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Global Credit Research - 14 Sep 2010
Approximately $5.8 billion of rated debt affected
New York, September 14, 2010 -- Moody's Investors Service downgraded Weatherford International Ltd.'s
(Weatherford) senior unsecured ratings to Baa2 from Baa1. Weatherford's
Prime-2 commercial paper rating was affirmed. The rating
outlook is stable.
"The ratings downgrade reflects Weatherford's high financial
leverage profile relative to its peers," commented Gretchen
French, Moody's Assistant Vice President. "While
Moody's expects near-term incremental debt reduction,
it is not expected to be sufficient to maintain a Baa1 rating even assuming
relatively stable oilfield services sector conditions."
Moody's recognizes that Weatherford was successful in generating
free cash flow and reducing debt in the second quarter of 2010.
However, earnings have remained below expectations and debt/EBITDA
based on annualized second quarter 2010 levels at approximately 4.3x
(adjusted for operating leases and pensions) remains the highest in the
investment-grade oilfield services and drilling peer group.
The company's high leverage levels stem from an aggressive growth
profile, as the company has funded its growth with a considerable
amount of debt and continued to grow rapidly during the 2009 cyclical
Moody's also recognizes that Weatherford's financial performance
is likely to improve, particularly as international onshore markets,
while subject to local factors and lumpiness, are, in general,
expected to exhibit relatively stable spending patterns over the next
12-18 months. Nevertheless, even assuming reasonably
stable demand for oilfield services, Moody's believes that
Weatherford will be challenged in reducing its financial leverage sufficiently
in the near term in order to achieve leverage metrics consistent with
a Baa1 rating.
Despite Moody's concerns over the company's high financial leverage
profile, Weatherford's Baa2 rating is supported by its significant
size and leading market positions. Over the past several years,
Weatherford has increased its business and geographic diversification,
with growth into new product lines and outside of the more volatile North
American market. The company has numerous patented products and
technologies that give it a competitive edge in several markets,
and more than half of the company's revenues come from markets outside
of North America.
The stable rating outlook assumes that financial leverage will trend lower
over the near-term (under 4.0x debt/EBITDA). The
rating could be lowered if the company's indebtedness were to become
more elevated (debt/EBITDA over 4.5x). A significantly improved
sustainable financial leverage profile would have positive rating implications
(debt/EBITDA under 3x).
Ratings downgraded include Weatherford's senior unsecured notes
to Baa2 from Baa1 and its shelf registration for senior unsecured debt/subordinated
debt/preferred stock to (P)Baa2/(P)Baa3/(P)Ba1 from (P)Baa1/(P)Baa2/(P)Baa3
The principal methodology used in rating Weatherford was the Global Oilfield
Services Rating Methodology rating methodology published in December 2009.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
Weatherford International Ltd., headquartered in Switzerland,
is a diversified international energy service and manufacturing company
that provides a variety of services and equipment to the oil and gas industry.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, public information, confidential
and proprietary Moody's Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of maintaining
a credit rating.
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in assigning a credit 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 ratings tab on the issuer/entity page on Moodys.com
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The date on which some Credit Ratings were first released goes back to
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Please see the ratings disclosure page on our website www.moodys.com
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Asst Vice President - Analyst
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's downgrades Weatherford to Baa2
250 Greenwich Street
New York, NY 10007
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