Moody's Reviews Transocean's (RIG) Rating for Downgrade

Moody's Investors Service placed Transocean's (NYSE: RIG) Baa3 rating on review for downgrade to reflect the company's large capital commitments and Moody's expectation for a significant increase in leverage as the company enters what appears to be a prolonged industry down-cycle. The review will assess the company's capital spending, financing and dividend plans in light of the impact that weak commodity prices will have on the company's operating cash flow and leverage.

"Moody's has had a negative outlook on Transocean's Baa3 rating since May 2012. The rapid drop in oil prices and the resulting deterioration of the market conditions for offshore drilling contractors has elevated the risk profile for the company," said Stuart Miller, Moody's Vice President -- Senior Credit Officer. "Moody's believes that based on Transocean's current operating model and high capital spending commitments over the next several years, there is heightened risk that before the end of 2017 the company's leverage will climb to levels that do not support its current Baa3 rating."

Issuer: Transocean Inc.

....Senior Unsecured: Baa3, rating under review for downgrade

....Backed Senior Unsecured: Baa3, rating under review for downgrade

....Outlook: Rating under review for downgrade

RATINGS RATIONALE

Transocean's Baa3 rating has been placed under review to address Moody's growing concern that leverage will increase materially over the next three years in light of deteriorating market conditions, contract roll-off, and Transocean's large capital commitments for the construction of new drilling rigs. The increased possibility of materially worsening financial metrics more than offsets the decreasing risk of additional payouts associated with the Macondo incident and the possibility of large distributions to equity holders. Furthermore, over time, the possibility of debt-financed drop-downs of some of the company's best assets to Transocean Partners LLC could result in structural subordination issues for the creditors at the parent level.

Transocean needs a debt reduction plan that incorporates the likelihood of much lower operating cash flow through 2017 to retain its Baa3 rating.

Transocean has good liquidity with about $2.9 billion of unrestricted cash and about $3.0 billion of unused revolving credit facility availability at the end of September 2014. However, as operating cash flow falls, to maintain leverage at appropriate levels, the company will become more reliant on asset sales, equity issuance, and a reduction in the unrestricted cash balance to reduce outstanding debt, to make scheduled Macondo settlement payments, and to make any dividend payments.

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