Fitch cuts QGOG Constellation, notes to B+

Fitch Ratings said it downgraded the long-term foreign and local currency issuer default ratings of QGOG Constellation SA to B+ from BB-.

The outlook is negative.

The action affects the long-term rating on the company's $700 million of senior unsecured notes due 2019, which were also downgraded to B+/RR4 from BB-.

Fitch said the downgrade reflects the deeper than previously expected downturn in the offshore drilling services industry as well as the increased uncertainty about QGOG's medium-term cash flow generation created by the potential contract renegotiation with Petrobras, its main off-taker.

Furthermore, the action incorporates Petrobras' credit quality deterioration over the past 18 months as well its efforts to reduce capex and expenses by downsizing its drilling rig fleet in line with the current deterioration of the oil market.

As a result, Fitch said it expects more contract renegotiation in its backlog, which could affect QGOG's future cash flow generation and slow down its deleveraging process. This risk is heightened by the short- to medium-term need to renew some of QGOG's contracts as they expire.

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