Moody's Places Noble Corp (NE) on Review for Downgrade

Moody's Investors Service placed the Baa2 senior unsecured ratings and Prime-2 short-term ratings of Noble Corp (NYSE: NE) and its rated subsidiaries under review for downgrade. This rating action follows the company's announcements that it will pursue a share repurchase authorization and the development of a master limited partnership (MLP).

"We view today's announcements as an aggressive turn in financial policy, particularly in light of Noble's already elevated financial leverage and the deteriorating outlook for offshore drilling dayrates in 2015 and into 2016," commented Pete Speer, Moody's Senior Vice President. "During our ratings review, we expect to receive more clarity from management on how the proposed MLP and share repurchases will be executed in order to update our expectations for future financial leverage metrics and financial policies."

RATINGS RATIONALE

Noble announced on October 28, 2014 that its Board of Directors has authorized the company to pursue the development of a MLP that would be comprised of interests in select rigs chosen from Noble's existing fleet. The company also announced that the Board has authorized the company to seek approval from its shareholders at a planned December 2014 shareholder's meeting to increase the Company's authority to repurchase its outstanding shares. The increased authorization would be for 37 million shares, or approximately 15% of Noble's outstanding shares.

Moody's views the formation of a MLP as negative for Noble's credit profile. The MLP, based on other offshore driller MLPs that have been formed, would add structural complexity and Noble's creditors' claims to the assets contributed to the MLP would be subordinated to the third party equity ownership and potential debt at the MLP. The potential that capital raised by the MLP would be directed to share repurchases compounds the negative effect on the company's credit. While the formation of the MLP is subject to future market conditions, Moody's believes the shareholder authorization for increased share repurchases is highly likely of being approved and the company could then proceed with share repurchases regardless of the MLP formation.

Noble's existing Baa2 senior unsecured and Prime-2 ratings are supported by the company's relatively new rig fleet and the large contracted revenue backlog for those assets. However, the company's current financial leverage is high for its rating (Debt/EBITDA >3x), and Moody's was expecting leverage metrics to improve through 2015 as the company's new rigs commence operations under existing contracts and the company reduces short-term and maturing debt in 2015 through free cash flow. Given the company's already high financial leverage and the increasingly pessimistic outlook for dayrates in 2015 and into 2016, Moody's views the MLP and share repurchase authorization as another change in financial policy orientation towards shareholders at the expense of creditors.

Moody's ratings review will focus on the company's latest cash flow forecasts, the potential timing of the MLP formation and scope of asset sales to the MLP, and the timing and funding of share repurchases. How Noble plans to prioritize the use of forecasted free cash flow and MLP equity and debt issuance proceeds between share repurchases, future fleet expansion and debt reduction will be primary considerations for its ratings and outlook.

On Review for Downgrade:

..Issuer: Noble Corporation (Cayman Island)

....Senior Unsecured Commercial Paper, Placed on Review for Downgrade, currently P-2

..Issuer: Noble Holding International Limited

....Senior Unsecured Regular Bond/Debentures, Placed on Review for Downgrade, currently Baa2

..Issuer: Noble Drilling Corporation (debt assumed by Noble Holding (U.S.) Corporation)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Downgrade, currently Baa2

Outlook Actions:

..Issuer: Noble Corporation (Cayman Island)

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Noble Holding International Limited

....Outlook, Changed To Rating Under Review From Stable

..Issuer: Noble Drilling Corporation (debt assumed by Noble Holding (U.S.) Corporation)

....Outlook, Changed To Rating Under Review From Stable

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