Moody’s cuts Petra Diamonds

Moody’s Investors Service said it downgraded Petra Diamonds Ltd.’s corporate family rating to Caa1 from B3 and its probability of default rating to Caa1-PD from B3-PD. Moody’s also downgraded to Caa1 from B3 the rating on the $650 million guaranteed senior secured second-lien notes due in May 2022 issued by Petra Diamonds US Treasury plc, a wholly owned subsidiary of Petra. The outlook for both entities is stable.

The downgrades reflect the uncertainty in the pace of Petra’s deleveraging trend within the context of a challenging diamond market and volatile global economic conditions. This heightens refinancing risk for Petra ahead of its $650 million notes due 2022, Moody’s said.

Moody’s revised downwards its base case forecast for Petra following the company’s first quarter FY2020 trading update which reported a 23% year-over-year decline in first quarter revenues and a 4% quarter-over-quarter decline in diamond prices. For the fiscal year ended June 30, Petra’s Moody’s adjusted gross debt/EBITDA stood at 5.2x and EBIT/interest expense stood at 0.4x while metrics in FY2020 are forecasted to be 4.7x and 0.8x respectively.

“While Moody’s base case forecast indicates an incremental improvement in credit metrics, the overall improvement in cash flow generation is expected to remain weak because of the operating environment,” the agency said in a press release.

S&P rates Weatherford B-

S&P said it raised its rating on Weatherford International plc to B- from D upon the company’s emergency from bankruptcy.

The agency also assigned a B+ issue-level rating and 1 recovery rating to the company’s $450 million asset-based lending revolving credit facility and $195 million letter of credit facility (both maturing in 2024); and a B- issue-level rating and 3 recovery rating to its $2.1 billion unsecured guaranteed notes due 2024.

“Weatherford’s reorganization includes the elimination of about $6.2 billion of funded debt relative to its pre-bankruptcy levels and envisages no significant change to the company’s business in the oilfield services sector. On a pro forma basis for the revised capital structure, we expect the company’s funds from operations (FFO) to total debt to be about 20% in 2020 and 2021, which compares with less than 0% for the first nine months of 2019,” said S&P in a press release.

The restructuring will cut the company’s annual interest costs by $370 million. S&P expects Weatherford’s debt to EBITDA to be about 2.5x in 2020 and 2021, which compares with 14x before it emerged.

The outlook is negative. “The negative outlook on Weatherford reflects our view that despite the significant reduction in the company’s gross debt, market conditions in the oilfield services sector remain challenging,” S&P said.

Moody’s rates Weatherford notes B2

Moody’s Investors Service said it assigned new ratings to Weatherford International Ltd. following its emergence from bankruptcy, including a B1 corporate family rating, a B1-PD probability of default rating, a Ba2 rating on its secured ABL and letters of credit facilities and a B2 rating on the company’s senior unsecured notes. The outlook is stable.

“Weatherford has a more sustainable capital structure and greater financial flexibility after eliminating over $6.2 billion of debt through a pre-packaged Chapter-11 bankruptcy financial restructuring process during 2019," said Sajjad Alam, a Moody’s senior analyst, in a press release. “While we expect U.S. oilfield services industry conditions to remain weak in 2020, Weatherford should have a relatively stable performance given its significantly lower interest burden, reduced overhead costs, a sizeable liquidity cushion and a diversified international market presence.”

Moody’s rated the $2.1 billion senior unsecured notes B2 because of the significant amount of priority-claim secured debt in Weatherford’s capital structure. The $450 million ABL facility and the $195 million LC facility are both secured by a first-lien claim to Weatherford’s assets and they are rated Ba2. The notes and credit facilities have guarantees from Weatherford International plc, Weatherford International, LL, as well as from most material asset owning subsidiaries, the agency said.

A first-lien claim to certain accounts receivable, inventory and rental tools assets and a second-lien claim to other assets, including real assets secure the ABL facility. A first-lien claim to the non-ABL collateral pool and a second-lien claim to ABL collateral secure the LC facility.

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