TEXT-S&P raises CGG-Veritas on strong performance

(The following statement was released by the ratings agency)

Dec 13 - Standard & Poor's Ratings Services said today that it has raised its corporate credit ratings to 'BB' from 'BB-' on global oil and gas seismic company Compagnie Generale de Geophysique - Veritas (GEPH.PA) (CGG-Veritas). The outlook is stable.

At the same time, the ratings on the unsecured high yield notes were raised to 'BB-' from 'B+'. The issue ratings on the $1.34 billion of senior secured credit facilities were raised to 'BB+' from 'BB-', while we revised our recovery rating on this debt to '2' from '3', indicating the expectation of substantial recovery (70%-90%) in the event of a payment default.

"The upgrade reflects CGG-Veritas' strong nine-month operating performance in 2007 and favorable perspectives, together with increased confidence that 2008 should allow for significant free cash flow and debt reduction," said Standard & Poor's credit analyst Karl Nietvelt. Credit ratios should strengthen as a result in 2008: We forecast that the ratio of adjusted debt to adjusted EBITDA will improve to about 1.3x at end 2008 from 2.3x expected for 2007. We calculate such adjusted EBITDA as well as funds from operations (FFO) after deduction of capitalized multi-client cash spending, as industry standard reported EBITDA and operating cash flow (on the basis of capitalization of multi-client expenditure) is viewed as aggressive.

The ratings reflect CGG-Veritas' leading position, together with Schlumberger's WesternGeco (not rated), in the global oil and gas seismic sector. CGG-Veritas benefits from its dual exposure to seismic services, complemented by seismic-equipment manufacturing (SERCEL). Competitive advantages include the global reach of its 20-vessel seismic data-acquisition fleet, access to advanced modern equipment and technology, and an attractive and growing seismic data library, notably for the Gulf of Mexico. Offsetting credit weaknesses are the sector's intense competition, the continued high cyclicality for the offshore segment--principally because of rapid new-build of marine vessels rather than because of demand, which is anticipated to stay strong--together with our expectation that current record demand for SERCEL equipment will return to more normalized levels from 2009 onward.

"The stable outlook on CGG-Veritas reflects our expectation of a continued very strong performance in 2008, together with expectations of debt reduction by year-end 2008," said Mr. Nietvelt. The ratings also factor in management's financial policy, and commitment toward debt reduction. The favorable sector outlook implies some degree of flexibility at this rating level, although not for major debt-financed acquisitions. Acquisition risk has recently increased in the sector, as highlighted by recent acquisitions by peers, such as PGS and WesternGeco. CGG-Veritas' current ratings factor in some flexibility for small debt-financed acquisitions, while large acquisitions, if any, are assumed to be largely share-based transactions.

One-notch rating upside exists, should management decide to bring debt down significantly more than currently anticipated. Downside pressure, currently limited, could arise should the company's external growth policies be more aggressive than anticipated. (New York Ratings Team)