S&P Downgrades Gulfmark Offshore (GLF) to 'B-'; Outlook Stable

Standard & Poor's Ratings Services lowered its corporate credit rating on Houston-based GulfMark Offshore Inc. (NYSE: GLF) to 'B-' from 'B+'. The outlook is stable.

At the same time, we lowered the issue-level ratings on the company's unsecured notes to 'B' (one notch above the corporate credit rating) from 'B+'. We revised the recovery rating on the company's unsecured notes to '2' from '3', indicating our expectation of substantial (high end of the 70% to 90% range) recovery in the event of payment default.

"The downgrade on Gulfmark reflects our expectation that the company's utilization and dayrates will remain very weak through at least 2016 due to a global oversupply of offshore support vessels as well as weaker demand for the vessels due to decreased offshore drilling given the rapid decline in oil prices," said Standard & Poor's credit analyst Stephen Scovotti.

As a result, we expect the company's credit measures in 2015 and 2016 to materially deteriorate in comparison to 2014. The revision of our recovery ratings to '2' from '3' is a result of a reduction in secured debt in front of unsecured debt in our default scenario, given the company's recent amendment to its credit facility.

We consider GulfMark's business risk profile to be "fair" and its financial risk profile to be "highly leveraged." We view liquidity as "adequate."

The stable outlook reflects our expectation that although industry conditions will remain weak through at least 2016, we expect the company to maintain what we consider to be "adequate" liquidity.

We could lower the ratings if we viewed liquidity as "less than adequate" or we viewed the company's leverage as unsustainable, such that we expected FFO to debt to remain well below 12% for an extended period. This could occur if dayrates and utilization for the company's OSV's weaken beyond our expectations.

We could raise the ratings if the company's leverage improves such that we expect FFO to debt to be about 12%. This could occur if industry conditions improve, causing dayrates and utilization to improve.

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