Rating Action: Moody's changes Ensign's outlook to positiveGlobal Credit Research - 08 Feb 2022Toronto, February 08, 2022 -- Moody's Investors Service (Moody's) affirmed all of Ensign Drilling Inc.'s (Ensign) ratings, including its Caa1 Corporate Family Rating (CFR), its Caa1-PD Probability of Default Rating (PDR), and it's Caa2 senior unsecured rating. At the same time, the outlook was changed to positive from negative. The speculative grade liquidity (SGL) rating remains unchanged at SGL-4."The change in Ensign's outlook to positive is supported by favorable industry conditions we expect for drilling rig operators in 2022" said Jonathan Reid, Moody's analyst.Affirmations:..Issuer: Ensign Drilling Inc..... Corporate Family Rating, Affirmed Caa1.... Probability of Default Rating, Affirmed Caa1-PD....Senior Unsecured Regular Bond/Debenture, Affirmed Caa2 (LGD5)Outlook Actions:..Issuer: Ensign Drilling Inc.....Outlook, Changed To Positive From NegativeRATINGS RATIONALEEnsign's Caa1 CFR is challenged by: 1) a track record of aggressive financial policies; and 2) weak liquidity. The company is supported by: 1) increasing oil and gas drilling activity that will lead to improved credit metrics and enable Ensign to generate positive free cash flow in 2022; 2) broad North American diversification in multiple basins and broad international exposure with a significant number of rigs in Australia, the Middle East and Latin America; and 3) a high quality drilling rig fleet.The positive outlook reflects our expectation that the company will use a large portion of the free cash flow it generates in 2022 to reduce drawings on its revolver, which should improve its liquidity profile.Ensign's ESG Credit Impact Score (CIS) is very highly negative at CIS-5. The company is negatively impacted on its current rating by its highly negative G issuer profile score, primarily due to the company's aggressive financial policies including distressed exchanges and refinancing risk. Potential carbon transition, and demographic & societal trend risk factors may also lead to greater future negative credit impact over time, but there is limited credit impact to date. Beyond carbon transition and demographic & societal trends, other environmental and social risks have the potential to cause future credit profile deterioration.Ensign's liquidity is weak (SGL-4) because the company has minimal cash on hand, no unused revolver availability on its C$900 million revolving credit facility due in November 2023, and seasonality in the company's cash flow. Moody's expects that favorable drilling industry conditions will enable the company to generate around C$100 million of free cash flow over the next four quarters. If Ensign is able to refinance its unsecured notes due in April 2024, the revolver maturity automatically extends to November 2024. Ensign should be able to comply with its financial covenants over the next four quarters, however compliance is tight. Alternative sources of liquidity are limited principally to the sale of Ensign's existing drilling rigs and completion and well service rigs, which are largely encumbered, and market conditions are unfavorable for such asset sales.Ensign's senior unsecured notes are rated Caa2, one notch below the Caa1 CFR, reflecting the C$900 million revolving credit facility that ranks above the unsecured notes in the company's capital structure.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if Ensign generates sequential improvements in EBITDA in an improving industry environment and if the company materially reduced the drawings on its credit facility leading to an improved liquidity profile. The ratings could be downgraded if Ensign's liquidity profile deteriorated.Ensign Energy Services Inc. is a public Calgary, Alberta-based provider of land drilling rigs and well servicing. The company owns a fleet of 306 land drilling rigs globally out of which 136 rigs are in Canada, 122 in the United States and 48 at various international locations.The principal methodology used in these ratings was Oilfield Services published in August 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1277306. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY 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. 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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 http://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1288235.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. 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Nio (NYSE: NIO) reported increasing losses in its second-quarter earnings report this week, but investors are shrugging that off, sending shares soaring Friday morning. Although its profit margins have been on a downward trend, new models being launched could turn that around in the coming years. Consumer prices in China increased at a slower pace than many expected in August, and producer inflation sank to the lowest level since February 2021, reports Reuters.

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