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Rating Action:

Moody's downgrades Ensco to B2

Global Credit Research - 06 Oct 2017

Approximately $4.7 billion of rated debt affected

New York, October 06, 2017 -- Moody's Investors Service, ("Moody's") downgraded Ensco plc's (Ensco) Corporate Family Rating (CFR) to B2 from B1, Probability of Default Rating (PDR) to B2-PD from B1-PD and senior unsecured notes to B2 from B1. The Speculative Grade Liquidity Rating was affirmed at SGL-1. The rating outlook is negative. This concludes the rating review that was initiated on May 31, 2017.

"The downgrade reflects increased financial leverage and diminished liquidity cushion following the Atwood acquisition, the anticipated decline in earnings and cash flow from ongoing contract expirations, and the weak fundamentals of the offshore drilling industry," said Sajjad Alam, Moody's Senior Analyst. "Ensco's credit metrics will be pressured at least through 2018 despite maintaining good liquidity, a high-quality rig fleet and a diversified global exposure."

The following summarizes today's rating action:

Affirmed:

..Issuer: Ensco plc:

.... Speculative Grade Liquidity Rating, affirmed at SGL-1

Downgraded:

..Issuer: Ensco plc:

.... Corporate Family Rating, Downgraded to B2 from B1

.... Probability of Default Rating, Downgraded to B2-PD from B1-PD

....Senior Unsecured Regular Bond/Debentures, Downgraded to B2 (LGD4), from B1 (LGD4), previously on review for downgrade

..Issuer: ENSCO International Incorporated

....Senior Unsecured Regular Bond/Debenture, Downgraded to B2 (LGD4), from B1 (LGD4), previously on review for downgrade

..Issuer: Pride International, Inc.

....Senior Unsecured Regular Bond/Debentures, Downgraded to B2 (LGD4), from B1 (LGD4), previously on review for downgrade

Outlook Actions:

..Issuer: Ensco plc

....Outlook, Changed To Negative from Rating Under Review

..Issuer: ENSCO International Incorporated

....Outlook, Changed To Negative from Rating Under Review

..Issuer: Pride International, Inc.

....Outlook, Changed To Negative from Rating Under Review

RATINGS RATIONALE

Ensco will benefit from the Atwood Oceanics, Inc. (Atwood, Caa1 RUR-Up) acquisition by adding 11 high quality rigs that were built in recent years (four drillships, two semi-submersibles and five jackups), thus improving Ensco's global scale, diversification and marketing capability. Ensco management also expects to achieve $80 million in annual cost synergies by 2019. Ensco will use its pro forma cash balance to repay Atwood's remaining $850 million of revolver debt and $449 million of senior notes at closing of the acquisition. Moody's will withdraw Atwood's ratings shortly thereafter.

Ensco's B2 CFR reflects its rapidly rising financial leverage, declining cash flow and elevated re-contracting risks in a weak offshore contract drilling market. A large number of Ensco's rigs will come off contract and Moody's expects these rigs to transition to lower rate contracts or go idle through 2018. While contracting activity has picked up in 2017, especially in shallow water markets, dayrates are likely to remain depressed near cash breakeven levels at least through 2019, because of persistent global oversupply of rigs and weak customer demand. While the acquisition of Atwood's high-quality rigs has significantly improved Ensco's market position and contracting prospects in an eventual market recovery, these rigs may remain underutilized for an extended period. The B2 rating is underpinned by Ensco's pro forma $3.6 billion of contracted revenue backlog, strong liquidity, large and relatively high quality offshore fleet, excellent operating track record and diversification across geography, rig types, and customers that should continue to lend credit support in a protracted industry downturn.

Ensco will have very good liquidity through 2018, which is reflected in the SGL-1 rating. Pro forma for the Atwood closing, Ensco had approximately $1 billion of cash and an undrawn $2.0 billion revolving credit facility, $1.2 billion of which matures in September 2022 with the remaining maturities in September 2019. Ensco should be able to cover all of its pro forma capital expenditures, including $315 million of newbuild capex commitments through 2018, with cash on hand and operating cash flow. Moody's expects maintenance capex of $75 million in 2017 and $100 million in 2018. There are no debt maturities until 2019, which eliminates near-term refinancing risk. The revolving credit facility has a 60% Total Debt/Book capitalization covenant, and Moody's expects sufficient headroom through 2018. All of Ensco's assets are unencumbered, giving the company the flexibility to sell rigs, although executing such a sale might be tough in today's weak markets.

The negative outlook reflects the risks of further degradation in Ensco's credit metrics and the potentially prolonged nature of the current industry downturn. A downgrade could result if the EBITDA/Interest ratio cannot be sustained above 1.5x or if the company substantially depletes its cash balance. Any material increase in debt or loss of backlog will also pressure ratings. Without significant debt reduction, a positive rating action is unlikely. An upgrade could be considered if the debt/EBITDA ratio can be sustained below 6x in a stable to improving industry environment.

The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Ensco plc is headquartered in London, UK and is one of the world's largest providers of offshore contract drilling services to the oil and gas industry.

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.

Sajjad Alam
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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