations. Total revenue in 2013
went up 10% compared to prior year but excluding the impact from
the Fugro Geoscience acquisition, revenue went down 3% due
to softer market conditions in the second half of the year. Similarly,
total reported EBIT margin before exceptional items decreased to 11%
from 12%.
Because of the lower than expected level of profitability, Moody's-adjusted
Debt/EBITDA excluding multi-client amortization stands at 4.6x
at year-end 2013 compared to 4.5x a year ago. This
leverage has been consistently above the level of our trigger for a downward
rating. The company recently announced a new 2014-2016 strategic
plan which, among other things, includes a rebalancing of
the portfolio towards less cyclical and more profitable activities.
While Moody's sees the new strategic orientations as sound,
Moody's also believes that it entails significant execution risks
and expects that de-leveraging will continue to be hampered by
capital expenditures constraints at major international oil companies
that are likely to affect upstream investments, notably exploration
seismic.
In line with Moody's prior statements, the downgrade of the
CFR did not trigger a downgrade of the instrument ratings as the weak
positioning of the previous CFR at Ba2 was already factored in those ratings.
More positively, the ratings also reflect (i) the group's position
as leader in seismic equipment (through Sercel) and among the two largest
players in marine seismic services worldwide following the acquisition
of Fugro's geoscience division; (ii) its geographic diversification;
and (iii) its good liquidity position.
The stable outlook reflects Moody's expectations that CGG will be
able to stabilize its operating performance and maintain its liquidity
profile over the next 12 to 18 months, and also takes account of
the company's financial policy to focus on deleveraging.
Additionally, Moody's also continues to have a positive view
on the medium-term fundamentals for the seismic industry as international
oil companies will eventually have to resume exploration activity into
deeper waters to offset the natural depletion of their producing oil fields.
WHAT COULD CHANGE THE RATING UP
Positive pressure could arise in the event of material improvements in
profitability translating into leverage falling towards 3x on a sustained
basis. Any potential upgrade would also include an assessment of
market conditions and the company's success in achieving its portfolio
rebalancing.
WHAT COULD CHANGE THE RATING DOWN
A downgrade of the CFR could occur in the event of further deterioration
in operating performance, resulting in leverage sustainably above
4.5x and/or weakening liquidity position. Moody's could
also consider downgrading the ratings in event of any material acquisitions
or change in financial policy.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was the Global Oilfield
Services Rating Methodology published in December 2009. 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.
CGG ranks among the top three players in the seismic industry.
It is listed on both Euronext Paris and the New York Stock Exchange,
with a market capitalization of EUR2.1 billion as of 7 April 2014.
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Peter Firth
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
Chetan Modi
MD - Corporate Finance
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 downgrades CGG to Ba3 from Ba2; stable outlook
No Related Data.
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