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S&P rates Odfjell B+, notes BB
S&P said it preliminarily assigned Odfjell Drilling Ltd. a B+ issuer rating and preliminarily rated its planned $390 million of five-year senior secured first-lien notes BB issue and 1 recovery ratings. The 1 recovery rating indicates very high (90%-100%; rounded estimate: 95%) recovery in a default. The outlook is stable.
“Odfjell Drilling will likely remain a small-scale driller with significant asset concentration. With only four rigs of its own, along with four managed rigs, we see Odfjell Drilling as exposed to risks arising from its dependence on a high share of EBITDA from each unit. This is a key negative consideration for Odfjell Drilling compared to its larger peers, since unforeseen events that hampered Odfjell Drilling's ability to operate one or more rigs would have a material impact on its cash flows,” S&P said in a press release.
However, “Above-average operating efficiency and profitability support the ratings. While Odfjell Drilling's fleet is small, we believe that it is very well managed, with an overall utilization rate of close to 99% over the past few years. This, combined with the rigs' high technological specifications, allows the company to contract the rigs more often and at higher day rates than peers. This supports Odfjell Drilling's superior profitability, with EBITDA margins over 40% on average,” the agency noted.
Odfjell plans to use the proceeds to repay debt.
The outlook reflects the view the company’s credit measures will remain consistent with the ratings over the next 12 months, with debt to EBITDA below 3x, supported by an ongoing gradual pick-up in offshore drilling and healthy cash flow visibility over the coming years.
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