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Rating Action:

Moody's reviews Oil States International's ratings for downgrade

Global Credit Research - 01 Aug 2013

Approximately $1.0 billion of rated debt affected

New York, August 01, 2013 -- Moody's Investors Service (Moody's) placed Oil States International, Inc.'s (OIS) Ba2 Corporate Family Rating (CFR), Ba2-PD Probability of Default Rating (PDR) and Ba3 senior unsecured note rating under review for downgrade following an announcement that the company plans to spin-off its accommodations business into a standalone publicly traded company through a tax-free distribution to OIS' shareholders. The spin-off is expected to close around mid-2014 and will be subject to receipt of an affirmative IRS ruling, SEC review and OIS' final board approval.

Rating Actions:

..Issuer: Oil States International, Inc.

.... Corporate Family Rating, Placed on Review for Possible Downgrade, currently Ba2

.... Probability of Default Rating, Placed on Review for Possible Downgrade, currently Ba2-PD

....Senior Unsecured Regular Bond/Debenture Jun 1, 2019, Placed on Review for Possible Downgrade, currently Ba3

....Senior Unsecured Regular Bond/Debenture Jan 15, 2023, Placed on Review for Possible Downgrade, currently Ba3

Outlook Actions:

....Outlook, Changed To Rating Under Review From Positive

RATINGS RATIONALE

Following the separation of the accommodation business, OIS will become a smaller and less diversified entity with a portfolio of assets and services that have significantly less cash flow stability and visibility and more commodity-like characteristics. Operating margins will also take a hit given the accommodations segment's track record of superior margin performance over OIS' other businesses. The accommodations segment represented 50% of operating income and 48% of assets in 2012. The split, however, will help OIS focus on its core energy services segment that may facilitate more efficient capital allocation and faster growth over the long run.

At separation, if debt is allocated between the two companies in a balanced manner leading to leverage near today's 1.4x level, it is unlikely that OIS' CFR will be lowered more than one notch. However, it is difficult to project the exact post spin-off capital structure based on information available now. Over the next few months, our review will focus on establishing: (i) the timing and steps the company will take to complete the spin-off; (ii) the likely level of debt and leverage at OIS; (ii) the specific assets and liabilities that will get allocated; and (ii) management and governance plans for the future.

The Ba2 Corporate Family Rating (CFR) reflects OIS' large scale integrated accommodation service operations in Canada and Australia that generate stable revenues under long-term contracts, diversified service offerings to the oil and gas industry, global scope of its growing offshore services business serving the more durable deep water markets, and improving leverage. The rating also considers the anticipated growth in the accommodations segment through 2014 and the associated capital spending and execution risks, the inherent volatility in the North American drilling capex cycle, as well as the exposure to the cyclical nature of the Canadian oil sands and Australian mining industries.

The principal methodology used in rating this issuer was the Global Oilfield Services Rating Methodology published in December 2009. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Oil States International, Inc., headquartered in Houston, Texas, manufactures, owns, and operates housing accommodations for the oil and gas and mining industries, provides oilfield services for North American onshore exploration and production companies, and manufactures and services products used in offshore oil and gas exploration and production.

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 rating action on the support provider and in relation to each particular 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 rating action, and whose ratings may change as a result of this 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
Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Steven Wood
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's reviews Oil States International's ratings for downgrade
No Related Data.

 

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