Fitch rates Shelf Drilling, notes B

Fitch Ratings said it assigned expected B issuer default ratings to Shelf Drilling, Ltd. and its subsidiary Shelf Drilling Holdings Ltd. (SDHL). The agency also assigned SDHL's upcoming notes an expected senior secured rating of B. The recovery rating is RR4.

“Shelf's IDR reflects inherent cyclicality in the offshore drilling market, a concentrated rig fleet of only jack-up rigs, mixed asset quality, and some residual liquidity risk post-refinancing. Rating strengths are strong near-term revenue visibility from a robust contracted order backlog, its strong relationship with key customers and record of re-contracting rigs through the cycle,” Fitch said in a press release.

The agency noted Shelf’s Fitch-defined EBITDA leverage is high, having peaked at 7.6x in 2021, but it forecasts leverage to retreat to 4.4x in 2023 and to average around 3x in 2024-2025 due to EBITDA growth, mandatory amortization under the new capital structure and a $55 million planned equity raise.

Notably, its $50 million senior secured term loan will amortize fully within 12 months of transaction close, and the $1.075 billion of senior secured notes will amortize by 7%, or around $75 million, per year through the life of the instrument.

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