Moody's upgrades Shelf Drilling

Moody's Investors Service said it upgraded Shelf Drilling, Ltd.'s corporate family rating to Caa1 from Caa2 and the probability of default rating to Caa1-PD from Caa2-PD. Concurrently, the agency boosted Shelf Drilling's $310 million of guaranteed senior secured notes due November 2024 to B1 from B2 and the $900 million of guaranteed senior unsecured notes due February 2025 to Caa2 from Caa3, both issued under Shelf Drilling Holdings, Ltd. The outlook was changed to stable from negative.

The upgrade follows Shelf Drilling reporting it bought five jack up rigs from Noble Corp. for $375 million. “Moody's expects the announced purchase agreement to broaden Shelf Drilling's scale and improve the company's business profile through greater diversification and the addition of a relatively younger fleet. The transaction incorporates the addition of quality assets to Shelf Drilling's fleet in a new and attractive market through a combination of debt and equity and improves the estimated recovery rates of the existing debt instruments issued under Shelf Drilling Holdings, Ltd.,” the agency said in a press release.

“Whilst credit metrics will improve and the underlying market conditions are strong, Moody's considers that Shelf Drilling's ability to build material cash buffers, which the rating agency expects to be close to $125 million pro-forma for the completion of the transaction, remain weak ahead of its $310 million bond maturity in November 2024 and particularly the $900 million bond maturity in February 2025. As a result, the Caa1 CFR reflects the risk of a debt restructuring or distressed exchange in advance of scheduled debt maturities, particularly since the company has a high interest cost burden,” Moody’s added.

The outlook reflects the expectation that Shelf Drilling will be able to employ the rigs in a timely manner and that EBITDA generation will materially improve in 2022 and beyond relative to the levels seen in 2020 and 2021, the agency said.

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