Fitch Affirms Pride International's IDR at 'BB+'; Outlook Stable

CHICAGO--(BUSINESS WIRE)--Fitch Ratings has affirmed Pride International Inc.'s (Pride; NYSE:PDE) Issuer Default Rating (IDR) and debt ratings as follows:

--IDR at 'BB+';

--Senior unsecured credit facility at 'BB+';

--Senior unsecured notes at 'BB+'.

The Rating Outlook is Stable. Approximately $1.2 billion in total debt is affected.

The ratings continue to reflect Pride's improved balance sheet and the company's $6.9 billion contract backlog providing significant cash flow protections for the company in 2010 and beyond. Offsetting factors include weak market conditions for offshore drillers, particularly for mid-water floating rigs and jackups. Fitch expects continued high capital expenditures associated with the company's three remaining ultra-deepwater newbuild drillships to result in the need for additional debt financing. Credit metrics are expected to continue weakening in 2010 before improving in 2011 and 2012 upon completion of the company's newbuild rigs. While management has yet to pursue additional acquisition activity, Fitch anticipates Pride will begin to execute on its growth objectives once market conditions stabilize or the company's newbuilds are complete.

Future rating upgrades will in part be determined by the length and depth of the anticipated downturn in market conditions for offshore drillers. Pride's ability to manage through the current newbuild program without experiencing delays in getting rigs out of the shipyard and on contract is critical to the future credit profile of the company. The company's ability to minimize the amount of external financing required for existing newbuild capital expenditures combined with a willingness to proceed extremely cautiously with regard to future expansion plans will also be important to determining future rating upgrades. In addition, Fitch will monitor the company's ability to execute on the existing contract backlog. Despite the weaker near-term expectations for Pride's credit profile, the company continues to execute on existing newbuilds which will benefit the long-term credit profile of the company.

For the year ending Dec. 31, 2009, Pride generated EBITDA of $628.1 million and finished the period with debt of $1,192 million. As a result, debt-to-EBITDA finished the period at 1.9 times (x) with interest coverage of 8.4x. Free cash flow for the year was negative $367.3 million; however, cash balances remained robust ending the year at $763.1 million. Funding for the company's three remaining newbuild drillships currently under construction is expected to keep capital expenditures high in 2010 and 2011 and result in an estimated capex program of $910 million during 2010 composed of $680 million related to the newbuilds with the remaining related to maintaining the existing fleet and increasing inventories of spare parts.

Liquidity remains sufficient at Pride, although Fitch estimates the company will need additional debt financings of approximately $450-$650 million during 2010/2011 after utilizing existing cash balances to support capital expenditures and working capital needs. FCF levels are expected to remain negative in 2010 and 2011 before turning positive after all four newbuilds begin working in 2012 (assuming no additional newbuilds). Pride maintains liquidity from cash and equivalents ($763.1 million at Dec. 31, 2009), its $320 million credit facility (no borrowings at Dec. 31, 2009) and operating cash flows. The company's next maturity is not until 2014 when $500 million of 7.375% senior notes mature. Pride's MARAD notes amortize at approximately $30 million per year until their maturity in 2016 and the company's credit facility matures in December 2011.

Key covenants are primarily associated with the senior unsecured credit facility and include maximum debt to tangible capitalization (50% covenant threshold), minimum LTM EBITDA to interest coverage (2.95x covenant level), asset sale restrictions and change of control protections (30% threshold of voting stock). The 7.375% senior notes due 2014 also have change of control protections (if the change of control is associated with a ratings decline). It should be noted, however, that change of control protections for unsecured bondholders are expected to fall away with the repayment of the 7.375% senior notes. Despite expectations of rising debt levels and weaker credit metrics during 2010/2011, adequate flexibility remains under all covenants.

Pride is one of the world's largest drilling contractors and operates a diverse fleet of primarily offshore rigs. The fleet includes three ultra-deepwater drillships, three newbuild ultra-deepwater drillships currently under construction, 12 semisubmersible rigs, seven jack-up rigs and two managed rigs.

The following applicable criteria report is available at www.fitchratings.com:

--'Corporate Rating Methodology' (Nov. 24, 2009).

Additional information is available at www.fitchratings.com.

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