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Global Credit Research - 19 Aug 2010
Approximately $900 million of debt securities affected
New York, August 19, 2010 -- Moody's Investors Service rated Rowan Companies, Inc.'s
(Rowan) new senior unsecured notes Baa3, while also affirming the
Baa3 existing senior unsecured rating. The outlook remains negative.
"The negative outlook reflects the significant amount of secured
debt Rowan is assuming in conjunction with its acquisition of Skeie Drilling
and Production ASA," said Moody's Vice President,
Ken Austin. "Although this financing is in advance of repaying
the secured debt and will clean-up the capital structure,
the negative outlook considers that the refinancing of Skeie debt may
not actually be completed until 2011."
The $530 million of debt at SKDP that Rowan will assume is secured
with either a first or second lien on the rigs owned by SKDP. This
note offering in conjunction with a new senior unsecured, delayed
draw term loan will be used to eventually pay-off the Skeie debt
which will remove the structural subordination to the existing senior
unsecured note holders and restore Rowan's capital structure to
one that is compatible with an investment grade profile. Moody's
notes that until the Skeie debt is fully repaid, Rowan's pro
forma leverage on a gross basis will be quite inflated, while net
debt and leverage should be in-line with current levels.
The affirmation of the ratings assumes that the Skeie debt will get repaid
by the second quarter of 2011and Rowan's balance sheet debt will
revert to current levels.
The negative outlook also reflects the added leverage the Skeie acquisition
brings to Rowan given the rigs are still being built and currently remain
without firm contracts. While this class of rig is capable of drilling
in harsh environments and can support deep natural gas drilling programs,
the ability to obtain long-term contracts at supportive dayrates
is also important to improving the leverage trend and returning the outlook
The move back to stable would require Rowan to have a cleaner capital
structure with much less secured debt that places the senior unsecured
notes in a much improved position in the capital structure. Furthermore,
the company needs to contract at least two of the acquired rigs under
long-term contracts providing visible earnings and cashflows that
can offset the assumed debt.
The Baa3 rating reflects Rowan's position within the offshore drilling
market as a leading provider of premium jack-up rig services.
Although still smaller than many of peers in terms of the number of rigs
that it provides, even after this acquisition and recent newbuilds,
the quality of the fleet largely serves as a mitigating factor.
The Baa3 rating is tempered by the company's still relatively smaller
fleet size, its focus on the more volatile jack-up market,
and the added volatility of the land rig and manufacturing businesses.
The last rating action for Rowan Companies, Inc. was on July
2, 2010 when we placed a negative outlook on the ratings.
The principal methodology used in rating Rowan was Moody's Global Oilfield
Services Rating Methodology, published in December, 2009 and
available on www.moodys.com in the Rating Methodologies
sub-directory under the Research & Ratings tab. Other
methodologies and factors that may have been considered in the process
of rating this issuer can also be found in the Rating Methodologies sub-directory
on Moody's website.
Rowan Companies, Inc. is headquartered in Houston,
Texas, and is a leading provider of offshore drilling services,
drilling rig manufacturing services, and land drilling services.
Information sources used to prepare the credit rating are the following:
parties involved in the ratings, parties not involved in the ratings,
public information, and confidential and proprietary Moody's
Investors Service's information.
Moody's Investors Service considers the quality of information available
on the issuer satisfactory for the purposes of assigning a credit rating.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit or validate
information received in the rating process.
Please see ratings tab on the issuer/entity page on Moodys.com
for the last rating action and the rating history.
The date on which some Credit Ratings were first released goes back to
a time before Moody's Investors Service's Credit Ratings were fully digitized
and accurate data may not be available. Consequently, Moody's
Investors Service provides a date that it believes is the most reliable
and accurate based on the information that is available to it.
Please see the ratings disclosure page on our website www.moodys.com
for further information.
Please see the Credit Policy page on Moodys.com for the methodologies
used in determining ratings, further information on the meaning
of each rating category and the definition of default and recovery.
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's rates Rowan's new notes Baa3; outlook remains negative
250 Greenwich Street
New York, NY 10007
No Related Data.
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