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Rating Action:

Moody's reviews TechnipFMC's ratings for possible downgrade

26 Aug 2019

New York, August 26, 2019 -- Moody's Investors Service ("Moody's") placed TechnipFMC plc's (TechnipFMC) ratings under review for downgrade following the company's announcement on August 26, 2019 that it will spin-off its Onshore/Offshore segment into a standalone public company. The ratings under review include TechnipFMC's Baa2 issuer rating, Baa2 rating on the EUR 450 million unsecured convertible bonds due 2021 as well as $500 million senior unsecured notes due 2022. At the same time, Moody's placed FMC Technologies, Inc.'s P-2 commercial paper rating on review for downgrade.

"The spin-off of the Onshore/Offshore segment (SpinCo) will result in a smaller, less diversified, and potentially more levered company if TechnipFMC (or RemainCo) does not repay or allocate to SpinCo a commensurate amount of debt to reduce its leverage position for the remaining businesses," said Sajjad Alam, Moody's Vice President. "The company has not disclosed its post-spin capital structure plans, and may not indicate how much debt TechnipFMC will retain or repay until closer to the 2020 closing date. Management has indicated that it expects to maintain investment grade credit metrics for both RemainCo and SpinCo upon closing."

On Review for Downgrade:

..Issuer: FMC Technologies, Inc.

....Senior Unsecured Commercial Paper, Placed on Review for Downgrade, currently P-2

..Issuer: TechnipFMC plc

.... Issuer Rating, Placed on Review for Downgrade, currently Baa2

....Senior Unsecured Conv./Exch. Notes, Placed on Review for Downgrade, currently Baa2

....Senior Unsecured Notes, Placed on Review for Downgrade, currently Baa2

Outlook Actions:

..Issuer: TechnipFMC plc

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

RATINGS RATIONALE

The Onshore/Offshore segment generated 54% of TechnipFMC's EBITDA in the first six months of 2019 (46% in 2018), including operating margins of 16.8%, which was significantly higher than other segments due to very strong contributions from the Yamal project. While revenue and earnings can be lumpy in the Onshore/Offshore segment because of its project based work, this segment requires very little capital (consumed only 2% of TechnipFMC's total capital spending in 2018) and generally receives significant advance payments and progress payments from customers that leads to large cash balances. Moody's estimates that RemainCo will be left with less assets as well as a smaller revenue backlog since the Onshore/Offshore segment had 22% of TechnipFMC's assets and 64% revenue backlog as of June 30, 2019. However, the company has seen a sharp increase in backlog in its subsea segment during 2019, which will partially mitigate the backlog associated with the Onshore/Offshore segment.

The separation, however, will create two distinct and highly specialized businesses, each having strong market position and excellent growth prospects as industry conditions rebound. Each entity will be able to focus on its core competencies with dedicated personnel and resources that should facilitate more efficient capital allocation, higher profitability, greater operational flexibility and faster growth over the long run.

The extent to which the spin-off weakens TechnipFMC's credit quality will depend on the amount of debt reduction and the resultant financial leverage at RemainCo, the allocation of specific assets and liabilities including cash, and the company's future financial policy, governance structure and growth strategy following the separation. At separation, if debt is allocated between the two companies in a manner which does not increase TechnipFMC's gross leverage by more than 1x, it is unlikely that TechnipFMC's will be lowered by more than one notch.

TechnipFMC's leverage remains elevated for the Baa2 rating today at 2.7x as of June 30, 2019 including Moody's adjustments. Moody's expects the company to maintain its strong liquidity and cash position, which are important factors supporting the rating. Mitigating the uncertainty regarding the pace of earnings recovery and the elevated leverage is the company's track record of maintaining a large cash balance relative to its outstanding debt. Any significant erosion in the company's large cash position could put downward pressure on ratings.

TechnipFMC's Baa2 senior unsecured rating is supported by the company's position as one of the world's largest oilfield service and equipment companies, its leading market position in the subsea segment, its sizable backlog with customers, strong geographic diversification, and a track record of relatively conservative financial policies including at its predecessor entities. TechnipFMC is also one of the leading providers of engineering and construction services for the energy industry. Earnings and backlogs have started to recover in 2019 after reaching a cyclical bottom in 2018, supported by TechnipFMC's strong competitive position and its diverse project execution capabilities, including upstream, downstream and petrochemical projects that the company undertakes. However, the company has significant exposure to weak deepwater upstream drilling and development activities through its subsea business while liquefied natural gas facility construction activities have slowed down after robust growth in the last few years, that will continue to pose downside risks to credit metrics.

TechnipFMC manufactures, markets, and services equipment used in the production of oil and natural gas, and provides project management, engineering and construction services for the energy industry across three segments: subsea, onshore/offshore, and surface technologies. FMC Technologies, Inc. and Technip SA merged in January 2017 to form TechnipFMC plc. and the combined company is headquartered in London, United Kingdom.

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.

REGULATORY DISCLOSURES

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.

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.

Amol Joshi, CFA
VP-Sr Credit Officer
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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