Moody's lifts McDermott, Babcock & Wilcox

Moody's Investors Service said it upgraded the corporate family ratings of McDermott International Inc. and J. Ray McDermott, SA to Ba3 from B1, J. Ray's probability-of-default rating to B1 from B2 and J. Ray's senior secured bank facility to Ba2 (LGD2, 22%) from Ba3 (LGD2, 24%).

The agency also upgraded the Babcock & Wilcox Co.'s senior secured bank facility to Baa3 (LGD1, 6%) from Ba2 (LGD2, 19%).

The outlook for J. Ray is positive, and the outlooks for McDermott International and Babcock &Wilcox are stable.

The upgrade of the corporate family ratings reflects continuing operating and financial performance improvement, greater visibility of near-term performance based on growing backlogs, lower leverage with no funded debt at either J. Ray or Babcock & Wilcox and strong liquidity, Moody's said.

The ratings are tempered by the inherent cyclicality in the businesses of J. Ray and Babcock &Wilcox, exposure to fixed price contracts and potential event risk arising from McDermott International's growth strategy, the agency added.

The Baa3 of Babcock & Wilcox's senior secured credit facility reflects the benefit the facility receives from substantial underfunded pension obligations at Babcock & Wilcox as well as other companies within the McDermott International family. Moody's said it expects this rating uplift will decline over time as McDermott International funds these pensions.

J. Ray's positive outlook reflects the company's substantial backlog and the agency's expectation that it will benefit from continued investment in energy infrastructure.

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