S&P lowers Offshore Drilling

Standard & Poor’s said it lowered the corporate credit and issue-level ratings on Offshore Drilling Holding SA to B+ from BB-.

The outlook is stable.

The recovery rating on the issue-level rating is unchanged at 3.

The downgrade reflects an expectation that Offshore Drilling will show weaker financial performance given that day rates will remain at lower levels than previously expected, S&P said.

Lower day rates will result in weaker interest-coverage ratios and a slower cash build-up for bullet payments under the notes, the agency said.

Under the revised base-case scenario, the company’s cash flow will only be able to cover about 50% of the $950 million principal payment due in 2020, S&P said.

As a consequence, the rating on the notes does incorporate refinancing risk, the agency added.

The B+ ratings also reflect the company’s uncertain quality of cash flow, high concentration and correlation of assets, S&P said, and ability to service its financial obligations.

The ratings also consider Offshore’s prudent financial management and its exposure to a highly competitive and cyclical industry, the agency said.

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