Swiss-based offshore drilling company Transocean Ltd has been upgraded by one notch to CCC from CCC- by S&P on steps taken to improve its liquidity. The issue-level ratings were also upgraded by one notch – secured debt rating raised to B-, unsecured guaranteed debt upgraded to CCC+ and unsecured debt upgraded to CCC, reflecting the potential that the company will undertake additional distressed transactions over the next year. The rating agency said that “Despite the recent run-up in oil prices, oil and gas exploration and production companies remain relatively disciplined and have not materially increased their spending.” and added that “As of Apr. 28, 2021, the company had a contract backlog of $7.4 billion, which provides it with significant revenue visibility over the next two years.” The rating action comes with a negative outlook due to high debt and significant capex. The company has $461mn of debt maturing over the next 12 months, $588mn in the 12 months following that, and ~$900mn the year after. It also has a newbuild capex spending of ~$50mn in December 2021 towards delivery of Deepwater Atlas and ~$350mn in May 2022 towards its Deepwater Titan. The funds from operations (FFO) to debt of the company is  less than 5%. These factors could lead to the company to execute another distressed debt exchange or debt restructuring over the next 12 months.

Transocean’s bonds were mixed. Its 11.5% 2027s were up 1.08 to trade at 108.5 while its 7.5% 2031s and 9.35% 2041s were down 2 and 1.12 points to trade at 75.81 and 76.13 respectively.
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