Transocean $9.1 Billion Debt May Be Cut to Junk on Oil Slump

Transocean Ltd., the worst performer in the Standard & Poor’s 500 Index last year, may see its $9.1 billion debt lowered to junk status as the owner of the world’s largest fleet of offshore rigs contends with a “prolonged” downturn in the industry, Moody’s Investors Service said.

“The rapid drop in oil prices and the resulting deterioration of the market conditions for offshore drilling contractors has elevated the risk profile for the company,” Stuart Miller, vice president for Moody’s, said in a statement today. The ratings company has had a negative outlook on Transocean since May 2012.

During the next three years, the Vernier, Switzerland-based company has spending commitments to build rigs as the price for its equipment falls and existing contracts end. A glut of new vessels is competing for less work as producers reduce spending amid collapsing oil and natural gas prices.

Brent crude, the international benchmark, traded at $51.14 a barrel today, less than half its June high and the lowest in more than five years.

Junk status would increase costs if the company orders more rigs in the future, said Rob Desai, an analyst at Edward Jones in St. Louis who rates the shares a hold and owns none.

Transocean fell 2.3 percent to $16.46 at the close in New York.

The company boosted its dividend by 34 percent last year to 75 cents a quarter, after fighting off a challenge from billionaire investor Carl Icahn.

Debt Reduction

Transocean, which is looking to reduce long-term debt to below $9 billion, is committed to “maintaining a strong and flexible balance sheet as characterized by an investment grade rating on our debt,” Chief Executive Officer Steven Newman told investors and analysts Nov. 10 on a conference call.

The company’s $1.2 billion of 6.375 percent notes coming due in December 2021 slid 1.5 cents to 87.75 cents on the dollar at 4:17 p.m. in New York, according to Trace, the Financial Industry Regulatory Authority’s reporting system.

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