Moody's cuts Diamond Offshore

Moody's Investors Service said it downgraded the ratings of Diamond Offshore Drilling Inc. to Baa2 from Baa1 and changed the outlook to stable from negative.

Ratings downgraded include Diamond Offshore Drilling's zero-coupon convertible senior debentures to Baa2 from Baa1 and convertible subordinated notes to Baa3 from Baa2.

The downgrade of Diamond Offshore's ratings was primarily driven by: (i) operating performance and returns that remain below those of its Baa1 rated peers and (ii) Moody's belief that incremental earnings improvements expected in the second half of 2004 will not likely be sufficient to maintain a Baa1 rating given current market fundamentals and the make-up of the company's fleet.

The stable outlook is based on the company's strong balance sheet and Moody's expectation that Diamond should generate free cash flow in 2004 and 2005. Moody's noted the current Baa2 rating with a stable outlook is not likely to come under further negative ratings pressure provided operating performance improves and the company maintains low leverage and sufficient liquidity.

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