Schlumberger Holdings Corporation -- Moody's changes Schlumberger's outlook to stable, affirms A2 senior unsecured rating

Rating Action: Moody's changes Schlumberger's outlook to stable, affirms A2 senior unsecured ratingGlobal Credit Research - 25 Mar 2021Schlumberger Holdings Corporation also affirmed at Baa1; outlook stableNew York, March 25, 2021 -- Moody's Investors Service, ("Moody's") changed the outlook of Schlumberger Ltd (Schlumberger) to stable from negative. Concurrently, Moody's affirmed Schlumberger's A2 issuer rating, the A2 senior unsecured ratings of its guaranteed subsidiaries, and its Prime-1 short term rating. Moody's concurrently revised the outlook of Schlumberger Holding Corporation (SHC) to stable from negative and affirmed its Baa1 issuer rating, Baa1 senior unsecured ratings, and its Prime-2 short term rating."Schlumberger should generate substantial free cash flow in 2021 and 2022 thanks to realizing a full year's benefit of its large dividend cut and lower costs, combined with continued capital discipline," said Pete Speer, Moody's Senior Vice President. "While we expect the pace of earnings recovery to be slow, the visibility to free cash flow generation and management's commitment to debt reduction should enable Schlumberger to strengthen its credit metrics and support its A2 rating."RATINGS RATIONALEThe affirmation of Schlumberger's A2 rating and change of the outlook to stable reflects Moody's expectations of improving financial performance, substantial free cash flow generation and debt reduction, leading to declining financial leverage in 2021 and 2022. An extraordinarily difficult 2020 resulted in negative free cash flow despite the company's large dividend cut that took effect in the second half of the year, operating cost and capital spending reductions. This combined with the prioritization of liquidity resulted in a meaningful increase in both gross and to a lesser extent net debt, and a corresponding deterioration in credit metrics. In 2021 and 2022, Schlumberger's free cash flow should rise substantially by virtue of a full year's benefit from its 2020 dividend cut (an additional $1 billion in 2021), reduced cash severance payments ($843 million in 2020) and modest rises in EBITDA.Management is committed to allocating free cash flow to gross debt reduction, which should enable Schlumberger's Debt/EBITDA to trend towards 2.5x in 2022 with net Debt/EBITDA similarly trending towards 2x. Asset sales could also assist in debt reduction. Important for its A2 rating, Moody's expects debt reduction to remain a priority over the medium term to enhance the company's resilience to future earnings volatility and better align Schlumberger's debt levels with its through the cycle earnings power.Schlumberger's A2 rating remains the highest among its large oilfield services (OFS) and drilling company peers, reflecting the diversification and global breadth of its operations. The company's market position is first or second in most of its products and services, and it operates in substantially all of the major hydrocarbon basins around the world. Schlumberger's greatly reduced dividend payout should restore its ability to generate consistent free cash flow through cycles and maintain large cash and short-term investment balances as an offset to its debt balances, enhancing its ability to withstand oilfield services cyclicality while continuing to fund necessary capital and R&D investments that sustain and enhance its competitiveness.SHC is a wholly owned but unguaranteed subsidiary of Schlumberger. The Baa1 ratings of SHC and its guaranteed subsidiary, Cameron International Corporation, reflect its weaker stand-alone credit profile with substantial rating uplift based upon its strategic importance to Schlumberger. SHC owns much of Schlumberger's intellectual property and is integral to its global business from a research, manufacturing and technology perspective. SHC's reported debt levels were cut in half from year-end 2017 to 2019, primarily through cash provided by its parent. Moody's expects debt reduction to resume at SHC in 2021 and 2022, commensurate with the pace of debt reduction for Schlumberger as a whole.Schlumberger has excellent liquidity, underpinned by sizeable cash and short-term investments and committed multi-currency bank credit facilities, and forecasted free cash flow generation in 2021 and 2022. The credit facilities backstop its commercial paper (CP) programs, supporting the company's Prime-1 rating. At December 31, 2020, Schlumberger had $3.0 billion of cash and short-term investments and around $5.9 billion of borrowing availability under its credit facilities, factoring in the $400 million of commercial paper outstanding. The company's free cash flow generation and ample liquidity position the company to manage its debt maturities of $660 million in 2021, $1.9 billion in 2022 and $1.9 billion in 2023. SHC has its own committed credit facilities to support its CP program and Prime-2 rating, which is included in the amounts discussed for Schlumberger, and SHC also benefits from timely support that can be provided by its parent company.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's forecasts that Schlumberger's Debt/EBITDA will decline towards 2.5x and net Debt/EBITDA will decline towards 2x in 2022 through substantial debt reduction and modest increases in EBITDA. Schlumberger's ratings could be downgraded if the company does not prioritize debt reduction over the medium term such that it can comfortably sustain Debt/EBITDA below 2.5x and net Debt/EBITDA at or below 2.0x. In order to be upgraded the company would have to reduce Debt/EBITDA below 1.5x and net Debt/EBITDA below 1x.SHC's ratings could be downgraded if anticipated debt reduction is not achieved or if the company does not generate consistent free cash flow. If Schlumberger's ratings were downgraded, then SHC's ratings could be downgraded. If Schlumberger's ratings were upgraded and SHC's stand-alone credit profile were to substantially improve then SHC's ratings could be upgraded.Schlumberger is the world's largest diversified oilfield services company, providing services and technologies across the full range of the drilling life cycle from geophysical and seismic to exploration and development to well workover and abandonment. SHC was formed in 2011 as a wholly-owned unguaranteed subsidiary of Schlumberger, and contains Schlumberger's US operations.The principal methodology used in these ratings was Global Oilfield Services Industry Rating Methodology published in May 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1062654. