Fitch: QGOG Constellation's Ratings Unaffected by Adverse Market Conditions
10 February 2016 - 7:19AM
Business Wire
Fitch Ratings does not expect any immediate negative ratings
impacts on QGOG Constellation S.A.'s (Constellation) ratings
despite the deteriorating environment for offshore drillers.
Offshore drillers continue to face depressed market conditions due
to lower demand and a significant oversupply of rigs, including
new-builds. The roughly 70% drop in oil prices has compounded the
effects of the offshore rig oversupply cycle resulting in continued
market day-rate's deterioration.
Constellation's credit quality is insulated from the current
deteriorating environment for the offshore drillers. The vast
majority of Constellation's offshore rigs, which are the main
contributors of cash generation for the company, are expected to
remain fully contracted until 2018. Fitch does not expect Petrobras
to early terminate these contracts due to the excellent historical
rigs operating performance. Under Fitch's base case assumption of
an average uptime rate of 94% and not assuming renegotiation of any
existing contracts, Fitch forecasts the company will remain FCF
positive with leverage sharply declining below 2.0x by 2018.
Fitch currently rates Constellation 'BB-' with a Negative Rating
Outlook. Constellation's ratings reflect is consistent
deleveraging. The self-amortizing nature of the secured debt at the
operating company (OpCo) is rapidly improving the company's
consolidated capital structure and improving cash flow distribution
to the holding company (HoldCo) as debt fully amortizes. During
2014, the Olinda Star drill rig became the first of the company's
operating assets to pay its debt in full, which improved cash flows
to the holding company. Over the next two years, at least two
additional assets may fully repay their OpCo level debt, further
improving cash flows to the HoldCo and eliminating structural
subordination.
The Negative Outlook reflects the negative impact a prolonged
ban could have for the company as it could prevent Constellation
from renewing its contracts with Petrobras. Recently, the company
received a notification from the Brazilian General Comptroller
(CGU) indicating that it has been removed from the list of
companies under investigation related to Petrobras contracting
practices with its suppliers. This exclusion from the CGU gives the
company the ability to participate in new tenders and the option to
renew current its contracts with Petrobras once the company
receives formal confirmation from Petrobras. A resolution of the
contracting ban with Petrobras could result in revising the
Negative Outlook.
Constellation ratings could also be negatively affected by the
following: a prolonged ban on entering into contracts or
participating in bidding processes, failure to lower leverage to
below 4.0x, or pressure on credit metrics as a result of an
aggressive growth strategy.
Additional information is available on www.fitchratings.com
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY
FOLLOWING THIS LINK:
HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION,
RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM
THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY,
CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER
RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE
OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER
PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD
PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD
ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE
ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160209006656/en/
Fitch RatingsCinthya OrtegaDirector+1-312-606-2373Fitch Ratings,
Inc.70 W. Madison StreetChicago, IL 60602orAlexandre
GarciaAssociate Director+5511-4504-2616orMedia Relations:Elizabeth
Fogerty, +1-212-908-0526elizabeth.fogerty@fitchratings.com