Moody’s Changes Outlook for Cameron to Positive (USA)

Moody’s Investors Service (Moody’s) changed the outlook for Cameron International Corporation (Cameron) to positive on the strength of record backlog levels, a higher proportion of revenues derived from after-market sales, and continuing conservative financial policies.

“The positive outlook reflects Cameron’s record-level, $10.5 billion backlog and growing share of after-market sales, both of which will reduce cash flow volatility in the future,” said Stuart Miller, Moody’s Vice President — Senior Credit Officer. “The revised outlook also reflects our expectation that the company will reduce leverage towards 1.5x while continuing its practice of financing shareholder payouts and share re-purchases with internally generated cash flow or asset sales.”

Rating Rationale

Cameron’s Baa1 senior unsecured debt rating reflects its leading market position in many of its product lines, its conservative financial policies, and its steadily increasing scale despite operating in the cyclical oilfield services industry. There is good visibility into future revenues with an order backlog at an all-time high of $10.5 billion as of June 30, 2013. Cameron generates nearly one quarter of its revenues from aftermarket sales, a factor that reduces its exposure to the cycles of the oilfield service industry. Healthy industry conditions supported by strong oil prices should lead to continued growth in EBITDA and expanding free cash flow through 2014.

The credit rating agency said: “We expect Cameron to maintain a very conservative financial profile with low leverage and good liquidity. At June 30, the ratio of debt to EBITDA was 1.8x and liquidity was in excess of $2.5 billion. Despite Cameron’s proclivity to make bolt-on acquisitions and occasional share re-purchases, leverage has been maintained below 2.0x since 2005. We have no reason to believe this historical practice will change going forward. Recent acquisitions and the formation of strategic partnerships could become the next growth engines for Cameron.

Our rating reflects our view that most, if not all, of the costs associated with Macondo incident have been recognized given the settlement agreement with BP plc (A2 stable). Any future Macondo payments are expected to be manageable given Cameron’s strong liquidity position.”

According to Moody’s Cameron has an excellent liquidity profile as it is expected to generate free cash flow for the remainder of 2013 and in 2014. The company also has over $1.7 billion of cash as of June 30, 2013, and roughly $800 million available under its revolving credit facility. The company’s $250 million letter of credit facility and its $835 million revolving credit facility expire in February 2015 and June 2016, respectively. Cameron’s debt maturities are staggered with limited refinancing risk. The earliest debt maturities are two $250 million issues that mature in 2014 and 2015. Cameron has limited restrictions on its ability to sell non-core assets to generate additional liquidity if so desired.

“The positive outlook reflects our expectation that Cameron will manage down its leverage over the next one to two years to historical levels of around 1.5x. Should Cameron reduce leverage to 1.5x and our expectations be that it will remain at this level, an upgrade will be considered. Cameron’s rating could be downgraded if the ratio of Debt to EBITDA increases to above 2.5x and remains at that level for an extended period of time. Also, the use of debt to fund new sizeable acquisitions or shareholder payouts would be viewed negatively and would indicate a change in financial policies that could lead to a downgrade,” the Company added.

The principal methodology used in this rating was the Global Oilfield Services Rating Methodology published in December 2009.

Press Release, August 23, 2013


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