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Rating Action:

Moody's upgrades PGS' ratings to B3, stable outlook

13 Mar 2018

London, 13 March 2018 -- Moody's Investors Service, ("Moody's") has today upgraded the Corporate Family Rating (CFR) of Petroleum Geo-Services ASA (PGS) to B3 from Caa2 and Probability of Default Rating (PDR) to B3-PD from Caa2-PD. Concurrently, Moody's has also upgraded the ratings on the remaining $26 million senior unsecured notes due 2018 and the $400 million senior secured term loan B to B3 from Caa2 and assigned a B3 rating to the $400 million senior secured revolving credit facility. The outlook on all ratings remains stable.

RATINGS RATIONALE

The upgrade of the rating to B3 from Caa2 reflects the marginal recovery in the financial profile of the company in 2017 as demonstrated by adjusted gross debt/EBITDA (excl. multi-client capex) declining to 6.4x in 2017 from 7.1x in 2016. The improvement in EBITDA was a result of growth mainly stemming from the Multi-client pre-funding segment, demonstrating more stability in the market. The upgrade also reflects better expected market fundamentals for the seismic industry in 2018, supported by the increase in oil prices. The B3 rating reflects the company's adequate liquidity profile, which should enable the company to sustain through these market conditions, until there is a full recovery.

Seismic market conditions are expected to recover marginally in 2018. Exploration spending and drilling have been significantly reduced in the past years due to low oil prices. Investment is expected to pick up over time to ensure reserve life is maintained for integrated oil companies and independent exploration & production companies, which should result in better demand conditions for seismic companies. Schlumberger's exit from the seismic acquisition market should reduce supply from the market. This supported by increasing oil prices, should help in balancing the fundamentals for the seismic market in 2018, however, the timing of a full market recovery remains uncertain. Moody's expects limited recovery for the seismic market in 2018, however, market conditions should begin to improve during the year.

Moody's expects marginal recovery in 2018 versus 2017, resulting in adjusted EBITDA (excl. multi-client capex) of around $350-400 million, mainly as a result of further cost cutting measures expected in 2018 driven by staff reduction and fleet adjustments. The company should be able to generate positive FCF of around $100 million compared to 2017 of around $-150 million, mainly due to lower capex expected in 2018 as new build capex in now completed. Adjusted gross debt/EBITDA (excl. multi-client capex) is expected to decline to around 4.5x in 2018 from around 6.4x in 2017, with further deleveraging in 2019, depending on market conditions.

The company reported a cash balance of $47 million as of December 2017 and has $77 million in debt maturities in 2018. PGS has drawn $190 million under its $400 million revolving credit facility (RCF), which gives access to $210 million of availability. The RCF will reduce to $350 million in September 2018. Moody's expects the company to remain in compliance with its financial covenants, which should enable the company to access the facility if there is a need. This combined with positive FCF generation demonstrates an adequate liquidity profile for PGS for the coming 12-18 months. The company has debt maturities of $51 million in 2019 and $453 million in 2020, which includes the maturity of the RCF and the senior notes.

STRUCTURAL CONSIDERATIONS

The company's 2017 debt comprised of $400 million term loan due in March 2021, a $400 million revolving credit facility (reducing to $350 million in September 2018) due in September 2020, $26 million of remaining senior notes due in December 2018 and $212 million of senior notes due December 2020. In addition, PGS has $417 million of export credit facilities (ECFs) outstanding due in 2025 and 2027 with semi-annual installment payments.

The B3 rating on the senior secured bank facilities, in line with the CFR, reflects that they effectively rank pari passu with the senior notes due 2018, (as they only have security in the form of share pledges). Both the secured bank facilities and the 2018 notes will be guaranteed on an unsecured basis by same operating subsidiaries.

RATING OUTLOOK

The stable outlook reflects Moody's expectations that further downside market risk is limited and the company should be able to improve its financial profile marginally in 2018 as market shows early signs of recovery. The outlook also reflects expectations that the company should be able to maintain its adequate liquidity profile at all times.

WHAT COULD TAKE THE RATING UP

An upgrade of the rating is highly dependent on the recovery of the market conditions, leading to an improvement in the financial profile of the company such that adjusted EBIT margin turns positive trending above 5% and adjusted debt/EBITDA (excl. multi-client capex) is below 4.5x on a consistent basis. An upgrade would also require a good liquidity position and maintaining the positive FCF generation on a sustainable basis.

WHAT COULD TAKE THE RATING DOWN

The B3 rating could come under pressure if the market remains weak resulting in negative EBIT margin and adjusted debt/EBITDA (excl. multi-client capex) is above 6.0x on a consistent basis. The rating could also be downgraded if there is a deterioration in the liquidity profile of the company.

RATING METHODOLOGY

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.

COMPANY PROFILE

PGS is one of the leading offshore seismic acquisition companies with worldwide operations. PGS headquarters are located at Oslo, Norway. The company is a technologically leading oilfield services company specializing in reservoir and geophysical services, including seismic data acquisition, processing and interpretation, and field evaluation. PGS maintains an extensive multi-client seismic data library. For the year ended 31 December 2017, PGS reported revenues of $839 million. PGS is a public limited company incorporated in the Kingdom of Norway. The company is listed on the Oslo Stock Exchange and its market capitalisation was $1.1 billion as of 12th March 2018.

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.

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.

Shruti Kulkarni
Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Anke N Richter, CFA
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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