Transocean Sentry Ltd's Proposed Private $500 Million Senior Secured Notes Rated 'B+'


NEW YORK (S&P Global Ratings) May 15, 2019--S&P Global Ratings today assigned 
its 'B+' issue-level rating and '1' recovery rating to the proposed $500 
million of senior secured notes due 2023 that will be issued by Transocean 
Sentry Ltd, a Cayman Islands indirect subsidiary of offshore drilling 
contractor Transocean Ltd.

The '1' recovery rating on the notes indicates our expectation for very high 
recovery (90%-100%; rounded estimate: 95%) for creditors in a payment default. 
The notes are secured by the harsh environment semi-submersible drilling rigs 
Transocean Endurance and Transocean Equinox, which are under long-term 
contract with Equinor Energy ASA through June 2023 and December 2022, 
respectively, currently at above market dayrates of $488,000. The notes are 
fully and unconditionally guaranteed by parent companies Transocean Inc. and 
Transocean Ltd. and their collateral rig-owning subsidiaries.

We expect the company to use the proceeds from these notes for general 
corporate purposes, including the repayment of upcoming debt maturities in 
2020-21

We have also affirmed our 'B+' issue-level rating on Transocean's existing 
secured debt (including its secured credit facility), our 'B' issue-level 
rating on its unsecured debt with subsidiary guarantees, and our 'B-' 
issue-level rating on its unsecured debt without guarantees, although we are 
revising the recovery rating on the unsecured debt to '3' from '4' based on a 
higher estimate of enterprise value. All of our other ratings remain 
unchanged.

ISSUE RATINGS--RECOVERY ANALYSIS
Key analytical factors:
  • We value the company on a discrete asset-value basis based on its net book value and our estimated valuation for the company's fleet.
  • We estimate that for the company to default it would require a sustained period of minimal demand for offshore contract drilling services. This would likely occur due to sustained low oil prices or a permanent shift away from offshore resources and toward onshore resources.
  • We base our recovery analysis on a net enterprise value for Transocean (net of 7% administrative expenses) of about $8.2 billion. In our view, the company's creditors would realize greater value through a reorganization of the company rather than through a liquidation of its assets.
  • Our analysis assumes the company's secured credit facility has a first-priority security interest in the Invictus, Inspiration, Asgard, Barents, and Spitsbergen, Dhirubhai Deepwater KG2 and Skyros rigs, and that its secured notes have a first-priority security interest in the Proteus, Thalassa, Conqueror, Pontus, and Poseidon drillships, and the Encourage, Enabler, Equinox and Endurance harsh environment rigs. Parent companies Transocean Inc. and Transocean Ltd. guarantee the credit facility and secured notes other than the notes that are secured by the Conqueror.
  • With regard to Transocean's unsecured debt with subsidiary guarantees, our recovery expectations numerically exceed 90%, but we cap the recovery rating on unsecured debt for companies in the 'B' rating category at '2', indicating our anticipation of substantial recovery (70%-90%) of principal. We cap the rating to reflect the heightened risk that additional priority or pari passu debt will be added along the path to default.
  • We assume the company's secured debt is senior in right of payment relative to its unsecured debt without guarantees with respect to its other non-pledged assets (other than Global Marine Inc.).
  • Notes issued by Global Marine Inc. do not benefit from guarantees and we base our recovery analysis for the notes on our assessment of recovery value at the subsidiary in a hypothetical default scenario.
Simulated default assumptions:
  • Simulated year of default: 2021
  • Jurisdiction (Rank A): Although Transocean Ltd. is headquartered in Switzerland, we believe it would most likely file for bankruptcy protection or restructure under the U.S. bankruptcy code given its nexus in the U.S.
  • Transocean's $1.36 billion revolving credit facility (which matures in 2023) is 60% utilized, with total outstanding borrowings (including six months' interest) at the time of our hypothetical default of about $840 million. Our 60% assumption is in accordance with our general guidelines for asset-backed lending facilities.
Simplified waterfall:
  • Net enterprise value (after 7% bankruptcy administrative costs): $8.2 billion
  • Secured first-lien debt at hypothetical default (including the credit facility and secured notes): $3.8 billion
  • --Recovery expectations: 90%-100% (rounded estimate: 95%)
  • Total value available to unsecured claims: $4.4 billion
  • Senior unsecured debt (with subsidiary guarantees): $2.6 billion
  • --Recovery expectations: 70%-90% (rounded estimate: 85%)
  • Total value available to subordinated unsecured claims: $1.8 billion
  • Senior subordinated unsecured debt: $3.7 billion
  • --Recovery expectations: 50%-70% (rounded estimate: 50%)
Simplified waterfall (Global Marine):
  • Net enterprise value (after 7% administrative costs): $15 million
  • Senior unsecured debt: $310 million
  • --Recovery expectations: 0%-10% (rounded estimate: 5%)
Note: All debt amounts include six months of prepetition interest. 
We work across the world

From London to San Francisco, to our home base in (Saint Helier) Jersey, we’re looking for extraordinary and creative scientists to help us drive the field forward.

AC Investment Inc. currently does not act as an equities executing broker or route orders containing equities securities. If AC Invest’s business model were to change and it begins routing non-directed orders in NMS securities, it will comply with the disclosure requirement of Rule 606.

77 Massachusetts Avenue Cambridge, MA 02139 617-253-1000 pr@ademcetinkaya.com