OREANDA-NEWS. S&P Global Ratings said today that it assigned its 'BB+' issue-level and '1' recovery ratings to Transocean Phoenix 2 Ltd.'s planned $600 million senior secured notes due 2024. The notes will be guaranteed by parent companies Transocean Ltd. and Transocean Inc. and by a wholly-owned indirect subsidiary of the company. The company expects to use proceeds from the transaction to finance a portion of the cost of construction of the drillship Deepwater Thalassa.

The '1' recovery rating reflects our expectation of meaningful (90% to 100%) recovery to creditors in the event of a payment default. The new notes will be secured by the Deepwater Thalassa, which is under a 10-year contract with a subsidiary of Royal Dutch Shell PLC at a favorable dayrate relative to current market conditions. The contract also includes termination fees.

The 'BB-' long-term corporate credit rating on Transocean Inc., with a negative outlook, and 'BB-' issue-level and '3' recovery ratings on its existing senior unsecured debt are unchanged.

The ratings on Transocean reflect our assessment of the company's satisfactory business risk profile, aggressive financial risk profile, and strong liquidity. Our ratings incorporate the company's position as the largest global offshore drilling company and our view of the fleet's significant deepwater and midwater component as being less competitive during an industry downturn. The company's fleet is also somewhat older than several of its industry peers. We note that Transocean is investing in new high-specification rigs, which ultimately, will improve its competiveness, and the company has moved aggressively to retire less marketable, lower-specification equipment. The negative outlook reflects our expectation that Transocean's credit measures will weaken as contracts roll off and weak demand results in difficulty replacing them.

RECOVERY ANALYSISKey analytical factors for recovery:We have completed a review of the recovery analysis for Transocean Phoenix 2 Limited's proposed senior secured notes due 2024. We are assigning a '1' recovery rating and 'BB+' issue-level rating to the notes. The notes will be secured by an interest in a rig and the notes are guaranteed on a senior unsecured joint and several basis by parent companies Transocean Ltd., Transocean Inc., and a wholly-owned indirect subsidiary of the company. In addition, the notes are subject to mandatory redemption requirements of $60 million per annum beginning 2017. A debt service reserve account will hold six month of principal and interest payments. We also rate Transocean Ltd.'s guaranteed senior unsecured notes and unguaranteed senior unsecured notes. While the facility and several of the note issues are ranked differently, our valuation of Transocean Ltd. on a discrete asset value basis indicates that recovery is capped in each case. Numerically, our recovery expectations on the unsecured debt for Transocean exceeded 70%, but we cap the recovery ratings on unsecured debt for companies rated in the 'BB' category at '3', indicating the potential for meaningful (50% to 70%) recovery, to reflect the heightened risk of additional priority or pari passu debt being added along the path to default. We have valued the collateral securing the proposed note issue on a discrete asset basis. Our valuation reflects our estimate of the value of the rig at default assuming:--4% depreciation per year for five years of the net book value (default 2021).--49% realization value at default.--5% administration expenses assessed in reorganization. Simulated default and valuation assumptions Simulated year of default: 2021Simplified waterfall for the proposed secured notes:Net collateral value (after 5% administrative costs): $342 millionValuation split in % (obligors/nonobligors): 100/0Priority claims: $342 millionTotal value available to unsecured claims: $0Senior secured debt/pari passu unsecured claims: $342 million/$0Recovery expectations: 90% to 100%Notes: All debt amounts include six months of prepetition interest. Collateral value equals asset pledge from obligors after priority claims plus equity pledge from nonobligors after nonobligor debt.