Standard & Poor's Downgrades Transocean (RIG) to 'Junk'

Standard & Poor's Ratings Services today lowered its long-term corporate credit rating and senior unsecured debt ratings on Transocean Inc. (NYSE: RIG) to 'BB+' from 'BBB-'. In addition, we are removing the ratings from CreditWatch where we placed them with negative implications on Jan. 7, 2015. We are also assigning a '3' recovery rating to the company's unsecured senior debt, indicating our expectations for meaningful (high end of the 50% to 70% range) recovery in the event of a default. We also removed the ratings from CreditWatch with negative implications, where we placed them on Jan. 7, 2015. The outlook is stable.

"The downgrade follows our assessment that Transocean's credit measures will weaken beyond our expectations for the 'BBB-' rating despite the planned reduction in its dividend," said Standard & Poor's credit analyst Ben Tsocanos. "We expect dayrates and fleet utilization levels to be weak in 2015 and 2016 because of an oversupply of offshore drilling rigs and weak demand, due in large part to low oil prices," said Mr. Tsocanos.

The ratings on Transocean Inc. reflect our assessment of the company's "satisfactory" business risk and "aggressive" financial risk profiles. We assess Transocean's liquidity as "adequate," reflecting our expectation that liquidity sources will exceed uses by more than 1.2x over the next 24 months, the minimum required for a designation of adequate.

The stable outlook reflects our expectation that Transocean's credit measures will remain adequate for the 'BB+' ratings. We project that leverage will deteriorate in 2015 and 2016, with FFO to debt falling below 20%, and remain below 20% in 2017. We would consider a downgrade if our forecast credit measures were to weaken because of further deterioration in the outlook for deepwater or premium jack-up rig recontracting, such that FFO to debt declined to less than 12% on a sustained basis.

We could consider an upgrade if our forecast credit measures were to improve due to recovery in offshore contract drilling demand such that FFO to debt remained above 20% on a sustained basis.

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