Diamond Offshore Drilling Inc. Downgraded To #BB-# On Prolonged Industry Outlook Negative

Stocks and Financial Services Press Releases Tuesday January 31, 2017 08:46
NEW YORK--31 Jan--S&P Global Ratings

NEW YORK (S&P Global Ratings) Jan. 30, 2017--S&P Global Ratings today lowered its corporate credit rating on Houston-based offshore drilling company Diamond Offshore Drilling Inc. to 'BB-' from 'BB+'. The rating outlook is negative.

We also lowered our issue-level rating on the company's unsecured debt to 'BB-' from 'BB+'. The recovery rating remains '3', indicating our expectation for meaningful (50%-70%; lower half of the range) recovery in the event of a payment default.

"The downgrade reflects our revised assessment of Diamond's business risk profile and our revised assumptions for utilization of the company's uncontracted fleet, in light of continued weak market conditions," said S&P Global Ratings credit analyst Carin Dehne-Kiley. "As a result, we have increased our expectations for the company's leverage in 2018 and 2019," she added.

The outlook is negative, reflecting the potential that Diamond's leverage could increase for a sustained period or liquidity could deteriorate, which would most likely occur if industry conditions remain weak or if a meaningful portion of the company's rig contracts are cancelled.

We could lower the rating if Diamond's FFO to debt fell and remained below 12% without a path to improvement, which could occur if market conditions remain weak or a significant portion of the company's existing contracts are cancelled. We could also lower the rating if liquidity deteriorated.

We could revise the outlook to stable if we expect FFO to debt to remain close to 12% for a sustained period, which would most likely occur in conjunction with an industry recovery.

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