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Rating Action:

Moody's rates NII's new 9% notes B3, downgrades Nabors' CFR and existing notes ratings

01 Dec 2020

Approximately $176 million of new debt rated

New York, December 01, 2020 -- Moody's Investors Service, ("Moody's") assigned a B3 rating to Nabors Industries Inc.'s (NII) newly issued 9% senior priority guaranteed notes due 2025. Moody's concurrently downgraded Nabors Industries Ltd.'s (Nabors) Corporate Family Rating (CFR) to B3 from B2, Probability of Default Rating (PDR) to B3-PD/LD from B2-PD and guaranteed senior unsecured notes to Caa1 from B2. Moody's also downgraded NII's existing senior unsecured notes to Caa2 from Caa1. Nabors' SGL-3 Speculative Grade Liquidity Rating was unchanged. The rating outlook remains negative for Nabors and NII.

Nabors and NII exchanged approximately $495 million of existing notes at an average discount of 54% through private and public transactions in the fourth quarter of 2020 reducing debt by $269 million. Moody's views these cumulative transactions as a distressed exchange, which represents a default under Moody's definitions. Accordingly, an "/LD" (limited default) designation has been appended to Nabors's PDR indicating that a limited default has occurred. This designation will be removed within a few business days.

"The issuance of new priority guaranteed notes has structurally subordinated existing notes, created a more complex capital structure, and demonstrated Nabors' willingness to engage is such transactions," commented Sajjad Alam, Moody's Senior Analyst. "While the recent exchange transactions helped reduce debt and alleviate near term refinancing pressures, the company will still continue to struggle with its high debt load, significant remaining debt maturities, and limited liquidity resources in a challenging industry environment,"

Ratings assigned:

..Issuer: Nabors Industries, Inc.

....Senior Priority Guaranteed Notes due 2025, Assigned B3 (LGD3)

Ratings Downgraded:

..Issuer: Nabors Industries Ltd.

.... Probability of Default Rating, Downgraded to B3-PD/LD from B2-PD

.... Corporate Family Rating, Downgraded to B3 from B2

....Senior Unsecured Notes, Downgraded to Caa1 (LGD4) from B3 (LGD3)

..Issuer: Nabors Industries, Inc.

....Senior Unsecured Notes, Downgraded to Caa2 (LGD5) from Caa1 (LGD5)

Outlook Actions:

..Issuer: Nabors Industries Ltd.

....Outlook, Remains Negative

..Issuer: Nabors Industries, Inc.

....Outlook, Remains Negative

RATINGS RATIONALE

The newly issued 9% senior priority guaranteed notes due 2025 and the privately issued 6.5% senior priority guaranteed notes due 2025 (unrated) rank pari passu and were issued by NII. These new notes have upstream guarantees from subsidiaries that are closer to the assets relative to Nabors' guaranteed senior unsecured notes issued in January 2020 and NII's existing senior unsecured notes. While the new notes have the same subsidiary and holding company guarantees as NII's revolving credit facility, the revolver is partially secured and has a priority claim to Nabors' assets relative to the new notes. The 2026 and 2028 guaranteed unsecured notes at Nabors are rated Caa1, one notch below the CFR, given their structurally subordinated position to the revolver and the new senior priority guaranteed notes. Moody's views the B3 and Caa1 ratings for the new notes and existing guaranteed unsecured notes as more appropriate than the higher rating indicated by Moody's Loss Given Methodology given the potential for the capital structure to continue to change, including additional senior priority guaranteed notes and Moody's views on ultimate recovery. The NII senior notes lack subsidiary guarantees and rank junior to all other classes of debt in the capital structure and hence are rated Caa2.

Nabors' B3 CFR reflects its high financial leverage, reduced but still significant refinancing needs, and high re-contracting risk stemming from the projected weakness in North American rig demand. Land drillers will have to contend with low dayrates and weak fleet utilization well into 2021 as E&P companies continue to invest conservatively and rig markets remain oversupplied. While the recent revolver amendment and debt exchanges have reduced debt, pushed out maturities and provided greater certainty around liquidity, the company has concurrently added more structural subordination and capital structure complexity. The company still has a series of significant debt maturities starting in 2023, including its revolving credit facility debt. The B3 CFR is supported by Nabors' large scale, high quality rig fleet, long-standing contractual relationship with some of the world's largest oil companies, and a strong and diversified international footprint. The company's relationship with its largest customer, Saudi Aramco (A1 negative), will continue to provide a base level of earnings and stability.

Nabors will have adequate liquidity through 2021, which is reflected in the SGL-3 rating. Moody's expects the company to generate breakeven to slightly positive free cash flow through 2021 and apply any surplus cash flow to reduce debt. As of September 30, 2020, Nabors had $514 million in cash and short-term investments and roughly $184 million of availability under its $1.01 billion revolving credit facility after accounting for LCs and minimum liquidity requirements. However, $381 million of its cash was held at its Saudi joint-venture that was not readily accessible. After executing an amendment in September 2020, $545.8 million of loans under the revolving credit facility are now secured, while the remaining commitment (~$468 million) remains unsecured. Both the secured and unsecured revolving lines will mature at the earlier of (a) October 11, 2023 and (b) July 19, 2022, if any of Nabors' existing 5.5% senior notes due January 2023 remain outstanding as of July 19, 2022. Nabors should be able to comply with its credit agreement financial covenants through 2021 after eliminating the previous net leverage covenant. The revolver financial covenants include a minimum liquidity requirement of $160 million and a guarantor coverage ratio of no less than 4.25x.

The negative outlook reflects Nabors' high financial leverage, risks of additional debt exchanges involving further subordination, and vulnerability to an extended industry downturn.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be downgraded if the EBITDA/interest ratio cannot be sustained above 1.5x, refinancing risk continues to rise, or the company generates material negative free cash flow weakening its liquidity cushion. An upgrade could be considered if the company generates free cash flow and achieves meaningful debt reduction leading to a sustainable EBITDA/interest ratio above 2.5x and debt/EBITDA below 5.5x 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 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Nabors Industries Ltd., a Bermuda-incorporated entity, is one of the largest global land drilling contractors with operations in nearly two dozen countries and several offshore markets. Nabors Industries, Inc. is a wholly owned subsidiary of Nabors Industries Ltd.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004

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.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

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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