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Rating Action:

Moody's downgrades Oceaneering to Ba2, negative outlook

29 Aug 2019

Approximately $1.3 billion of unsecured debt instruments affected

New York, August 29, 2019 -- Moody's Investors Service ("Moody's") downgraded Oceaneering International, Inc.'s (Oceaneering) Corporate Family Rating (CFR) to Ba2 from Ba1, Probability of Default Rating to Ba2-PD from Ba1-PD, and senior unsecured ratings to Ba2 from Ba1. The outlook remains negative.

"Oceaneering will have high financial leverage over a longer time horizon than our previous expectations due to continued volatility in oil prices and a slow recovery in offshore markets globally, commented Sajjad Alam, Moody's Senior Analyst. "Although Oceaneering's operating environment will likely remain challenged, the company's sizeable cash balance should continue to lend support and flexibility in navigating the protracted industry recovery."

Downgrades:

..Issuer: Oceaneering International, Inc.

.... Probability of Default Rating, Downgraded to Ba2-PD from Ba1-PD

.... Corporate Family Rating, Downgraded to Ba2 from Ba1

....Senior Unsecured Revolving Credit Facility, Downgraded to Ba2 (LGD4) from Ba1 (LGD4)

....Senior Unsecured Notes, Downgraded to Ba2 (LGD4) from Ba1 (LGD4)

Outlook Actions:

..Issuer: Oceaneering International, Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

Oceaneering's Ba2 CFR reflects its continued high financial leverage, weak margins, limited free cash flow generation prospects through 2020, as well as the likelihood of a late-cycle recovery for the offshore oil and gas industry. While Oceaneering has a long track record of producing free cash flow, the company generated negative free cash flow in five of last six quarters amid weak customer demand and capital investments. However, the company did generate free cash flow in the second quarter of 2019, and Moody's expects the company to turn cash flow neutral in 2019 and then generate a modest amount of free cash flow in 2020 amid increasing offshore upstream investments, Oceaneering's reduced level of capital expenditures and management's sharp focus on managing the business within operating cash flow. Oceaneering's core strengths remain its leading market position in the niche offshore ROV segment, strong liquidity, and a diversified and strong customer base comprised of mostly large blue-chip oil and gas companies.

The offshore oil and gas industry is showing early signs of recovery based on an increasing number of project sanctions, subsea tree installations and rig contract awards since late-2018. This has led to directionally higher utilization and dayrates for Oceaneering's ROVs in 2019. However, the pace of recovery has been slow as upstream companies are still exercising caution in committing capital to deepwater projects that require large sums of capital or take a long time to generate cash flow. There is also no guarantee that demand for Oceaneering's services will continue to improve in a linear fashion in coming quarters. While Oceaneering has been able to maintain its market leadership in the global remotely operated vehicle (ROV) segment throughout this downturn, Moody's does not anticipate material improvements to Oceaneering's average dayrates and fleet utilization through 2020 from their cyclically low 2018 levels. Without more upstream capital allocation towards offshore projects, the company will not be able to boost earnings on a sustained basis or delever quickly.

Oceaneering's substantial cash balance has provided strong credit support since 2015. The SGL-1 rating reflects very good liquidity taking into consideration the company's $356 million cash balance and an undrawn $500 million committed revolving credit facility (due January 25, 2023) as of June 30, 2019 (of which $50 million commitment will expire on October 25, 2021). The company has no debt maturities until 2024, when the $500 million 4.65% notes are due. Oceaneering should be able to comfortably meet the 55% debt to capitalization financial covenant in its revolver credit agreement through 2020.

Due to the preponderance of a single class of debt in the capital structure, Oceaneering's notes and credit facilities are rated Ba2, the same level as the Corporate Family Rating. The notes and the credit facilities rank pari-passu with all present and future senior unsecured indebtedness of the company, and do not have guarantees from Oceaneering's operating subsidiaries.

There's still risk that Oceaneering's credit metrics could deteriorate if industry conditions remain challenged or weaken further, which is captured in the negative rating outlook. The outlook could be revised to stable if the company can exhibit sequential earnings and margin growth and generate free cash flow over several quarters in an improving industry environment.

Oceaneering's ratings could be downgraded if the company continues to produce negative free cash flow, significantly reduces its cash cushion, or is unable to maintain the Debt/EBITDA ratio below 4.5x. While an upgrade is unlikely through 2020, if the company could reduce debt, sustain Debt/EBITDA below 3x, and generate free cash flow consistently in a stable to improving industry environment, a higher rating could be considered.

Oceaneering International, Inc. is a Houston, Texas based globally diversified OFS company and a leading provider of remotely operated vehicles to the offshore oil and gas industry.

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.

REGULATORY DISCLOSURES

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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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