Fitch Expects to Rate Weatherford's Senior Unsecured Notes 'B+'/RR4'

NEW YORK--(BUSINESS WIRE)-- Fitch Ratings expects to rate Weatherford International Ltd.'s (Weatherford Bermuda), a wholly-owned subsidiary of Weatherford International plc (Weatherford; NYSE: WFT), senior unsecured notes issuance 'B+/'RR4'. The company intends to use the net proceeds for the pending debt tender with any acceptance shortfalls allocated to the repayment of other indebtedness. Management expects the recent issuances and pending debt tender to result in a relatively limited change in gross debt outstanding. Fitch believes these actions should help alleviate near-term liquidity and refinance risks.

Weatherford Bermuda announced $1 billion in senior unsecured notes due in 2021 and 2023, which is expected to be upsized. The notes will be fully and unconditionally guaranteed by Weatherford and Weatherford International, LLC (Weatherford Delaware) making the notes pari-passu with existing senior unsecured debt.

KEY RATING DRIVERSWeatherford's ratings consider its position as the fourth largest international oil & gas services company, geographic diversification (North America [NA] has historically contributed 45%-50% of consolidated revenues), returns-focused strategic initiatives, and projected FCF profile leading to moderate further debt reduction over the rating horizon. These considerations are offset by the company's mixed asset quality and elevated through-the-cycle leverage metrics.

KEY ASSUMPTIONSFitch's key assumptions within the rating case for Weatherford include:--WTI oil price that trends up from $35/barrel in 2016 to a long-term price of $65/barrel;--Henry Hub gas that trends up from $2.25/mcf in 2016 to a long-term price of $3.25/mcf;--Consolidated revenue decline of over 35% in 2016 with greater declines in NA relative to international regions on average due to further global E&P capital spending reductions with a moderate recovery thereafter;--Margins that exhibit a full year of cost improvements in 2016 with some moderate additional cost reductions assumed thereafter;--Capital expenditures of $250 million in 2016 followed by similarly low levels of capex until operating cash flows exhibit meaningful growth;--Year-over-year cash flow improvements related to Zubair contractual and severance costs;--Application of surplus cash to debt repayment;--Retention of international rig fleet.

RATING SENSITIVITIESPositive: No positive rating actions are currently contemplated over the near term given the continued weakness in the oilfield services outlook and Fitch's projections for leverage that exceeds through-the-cycle levels. However, future developments that may, individually or collectively, lead to a positive rating action include:

For an upgrade to 'BB-':--Demonstrated commitment by management to lower gross debt levels;--Management track record of achieving operational and financial targets;--Mid-cycle debt/EBITDA below 5.0x on a sustained basis.

To resolve the Negative Outlook at 'B+':--Demonstrated ability to effectively manage forecasted liquidity and refinance risks;--Improved oilfield services outlook supported by pricing and/or activity level improvements;--Mid-cycle debt/EBITDA of 5.0x-5.5x on a sustained basis.

Negative: Future developments that may, individually or collectively, lead to a negative rating action include:--Failure to manage FCF that heightens liquidity risks;--Further material, sustained declines in oilfield services demand;--Mid-cycle debt/EBITDA around 6.0x on a sustained basis.

BANK TRANSACTION HELPS ALLEVIATE NEAR-TERM LIQUIDITY CONCERNSWeatherford had cash and equivalents of $464 million as of March 31, 2016. The majority of cash has historically been held by foreign subsidiaries, with $139 million denominated in exchange-restricted Angolan kwanza. Supplemental liquidity is principally provided by the company's recently amended $1.15 billion unsecured guaranteed credit facility due July 2019, which is subject to periodic reductions to a minimum commitment of $1 billion. Fitch notes, however, that the company will have access to an additional $229 million in non-extending bank credit facility commitments until July 2017. The credit facility had a pro forma balance of approximately $535 million, considering the $500 million term loan, as of March 31, 2016.

MATURITY PROFILEOver the next five years, Weatherford has $600 million in 6.35% senior notes due June 2017, $500 million in 6% senior notes due in March 2018, $1 billion in 9.625% senior notes due March 2019, and $773 million in 5.125% senior notes due September 2020. The recently issued $500 million secured term loan is due July 2020, subject to quarterly amortization payments of $12.5 million beginning Sept. 30, 2016. The amended credit facility is subject to a Nov. 28, 2018 springing maturity if 50% of the $1 billion notes due March 2019 are not redeemed, repurchased, refinanced, or otherwise retired.

