Transocean Inc.'s New Subsidiary Notes Rated 'BB-' (Recovery Rating: '1')
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NEW YORK (S&P Global Ratings) July 10, 2018--S&P Global Ratings today assigned
its 'BB-' issue-level rating to Cayman Islands-based offshore drilling
contractor Transocean Inc. subsidiary Transocean Pontus Ltd's proposed $600
million secured notes due 2025. The notes are secured by the seventh
generation ultra-deepwater drillship Deepwater Pontus, which is under
long-term contract with a wholly owned subsidiary of Royal Dutch Shell PLC
through October 2027 at a favorable day-rate relative to current market
conditions. The notes are fully and unconditionally guaranteed by parent
companies Transocean Inc. and Transocean Ltd., and collateral rig-owning
subsidiaries. The recovery rating on this debt is '1', indicating our
expectation of very high (90% to 100%, rounded estimate: 95%) recovery to
creditors in the event of a payment default.
We expect proceeds to be used to refinance debt incurred in the construction
of the Deepwater Pontus.
The corporate credit rating on Transocean Inc. remains 'B' with a negative
outlook .
RECOVERY ANALYSIS
Key analytical factors
- We value the company on a discrete asset-value basis, based on net book
value and estimated appraisal values of the company's fleet.
- We estimate that for the company to default it would require a sustained
period of minimal demand for offshore contract drilling services. This
would likely result from sustained low oil prices or a permanent shift
toward onshore resources.
- We based our recovery analysis on net enterprise value for Transocean
(net of 7% administration expense) of about $6.8 billion. In our view,
the company's creditors would realize greater value through a
reorganization of the company than through a liquidation of its assets.
- Our analysis assumes the company's secured credit facility has a
first-priority security interest in the Invictus, Inspiration, Asgard,
Barents, and Spitsbergen rigs, while its secured notes have a
first-priority security interest in the Proteus, Thalassa, Conqueror and
Pontus drillships, and the Encourage and Enabler harsh environment rigs,
and, other than the notes secured by the Conqueror, are guaranteed by
parent companies Transocean Inc. and Transocean Ltd. We assume the
secured debt ranks equally in right of payment with the company's
unsecured debt with subsidiary guarantees with respect to its other
assets (other than Global Marine Inc.)
- With regard to Transocean's unsecured debt with subsidiary guarantees,
our recovery expectations numerically exceed 90%, but we cap the recovery
rating on unsecured debt for companies in the 'B' rating category at '2',
indicating the potential for meaningful (70% to 90%) recovery of
principal, to reflect the heightened risk of additional priority or pari
passu debt being added along the path to default.
- Notes issued by Global Marine Inc. do not benefit from guarantees and we
base our recovery analysis of the notes on our assessment of recovery
value at the subsidiary in a hypothetical default scenario.
Simulated default assumptions
- Simulated year of default: 2021
- Jurisdiction (Rank A): Although Transocean Inc is incorporated in the
Cayman Islands, with parent company Transocean Ltd headquartered in
Switzerland, we believe it would most likely file for bankruptcy
protection or restructure under the U.S. bankruptcy code given its nexus
in the U.S.
- Transocean's $1 billion revolving credit facility (which matures in 2023)
is 60% utilized, with total outstanding borrowings at the time of our
hypothetical default of about $610 million. Our 60% assumption is in
accordance with our general guidelines for asset-backed lending (ABL)
facilities.
- We have assumed that all non-amortizing debt instruments maturing before
2021--which we have identified as our hypothetical year of default--will
be refinanced or extended on similar terms.
- We assume the secured term loans acquired in the Songa transaction are
repaid in full with proceeds from recent debt issues and cash on hand.
Simplified waterfall (Transocean Inc.)
- Net enterprise value (after 7% bankruptcy administrative costs): $6.8
billion
- Secured first lien debt at hypothetical default (including the credit
facility and secured notes): $2.4 billion
--Recovery expectations: 90%-100% (Rounded estimate: 95%)
- Total value available to unsecured claims: $4.4 billion
- Senior unsecured debt (with subsidiary guarantees): $2.5 billion
--Recovery expectations: 70% to 90% (Rounded estimate: 85%)
- Total value available to subordinated unsecured claims: $1.8 billion
- Senior subordinated unsecured debt: $3.6 billion
--Recovery expectations: 50% to 70% (Rounded estimate: 50%)
Simplified Waterfall (Global Marine):
- Net enterprise value (after 5% administrative costs): $28 million
- Senior unsecured debt: $310 million
--Recovery expectations: 0% to 10% (rounded estimate: 5%)
Notes: All debt amounts include six months of prepe
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