Moody's may downgrade Transocean, GlobalSantaFe

Moody's Investors Service said it placed the Baa1 senior unsecured ratings of Transocean, Inc. and GlobalSantaFe Corp. under review for possible downgrade following the merger announcement of the two companies.

The agency said the transaction is, in essence, a stock-for-stock merger with a $15 billion debt-funded stock buyback/recapitalization. The result is a sharp increase in the overall leverage and a weaker financial profile, including a pro forma debt-to-EBITDA ratio of over 5x. This is significantly higher than Transocean's current leverage of 1.92x and GlobalSantaFe's leverage of 1.2x

However, given the scale and diversification of the combined company, the quality of the combined rig fleet and the current fundamentals of the offshore drilling markets, Moody's said it expects the combined company will likely maintain an investment-grade rating, assuming the deal closes as currently constructed.

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