Transocean Tumbles Following News Of Moody's Review

Shares of Transocean LTD (NYSE: RIG) tumbled Tuesday following an announcement that Moody’s Investor Service has placed the company’s Baa3 rating on review for a possible downgrade.

Moody’s reported that “the company's large capital commitments and...expectation for a significant increase in leverage as the company enters what appears to be a prolonged industry down-cycle” has triggered the review.

Moody’s “will assess the company's capital spending, financing and dividend plans in light of the impact that weak commodity prices will have on the company's operating cash flow and leverage.”

"Moody's has had a negative outlook on Transocean's Baa3 rating since May 2012. 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," said Stuart Miller, Moody's Vice President -- Senior Credit Officer. "Moody's believes that based on Transocean's current operating model and high capital spending commitments over the next several years, there is heightened risk that before the end of 2017 the company's leverage will climb to levels that do not support its current Baa3 rating."

According to the Moody’s report, the company has “good liquidity” between cash and credit lines but may be forced to sell assets and issue equity to “make scheduled Macondo settlement payments” and to pay any dividends.

Transocean recently traded at $16.39, down 2.67 percent.