S&P Global Ratings on April 16 downgraded Diamond Offshore Drilling Inc.'s issuer credit and senior unsecured ratings to CC from CCC+ with a negative outlook after the driller missed a scheduled interest payment on its $500 million senior notes due 2039, citing "the strong likelihood the outcome will result in a selective default or Chapter 11 bankruptcy."
Ratings also lowered the rating on Diamond Offshore's $950 million guaranteed senior unsecured credit facility to CC from B-, reflecting cross-default provisions in the facility.
Fellow rating agency Moody's also downgraded Diamond Offshore on April 16, dropping its corporate family rating to Ca from Caa1, its probability of default rating to Ca-PD from Caa1-PD and its senior unsecured notes to Ca from Caa2.
Moody's maintained the company's speculative-grade liquidity rating at SGL-3 and said the outlook remains negative.
"Diamond's decision to not make an interest payment shows that the coronavirus-induced crash in oil prices and corresponding capital spending cuts by oil and gas producers has indefinitely deferred any potential recovery in offshore drilling activity and dayrates," Moody's senior vice president Pete Speer said. "Despite having adequate liquidity and no maturities before October 2023, this looks like the first step for the company to begin discussions with creditors."
S&P Global Ratings said Diamond Offshore has hired advisers to evaluate alternatives for its capital structure during the 30-day grace period before the missed payment becomes an event of default under the indenture.
Analysts from CreditSights said in an April 16 note that they expect Diamond Offshore to use the grace period to enter into negotiations with its revolver lenders and bondholders in order to find a majority-supported plan to restructure the company.
"We doubt that [Diamond Offshore] will pursue a liquidation as given low valuations and a lack of strategic (competitors are facing their own financial difficulties) or financial buyers," the CreditSights analysts added.
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