S&P Downgrades Weatherford (WFT) to 'B+'; Outlook Negative

S&P Global Ratings lowered its corporate credit rating on Weatherford International plc (NYSE: WFT) to 'B+' from 'BB-'. The outlook is negative.

At the same time, we lowered our issue-level ratings on the company's secured notes and its senior unsecured guaranteed credit facilities to 'BB' from 'BB+'. The recovery rating on this debt remains '1', reflecting our estimate of very high (90% to 100%) recovery to creditors in the event of a payment default. We also lowered our issue-level ratings on the company's senior unsecured debt to 'B+' from 'BB-'. The recovery rating on this debt remains '3', reflecting our estimate of meaningful (50% to 70%, lower half of the range) recovery to creditors in the event of a payment default.

In addition, we assigned a 'B+' issue-level rating and '3' recovery rating (50% to 70%, lower half of the range) to the company's new $500 million senior unsecured notes due 2024.

"The downgrade reflects our revised free operating cash flow estimates for Weatherford following weaker-than-anticipated cash inflows in the third quarter," said S&P Global Ratings credit analyst Carin Dehne-Kiley.

The negative outlook reflects our view that Weatherford's credit measures could remain below our expectations for the rating in 2017, unless the market recovers or the company takes steps to reduce total debt, or that liquidity could deteriorate.

We could lower the rating if we expected Weatherford's FFO/debt to remain well below 12% for a sustained period. This would most likely occur if revenues declined by more than we currently anticipate or the company's margins did not improve. We could also lower the rating if the company's liquidity deteriorated, which could occur if it were unable to maintain compliance with its covenants or get a waiver from its banks.

We could revise the outlook to stable if we expected Weatherford to bring and maintain FFO/debt closer to 12% for a sustained period, which would most likely occur if the company were able to improve operating margins in conjunction with an industry recovery.

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