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Moody’s Changed Seadrill Partners’ Outlook

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Rating downgrade

On December 13, 2017, Moodys affirmed the “Caa2” rating on Seadrill Partners (SDLP) and changed the outlook to “stable” from “negative.” The “Caa2” rating is considered to be “poor standing” and subject to very high credit risk.

Why did the outlook change?

The rationale behind changing Seadrill Partners’ outlook to “stable” from “negative” was threefold. First, the company is insulated from Seadrill’s debt restructuring plans since it entered Chapter 11 bankruptcy in September 2017. Seadrill Partners doesn’t have any cross-default and cross-acceleration risks. The stable outlook also reflects its improved liquidity profile. Maturities were extended by 2.5 years.

Seadrill Partners’ current status

As of November 21, 2017, Seadrill Partners has a backlog of $1.7 billion with an average contract duration of 1.3 years. Out of Seadrill Partners’ 11 rigs, eight rigs are currently operational and five are expected to remain operational in 2019 and 2020.

Peers

In November 2017, Pacific Drilling (PACD) was downgraded by Moody’s to “D-PD” (Probability of Default Rating) from “Caa3.” In October 2017, Moody’s downgraded Ensco to “B2” from “B1.” According to Moody’s, the downgrade shows increased financial leverage and cash flow from ongoing contract expirations and weak fundaments in the offshore drilling industry. Also, Ensco’s (ESV) credit metrics are expected to come under pressure through 2018. Diamond Offshore (DO) has a “Baa2” rating, while Rowan Companies (RDC) has a “B1” rating

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