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Why Transocean Is Now Rated as ‘Junk’ at Fitch Ratings

Transocean Ltd. (NYSE: RIG) is not in a unique position at all in suffering from low oil prices. Unfortunately, that will not cloud the issue that Transocean just lost its “investment grade” rating at Fitch Ratings. It is now considered as at “junk bond” status at this ratings agency. While this is not an equity rating, and while there are still many positive issues here, Transocean’s shares fell sharply from Thursday’s opening bell.

In this downgrade, Fitch lowered Transocean and its affiliate’s long-term Issuer Default Rating and senior unsecured ratings to BB+ from BBB-, and the Rating Outlook has been revised to Stable from Negative. Note that it was back in February that Moody’s downgraded Transocean’s credit rating to junk status, and Standard & Poor’s did so back in March.

Approximately $8.8 billion of pro forma debt is affected by Fitch’s rating action, but that excludes outstanding Eksportfinans loans and considering the July 2015 early debt retirement.

Thursday’s credit rating downgrade was based on Fitch’s view that the combined effects of weak oil prices and an offshore rig oversupply cycle bringing higher...