Seadrill Partners LLC — Moody's appends limited default (LD) designation to Seadrill Partners
Announcement: Moody’s appends limited default (LD) designation to Seadrill Partners
Global Credit Research – 11 Aug 2020
London, 11 August 2020 — Moody’s Investors Service, (“Moody’s”) has appended a limited default (LD) designation to the probability of default rating (“PDR”) of Seadrill Partners LLC (Seadrill, SDLP or the company), changing it to Ca-PD/LD.
RATINGS RATIONALE
Moody’s has appended Seadrill’s PDR of Ca-PD with the “/LD” indicator after the issuer did not pay its interest on the Term Loan B on 30 June 2020 and the majority of the Term Loan B lenders agreed on the creation of a super senior loan of $68.7 million maturing in February 2021, that is offered to lenders in lieu of the interest payment.
Even though an agreement with the lenders has been achieved in order for the missed interest payment not to constitute an event of default, Moody’s considers it a limited default under its default definitions, which is intended to capture events whereby issuers fail to meet debt service obligations outlined in their original debt agreements.
The company’s corporate family rating (CFR) of Caa3, and the Caa3 instrument rating of the Term Loan B issued by Seadrill Operating LP remain unchanged as this Distressed Exchange does not materially improve the very weak financial profile of Seadrill. The ratings and negative outlook on all ratings continue to reflect the very elevated risk that the capital structure will ultimately prove unsustainable.
STRUCTURAL CONSIDERATIONS
The new super senior loan matures in February 2021 and ranks ahead of the rated Term Loan B. Together they constitute the bulk of Seadrill’s debt, since Seadrill has repaid $230 million secured bank debt in 2020. Following the repayment, the related vessels have become part of the security package of the super senior loan and Term Loan B. The super senior loan and the Term Loan B have first priority interest on all tangible and intangible assets of the subsidiaries, including the first lien on the vessels.
RATING OUTLOOK
The negative outlook reflects (i) the potential further deterioration in operating results and financial leverage amid SDLP’s shrinking order backlog and (ii) considerable uncertainty as to the outcome of the refinancing negotiations, including the extent of the losses to be borne by lenders and the shape of SDLP’s future capital structure.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
Although highly unlikely in the near term, a rating upgrade or a stabilisation of the outlook may be considered should SDLP demonstrate the ability to rebuild a sustainable capital structure while achieving a significant recovery in underlying operating performance.
Conversely, the ratings may be further downgraded depending on the outcome of the refinancing negotiations undertaken by SDLP, and the extent of the potential losses suffered by its lenders.
PRINCIPAL METHODOLOGY
The methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.
COMPANY PROFILE
Seadrill Partners LLC is a Marshall Islands registered provider of offshore drilling services to the oil and gas industry and its fleet consists of four 6th generation ultra-deepwater semi-submersibles and four ultra-deepwater drillships, two tender barges and one semi-tender barge. SDLP generated revenue of $750 million and Moody’s adjusted EBITDA of $389 million in 2019.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.
This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.
Danilo Ruocco Analyst Corporate Finance Group Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Peter Firth Associate Managing Director Corporate Finance Group JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454 Releasing Office: Moody's Investors Service Ltd. One Canada Square Canary Wharf London E14 5FA United Kingdom JOURNALISTS: 44 20 7772 5456 Client Service: 44 20 7772 5454
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