Rowan Cos. PLC Downgraded Following Merger With Ensco PLC; Outlook Negative

  • U.K.-based offshore contract drilling companies Rowan Cos. PLC and Ensco PLC have completed their merger. The merged company is known as Ensco Rowan PLC.
  • We are lowering our issuer credit rating on Rowan to 'B-' from 'B'.
  • We are raising the 'B-' issue-level ratings on Rowan's unsecured notes to 'B' and , are revising the recovery ratings on the notes to '2' from '5', reflecting our expectation of substantial (70%-90%; rounded estimate: 85%) recovery in the event of default.
  • We are also withdrawing our rating on Rowan's credit facility following its termination in conjunction with the merger.
  • The negative outlook reflects our expectation that Ensco Rowan's credit measures will be weak for the ratings over the next year, including debt to EBITDA of 10x on average over the next couple of years.
NEW YORK (S&P Global Ratings) April 26, 2019—S&P Global Ratings today took the rating actions listed above. The rating action follows the closing of Rowan Cos. PLC's merger with Ensco PLC. We lowered our issuer credit rating on Rowan to 'B-' with a negative outlook to equalize it with that of Ensco Rowan, as we now consider Rowan to be a core entity of the combined company. We believe Ensco Rowan will likely provide long-term support for Rowan, which represents a substantial proportion of the combined company's asset portfolio.
The negative outlook reflects our expectation that market conditions in the offshore drilling sector will remain very challenging over the next 24 months. We expect Ensco Rowan's credit ratios will be very weak through 2021, with funds form operations (FFO) to debt at about 5% and debt to EBITDA at 8x-10x.
We could lower the rating if we expected a more prolonged industry downturn than currently anticipated or if liquidity weakens, which would most likely result from higher-than-expected reactivation expenses or capital spending.
We could consider a stable outlook if offshore contract drilling market conditions improve and the company adds backlog such that we expect debt to EBITDA to improve closer to 6x and FFO to debt closer to 12%.
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