Odfjell Drilling ratings upgraded to B1 by Moody's Ratings

Moody's has upgraded Odfjell Drilling Ltd.'s (ODL) corporate family rating and associated debt instruments from B2 to B1, citing strong earnings visibility, decreasing capital spending, and debt amortization. The upgrade reflects ODL's $1.8 billion order backlog and high rig utilization, expected to support annual EBITDA of approximately $400 million in 2025 and $470 million in 2026, driving Moody's-adjusted gross leverage down to 1.5x by December 2025. The outlook is stable, contingent on maintaining current contract terms and financial policies; future upgrades hinge on backlog expansion and market diversification.

Analysis

Moody's Ratings has upgraded Odfjell Drilling Ltd.'s (ODL) long-term corporate family rating to B1 from B2, with the outlook revised to stable from positive, reflecting a strengthened credit profile. This upgrade is underpinned by ODL's robust earnings visibility, diminishing capital expenditures, and consistent debt amortization, which are projected to improve key credit metrics significantly by the end of 2025. As of March 31, 2025, ODL reported a firm order backlog of $1.8 billion, supporting expectations of high rig utilization with average day rates anticipated to exceed $420,000/day in 2025 and $470,000/day in 2026. Consequently, annual EBITDA is forecast to reach approximately $400 million in 2025 and $470 million in 2026. This projected earnings growth, coupled with scheduled debt repayments, is expected to drive Moody’s-adjusted gross leverage down from 1.8x (LTM March 2025) to 1.5x by December 2025, and further towards 1.0x by December 2026. The B1 rating also acknowledges ODL's established position as an offshore driller with a strong operational history, a competitive fleet, good liquidity, and prudent financial policies, including improved clarity on its dividend policy which allows for shareholder distributions post-capex and debt service without compromising credit quality. ODL's liquidity is deemed good, supported by anticipated positive free cash flow over the next 12-18 months and modest reliance on its $145 million revolving credit facility. The stable outlook indicates expectations that ODL's financial performance and policies will sustain the B1 rating criteria over the medium term, though future upgrades are contingent upon successful re-contracting, backlog expansion, and business diversification.

Key Decisions for Investors

• Investors should view the Moody's upgrade to B1 as a positive de-risking event, potentially lowering ODL's cost of capital and improving the risk-return profile of its debt instruments.
• Monitor ODL's success in re-contracting its fleet and growing the revenue backlog, as these are key catalysts identified for potential future rating upgrades and sustained earnings momentum.
• Consider the implications of ODL's dividend policy, which aims to distribute excess cash flow to shareholders, potentially offering attractive returns if operational targets and debt reduction goals are met.
• Evaluate the projected significant reduction in gross leverage towards 1.0x by December 2026, as this deleveraging enhances financial flexibility and could positively impact equity valuations.