S&P cuts Atwood, debt to B-

S&P said it lowered the corporate credit rating on Atwood Oceanics Inc. to B- from B+.

The outlook remains negative.

At the same time, the agency downgraded the issue-level rating on the company's senior unsecured debt to B- from B+. The recovery rating remains 4, indicating expectations for average (lower end of the 30% to 50% range) recovery in the event of a default.

S&P said the downgrade reflects its expectation that Atwood's credit measures will deteriorate more sharply than anticipated in 2018 and 2019 under the assumption of a delayed recovery in the offshore contract drilling industry.

“Demand for offshore drilling services is currently weak due to limited opportunities for economic investment in offshore oil and gas exploration and development (E&P) under current commodity prices, and due to a shift in focus to shorter-cycle projects by E&P companies,” the agency said in a news release.

“We believe utilization rates and day rates will remain depressed through 2018 before gradually recovering starting in 2019 only.

“In response to the industry downturn, Atwood has deferred the delivery of its two ultra-deepwater drillships under construction, retired older rigs, slashed costs and capital spending, and reduced debt through a tender and open market repurchases.”

Nevertheless, S&P said it estimates that Atwood's funds from operations (FFO)-to-debt ratio will weaken over the next two years, falling well below 12% in 2018 and 2019.

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