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Rating Action:

Moody's reviews Ensco's ratings for downgrade and affirms Rowan's ratings

08 Oct 2018

Approximately $7.5 billion of rated debt affected

New York, October 08, 2018 -- Moody's Investors Service ("Moody's") placed Ensco plc's (Ensco) ratings under review for downgrade following its announcement to acquire Rowan Companies, Inc. (Rowan, B3 developing) in an all-stock transaction on October 8, 2018. Ensco's ratings under review include its B2 Corporate Family Rating (CFR), B2-PD Probability of Default Rating (PDR), B3 senior unsecured notes rating and NP commercial paper rating. At the same time, Moody's affirmed Rowan's B3 CFR, B3-PD PDR and Caa1 senior unsecured notes rating. Ensco's SGL-1 Speculative Grade Liquidity Rating and Rowan's SGL-1 Speculative Grade Liquidity Rating are unchanged. Rowan's outlook was changed to developing from negative.

"While the combination will significantly improve Ensco's business risk profile, fleet quality, and re-contracting prospects, leverage metrics for the combined company will remain very high and weaken further in 2019 from ongoing contract expirations through early 2020," said Sajjad Alam, Moody's Senior Analyst. "Higher oil prices should boost offshore upstream activity and rig demand in 2019, but we expect dayrates to recover gradually and remain low, which will challenge Ensco to reverse the declining trends in earnings and cash flow before 2020."

On Review for Downgrade:

..Issuer: Ensco plc

....Corporate Family Rating, Currently B2

....Probability of Default Rating, Currently B2-PD

....Senior Unsecured Notes, Currently B3 (LGD4)

....Commercial Paper, Currently NP

..Issuer: ENSCO International Incorporated

....Senior Unsecured Notes, Currently B3 (LGD4)

..Issuer: Pride International, Inc.

....Senior Unsecured Notes, Currently B3 (LGD4)

Ratings Affirmed:

..Issuer: Rowan Companies, Inc

....Corporate Family Rating, Affirmed B3

....Probability of Default Rating, Affirmed B3-PD

....Senior Unsecured Notes, Affirmed Caa1 (LGD4)

Outlook Actions:

..Issuer: Ensco plc

....Outlook, Changed to Ratings Under Review from Negative

..Issuer: ENSCO International Incorporated

....Outlook, Changed to Ratings Under Review from Negative

..Issuer: Pride International, Inc.

....Outlook, Changed to Ratings Under Review from Negative

..Issuer: Rowan Companies, Inc

....Outlook, Changed to Developing from Negative

RATINGS RATIONALE

Ensco's review for downgrade will focus on the pro forma capital structure of the combined company, including the size of the revolving credit facility, and whether the debt of Rowan is assumed, guaranteed or partially repaid by Ensco. It will also consider Ensco's combined backlog at the time of closing, the outlook for offshore contract markets and Ensco's ability to attain the promised merger synergies. In the event Ensco's ratings are downgraded, Moody's believes it will be limited to one notch.

Rowan's ratings were affirmed and its rating outlook was changed to developing to reflect that Rowan's ratings are unlikely to be downgraded at closing. Rowan's bond ratings could be equalized with Ensco's bond ratings if both set of bonds have similar guarantee and seniority as well as pari passu ranking within the combined entity. Rowan's CFR could be upgraded if Ensco's CFR is confirmed at B2 upon successful closing.

Ensco's combination with Rowan following the 2017 acquisition of Atwood Oceanics, will create one of the largest, newest and most diversified offshore rig fleets in the world. The new Ensco will have the world's largest jackup fleet with 54 jackups and the second largest floater fleet with 28 floaters enhancing its ability to work in all water depths and geographic markets. The company will also have a broader and stronger customer base, including a long term relationship with Rowan's joint-venture partner Saudi Aramco (unrated), that will place Ensco in a strong competitive position during the recovery phase of the offshore drilling industry.

However, despite improved re-contracting prospects, Ensco and Rowan are facing significant contract expirations through 2019 that will further shrink the combined entity's already reduced earnings absent any significant revival in contract day rates and re-contracting activity. Moody's expects the combined entity's debt/EBITDA ratio to remain highly elevated approaching 10x-12x by the end of 2019.

Ensco's ratings could be downgraded if the EBITDA/interest ratio cannot be sustained above 1.5x or if its cash balance is substantially eroded. Any increase in debt or material loss of backlog would also trigger a downgrade. While unlikely through 2020, Ensco's ratings could be upgraded if the debt/EBITDA ratio is lowered near 6x in a stable to improving industry environment. Rowan's ratings are unlikely to be downgraded at closing unless the company significantly depletes its existing cash balance or levers up.

Both entities will have very good liquidity through 2019. At June 30, 2018, Ensco had $740 million of cash and marketable securities and an undrawn $2.0 billion committed revolver. Rowan had $1.1 billion of cash at June 30, 2018. Moody's expects sufficient covenant headroom through 2019 under both companies' credit agreements.

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.

Rowan is a global provider of offshore contract drilling services and is headquartered in London, UK.

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.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

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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​
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