Odfjell Drilling ratings upgraded to B1 by Moody’s Ratings

Investing.com -- Moody’s Ratings has upgraded the long-term corporate family rating (CFR) of Odfjell Drilling Ltd. (ODL) from B2 to B1 today. The probability of default rating (PDR) and the instrument rating of the backed senior secured notes due 2028, issued by ODL’s wholly-owned subsidiary Odfjell Rig III Ltd., were also raised to B1 from B2. The outlook for both entities has shifted from positive to stable.

The upgrade is attributed to ODL’s strong earnings visibility, decreasing capital spending, and debt amortization. These factors are expected to strengthen ODL’s key credit metrics to levels consistent with a higher rating by the end of 2025.

ODL’s firm order backlog of $1.8 billion as of March 31, 2025, and the status of the company’s owned fleet suggest high rig utilization at average day rates above $420,000/day in 2025 and $470,000/day in 2026. This is anticipated to support annual EBITDA generation of approximately $400 million in 2025 and $470 million in 2026. Scheduled debt repayments are expected to contribute to a reduction in Moody’s-adjusted gross leverage to 1.5x by December 2025 and even further towards 1.0x by December 2026, down from 1.8x for the last twelve months ended March 2025.

ODL’s B1 CFR reflects the company’s solid standing as an offshore driller with a long and proven operational track record. It also acknowledges the company’s top-tier fleet with competitive advantages acknowledged by customers, good liquidity, and prudent financial policies.

Governance considerations were a factor in today’s rating action, including the improved visibility on the trajectory of ODL’s dividend policy. ODL is expected to distribute up to all of its cash flow after capital expenditure and debt service to shareholders without negatively impacting the overall credit quality.

ODL’s liquidity is assessed as good. This assessment takes into consideration positive free cash flow (FCF) generation over the next 12-18 months, modest reliance on the $145 million revolving credit facility due February 2028, and good headroom under financial covenants.

The stable rating outlook reflects expectations that ODL’s credit metrics and liquidity will align with the requirements for the assigned rating in the next 12-18 months. This is supported by the terms of the existing service contracts and continued adherence to prudent financial policies.

An upgrade in ODL’s ratings would be driven primarily by success in re-contracting and boosting its revenue backlog, a strong outlook for global offshore rig markets, and greater diversification of its business profile. A downgrade could occur if ODL’s backlog and earnings deteriorate significantly, FCF generation turns negative, or if liquidity weakens or refinancing risk increases.

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