S&P gives Diamond Offshore B, notes BB-

S&P said it assigned a B issuer rating to Diamond Offshore Drilling Inc. and a BB- issue-level rating to its planned $500 million of senior secured second-lien notes to be issued by Diamond Foreign Asset Co. and Diamond Finance, LLC. The 1 recovery indicates very high (90%-100%; rounded estimate: 95%) recovery in default. The outlook is stable.

“We assigned our B issuer credit rating to Diamond. The B rating reflects the company's high-quality fleet of floating rigs, good fleet utilization, and strong relationships with its customers. These factors are partially offset by the company's smaller rig count, low backlog, and exposure to the highly cyclical and volatile offshore oil and gas sector. Our rating also reflects our expectation of negative free operating cash flow (FOCF) and softer credit measures in 2023,” S&P said in a press release.

Diamond plans to use the proceeds to repay its 9% senior secured notes due 2027, first-lien term loan due 2027, and borrowings on its revolving credit facility, and add cash to the balance sheet.

“The stable outlook reflects our view that Diamond's credit measures will remain appropriate for the rating over the next 12 months, supported by a continued pick up in offshore activity and spending by oil and gas companies, which we expect to enable the company to recontract its rigs at improved rates as existing contracts roll over. We anticipate average FFO to debt of 25%-30% over the next 12-24 months,” S&P said.

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