TEXT-Moody's rates Precision Drilling notes B1

(The following statement was released by the rating agency)

Approximately $1.2 billion of debt securities rated

Feb 10 - Moody's Investors Service assigned a B1 (LGD-5, 89%) rating to
Precision Drilling Corporation's (PD_u.TO) proposed senior unsecured notes and
affirmed the B1 (LGD-5, 89%) senior unsecured rating on the 3.75% convertible
notes issued by Grey Wolf, Inc. At the same time, Moody's affirmed Precision
Drilling's Ba2 Corporate Family Rating (CFR), Ba2 Probability of Default Rating
(PDR) and Ba1 (LGD-3, 39%) senior secured ratings. Precision Drilling
Corporation is a subsidiary of Precision Drilling Trust (collectively
Precision). The Speculative Grade Liquidity rating was lowered to SGL-3,
indicating adequate liquidity, from SGL-2. The rating outlook is negative.
Precision is issuing approximately US$250 million of senior unsecured notes
following the issuance of approximately US$172 million of trust units, the
combined proceeds of which will be used to repay bridge loan borrowings and
pre-fund the anticipated exercise of change of control puts available to
convertible note holders. Any proceeds not required to cover the exercise of
the change of control puts will be used for general corporate purposes.
Precision's Ba2 CFR reflects its size and scale following the acquisition of
Grey Wolf, Inc., reasonable leverage and history of conservative fiscal
management, a leading position in the North American drilling market, a
significant book of contracted drilling business in 2009, and the geographic
diversity of its drilling rig fleet throughout North America. The rating also
considers Precision's longstanding customer relationships and quality rig
fleet. Precision's completion business adds an element of greater stability to
the business mix. The rating is tempered by the inherent volatility of contract
drilling, concentration in North American land drilling, integration risks
related to the acquisition of Grey Wolf, unit holder distributions as a
Canadian income trust (although the company sharply reduced and then suspended
distributions in reaction to the current severe downturn in the drilling
market), and internal growth and acquisition strategies, although these too are
likely to be curtailed in the current environment.
The negative outlook reflects Precision's ongoing exposure to potentially
higher interest rates, fees and discount on all of its secured debt as the
syndication of the revolver and Term Loan A continues. The outlook also
captures the potential for further deterioration in Precision's credit metrics
due to industry fundamentals that continue to weaken.
The lowering of the Speculative Grade Liquidity rating to SGL-3 reflects
Precision's lower anticipated cash flow this year as the drilling market
continues to decline and the possibility that its debt to EBITDA covenant of 3x
could become tight later in the year as the rig market deteriorates.
Downgrades:
..Issuer: Grey Wolf, Inc
....Senior Unsecured Conv./Exch. Bond/Debenture, Downgraded to LGD5, 89% from
LGD5, 88%
..Issuer: Precision Drilling Corporation
....Speculative Grade Liquidity Rating, Downgraded to SGL-3 from SGL-2
....Senior Secured Bank Credit Facility, Downgraded to LGD3, 39% from LGD3,
37%
Assignments:
..Issuer: Precision Drilling Corporation
....Senior Unsecured Regular Bond/Debenture, Assigned a range of 89 - LGD5 to
B1
Moody's last rating action on Precision was to lower both the CFR and PDR to
Ba2 from (P)Ba1 on December 22, 2008. At that time the senior secured debt
rating was affirmed at Ba1 (LGD-3, 37%) and the rating outlook was changed to
negative.
The principal rating methodology used in rating Precision was the Global
Oilfield Services Industry Rating Methodology, which can be found on
www.moodys.com in the Credit Policy & Methodologies directory, in the Ratings
Methodology subdirectory. Other methodologies and factors that may have been
considered in the process of rating Precision can also be found in the Credit
Policies and Methodologies directory.
Precision Drilling Corporation is a subsidiary of Precision Drilling Trust, a
Calgary, Alberta-based income trust engaged in the provision of energy services
to the oil and gas industry in North America.
(New York Ratings Team)