Management recently announced and amended a cash tender offer for up to $2.1 billion from $1.1 billion of notes maturing between 2017 and 2020. The amended terms increased the tender offer consideration on the 2018, 2019, and 2020 notes, eliminated the cap on the 2019 notes, increased the cap on the 2020 notes, and extended the early (June 16) and final (June 30) tender deadline dates. Fitch believes that these terms should incentivize tender participation, helping mitigate near-term refinance risk, as well as alleviate the amended credit facility's springing maturity provision.

MODIFIED COVENANT PACKAGEThe company's main financial covenants, as defined in the term loan and credit agreement, are a maximum specified senior debt-to-EBITDA ratio of 3x (1.1x as of March 31, 2016; steps down to 2.5x in 2017), maximum specified senior debt and letter of credit-to-EBITDA ratio of 4x (1.7x as of March 31, 2016; steps down to 3.5x in 2017), and minimum asset coverage ratio of 4x (14x as of March 31, 2016). Fitch highlights that the covenant package also allows for additional unsecured guaranteed debt, subject to the greater of $750 million or a 2.5x pro forma specified senior debt-to-EBITDA ratio limitation (Fitch estimated capacity of approximately $1.4 billion as of March 31, 2016) prior to Dec. 31, 2016. Thereafter, the additional unsecured guaranteed debt incurrence limitation will only be subject to the 2.5x pro forma Specified senior debt-to-EBITDA ratio. Specified senior debt, as per the covenants, represents the secured term loan and unsecured debt enhanced by a guarantee. Other customary covenants contained in the indentures governing the senior unsecured notes restrict the ability to incur additional liens, engage in sale and leaseback transactions, and merge, consolidate, or sell assets, as well as change in control provisions.

SECURITY AND GUARANTEESThe term loan security package is a first lien on Weatherford Bermuda with guarantees from the parent and Weatherford Delaware), as well as guarantees from WOFS International Finance GmbH (Swiss) and Weatherford Worldwide Holdings GmbH, among others. The amended unsecured guaranteed credit facility is guaranteed by substantially all material HoldCos and all material OpCos in certain jurisdictions that directly or indirectly represent approximately 100% of EBITDA. Guarantees have also been provided by and between Weatherford Bermuda and Weatherford Delaware for all senior unsecured notes, effectively making the notes pari-passu and establishing cross-guarantees. Additionally, Weatherford International plc has guaranteed substantially all obligations of its affiliates.

Fitch believes that the term loan's first-lien security gives it priority over the unsecured guaranteed credit facility and senior unsecured notes. Further, Fitch views the guarantees provided by the material HoldCos and OpCos as structurally subordinate to the senior unsecured notes.

OTHER CONTINGENT LIABILITIESWeatherford's pension obligations were underfunded by $124 million for the year ended 2015. Fitch believes that pension funding requirements are manageable relative to mid-cycle funds from operations and pension contributions. The company had nearly $1.6 billion in other contingent obligations on a multi-year, undiscounted basis as of Dec. 31, 2015. These obligations consisted of non-cancellable operating lease payments ($1.2 billion) and purchase obligations ($383 million).

FULL LIST OF RATINGS

Weatherford International plc--Long-term IDR 'B+'.

Weatherford International Ltd. (Bermuda)--Long-term IDR 'B+';--Senior secured term loan A 'BB+/RR1';--Senior unsecured guaranteed bank facility 'BB/RR2';--Senior unsecured notes 'B+/RR4';--Short-term IDR 'B';--Commercial paper program 'B'.

Weatherford International, LLC (Delaware)--Long-term IDR 'B+';--Senior unsecured notes 'B+/RR4'.

The Rating Outlook is Negative.

Date of Relevant Rating Committee: May 5, 2016

Additional information is available on www.fitchratings.com

SUMMARY OF FINANCIAL STATEMENT ADJUSTMENTSFitch has made no material adjustments that are not disclosed within the company's public filings.

Applicable CriteriaCorporate Rating Methodology - Including Short-Term Ratings and Parent and Subsidiary Linkage (pub. 17 Aug 2015)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=869362Recovery Ratings and Notching Criteria for Non-Financial Corporate Issuers (pub. 05 Apr 2016)https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=879564

Additional DisclosuresSolicitation Statushttps://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=1005916Endorsement Policyhttps://www.fitchratings.com/jsp/creditdesk/PolicyRegulation.faces?context=2&detail=31

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160610005810/en/

Fitch Ratings
Primary Analyst
Dino Kritikos
Director
+1-312-368-3150
Fitch Ratings, Inc.
70 W. Madison Street
Chicago, IL 60602
or
Secondary Analyst
Joan Okogun
Senior Director
+1-212-908-1384
or
Committee Chairperson
Shalini Mahajan, CFA
Managing Director
+1-212-908-0351
or
Media Relations
Alyssa Castelli, New York, +1 212-908-0540
[email protected]

Source: Fitch Ratings

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