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.Affirmations:..Issuer: Cameron International Corporation....Senior Unsecured Notes, Affirmed Baa1..Issuer: Schlumberger Finance B.V.....Senior Unsecured Commercial Paper, Affirmed P-1....Senior Unsecured Medium-Term Note Program, Affirmed (P)A2....Senior Unsecured Medium-Term Note Program, Affirmed (P)P-1....Senior Unsecured Notes, Affirmed A2..Issuer: Schlumberger Finance Canada Ltd.....Senior Unsecured Notes, Affirmed A2....Senior Unsecured Shelf, Affirmed (P)A2..Issuer: Schlumberger Finance France SAS....Senior Unsecured Notes, Affirmed A2..Issuer: Schlumberger Holdings Corporation.... Issuer Rating, Affirmed Baa1....Commercial Paper, Affirmed P-2....Senior Unsecured Notes, Affirmed Baa1..Issuer: Schlumberger Investment SA....Commercial Paper, Affirmed P-1....Senior Unsecured Notes, Affirmed A2....Senior Unsecured Shelf , Affirmed (P)A2..Issuer: Schlumberger Ltd.... Issuer Rating, Affirmed A2..Issuer: Schlumberger Norge AS....Commercial Paper, Affirmed P-1..Issuer: Schlumberger Plc....Commercial Paper, Affirmed P-1..Issuer: Schlumberger S.A.....Commercial Paper, Affirmed P-1Outlook Actions:..Issuer: Cameron International Corporation....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Finance B.V.....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Finance Canada Ltd.....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Finance France SAS....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Holdings Corporation....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Investment SA....Outlook, Changed To Stable From Negative..Issuer: Schlumberger Ltd....Outlook, Changed To Stable From NegativeREGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Peter Speer Senior Vice President Corporate Finance Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 © 2021 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS, AND PUBLICATIONS ARE NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR RETAIL INVESTORS TO USE MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS OR PUBLICATIONS WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER.ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT.MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT INTENDED FOR USE BY ANY PERSON AS A BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD RESULT IN THEM BEING CONSIDERED A BENCHMARK.All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. MOODY'S adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources MOODY'S considers to be reliable including, when appropriate, independent third-party sources. However, MOODY’S is not an auditor and cannot in every instance independently verify or validate information received in the rating process or in preparing its Publications.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability to any person or entity for any indirect, special, consequential, or incidental losses or damages whatsoever arising from or in connection with the information contained herein or the use of or inability to use any such information, even if MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers is advised in advance of the possibility of such losses or damages, including but not limited to: (a) any loss of present or prospective profits or (b) any loss or damage arising where the relevant financial instrument is not the subject of a particular credit rating assigned by MOODY’S.To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers disclaim liability for any direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded) on the part of, or any contingency within or beyond the control of, MOODY’S or any of its directors, officers, employees, agents, representatives, licensors or suppliers, arising from or in connection with the information contained herein or the use of or inability to use any such information.NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY CREDIT RATING, ASSESSMENT, OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER.Moody’s Investors Service, Inc., a wholly-owned credit rating agency subsidiary of Moody’s Corporation (“MCO”), hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by Moody’s Investors Service, Inc. have, prior to assignment of any credit rating, agreed to pay to Moody’s Investors Service, Inc. for credit ratings opinions and services rendered by it fees ranging from $1,000 to approximately $5,000,000. MCO and Moody’s Investors Service also maintain policies and procedures to address the independence of Moody’s Investors Service credit ratings and credit rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold credit ratings from Moody’s Investors Service and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually at www.moodys.com under the heading “Investor Relations — Corporate Governance — Director and Shareholder Affiliation Policy.”Additional terms for Australia only: Any publication into Australia of this document is pursuant to the Australian Financial Services License of MOODY’S affiliate, Moody’s Investors Service Pty Limited ABN 61 003 399 657AFSL 336969 and/or Moody’s Analytics Australia Pty Ltd ABN 94 105 136 972 AFSL 383569 (as applicable). This document is intended to be provided only to “wholesale clients” within the meaning of section 761G of the Corporations Act 2001. By continuing to access this document from within Australia, you represent to MOODY’S that you are, or are accessing the document as a representative of, a “wholesale client” and that neither you nor the entity you represent will directly or indirectly disseminate this document or its contents to “retail clients” within the meaning of section 761G of the Corporations Act 2001. MOODY’S credit rating is an opinion as to the creditworthiness of a debt obligation of the issuer, not on the equity securities of the issuer or any form of security that is available to retail investors.Additional terms for Japan only: Moody's Japan K.K. (“MJKK”) is a wholly-owned credit rating agency subsidiary of Moody's Group Japan G.K., which is wholly-owned by Moody’s Overseas Holdings Inc., a wholly-owned subsidiary of MCO. Moody’s SF Japan K.K. (“MSFJ”) is a wholly-owned credit rating agency subsidiary of MJKK. MSFJ is not a Nationally Recognized Statistical Rating Organization (“NRSRO”). Therefore, credit ratings assigned by MSFJ are Non-NRSRO Credit Ratings. Non-NRSRO Credit Ratings are assigned by an entity that is not a NRSRO and, consequently, the rated obligation will not qualify for certain types of treatment under U.S. laws. MJKK and MSFJ are credit rating agencies registered with the Japan Financial Services Agency and their registration numbers are FSA Commissioner (Ratings) No. 2 and 3 respectively.MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY125,000 to approximately JPY550,000,000.MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements. ​