New York, October 08, 2012 -- Moody's Investors Service changed Offshore Group Investment Limited's (OGIL) rating outlook to negative from stable and assigned a B3 rating to the company's proposed $500 million senior secured term loan and $1.15 billion senior secured notes. Moody's also affirmed OGIL's B3 Corporate Family Rating (CFR), Caa1 Probability of Default Rating (PDR), and B3 rating on OGIL's existing 11.50% senior secured notes.

Net proceeds from these debt offerings will be used to refinance up to $1.0 billion of existing 11.50% notes through a tender offer and to fund the upcoming $415 million final shipyard payment to Daewoo Shipbuilding & Marine Engineering for Tungsten Explorer - an ultra-deepwater drillship that is scheduled for delivery in May 2013.

"The negative outlook captures OGIL's very high leverage, as well as the contracting and inherent start-up risks surrounding the third drillship, which will start generating cash flow in the second half of 2013 ," said Sajjad Alam, Moody's Analyst. "Despite an improved liquidity and debt maturity profile, until OGIL establishes a clear deleveraging trend, the CFR will remain weakly positioned in the B3 rating category."

..Issuer: Offshore Group Investment Limited

Assignments:

....Senior Secured Bank Credit Facility, Assigned B3

....Senior Secured Bank Credit Facility, Assigned a range of LGD3, 33%

....Senior Secured Regular Bond/Debenture, Assigned B3

....Senior Secured Regular Bond/Debenture, Assigned a range LGD3, 33%

Outlook Actions:

....Outlook, Changed To Negative From Stable

RATINGS RATIONALE

The B3 CFR reflects OGIL's very high financial leverage (proforma LTM Debt to EBITDA of approximately 12.5x at June 30, 2012), small scale within the offshore contract drilling industry, and limited operating history in an increasingly competitive global marine drilling market. The rating also considers the capital intensive and highly cyclical nature of offshore drilling activities, the short-term nature of jackup rig contracts, which limits revenue visibility, and the mobilization and contracting risks involving OGIL's third drillship (Tungsten Explorer). The rating is supported by OGIL's mostly new high quality assets, diversified geographic presence, and the company's short but good operating track record, which has facilitated strong utilization and better-than-average dayrates. The rating is also underpinned by the long term drilling contracts of the Platinum Explorer and Titanium Explorer drillships, and the robust industry fundamentals of the ultra-deepwater segment. Platinum Explorer has a five-year contract (roughly three years remaining) with Oil and Natural Gas Ltd. (Baa1 stable) of India and Titanium Explorer has an eight-year contract with Petrobras (A3 stable) of Brazil.

Given the preponderance of a single class of debt in the capital structure, OGIL's notes and term loan are rated at the B3 CFR level. The Caa1 PDR reflects the heightened risk of default given OGIL's high leverage and resultant susceptibility to deterioration in operating performance and cash flow at any of its material assets. The one notch differential in the CFR and PDR considers OGIL's high quality assets, particularly the ultra-deepwater drillships that secure the rated debt. In light of this security, a 65% recovery factor is assumed under Moody's Loss Given Default methodology.

The proposed senior secured notes and term loan will rank pari passu with the existing 11.50% notes and have upstream guarantees from the operating companies that own OGIL's four premium jack-up rigs and two drillships (Platinum Explorer and Titanium Explorer). The third drillship, Tungsten Explorer will be added to the security and guarantee package when OGIL takes delivery of this rig in 2013. The notes and term loan also have a downstream guarantee from Vantage Drilling Corporation - the parent holding company, as well as guarantees from certain Vantage subsidiaries. The notes and the term loan do not have guarantees from Vantage's subsidiaries that are involved in its rig construction or management services business.

We expect OGIL to have adequate liquidity through the end of 2013, which is captured in our SGL-3 rating. The debt proceeds along with cash flows from Platinum Explorer and other operating rigs will permit OGIL to sufficiently cover the final delivery payment for Tungsten Explorer, semi-annual coupon payments, and other capital expenditures and working capital needs throughout 2013. OGIL has a $25 million revolving credit facility, which we view to be very small relative to its revenue and asset base. The company's alternate liquidity is limited given all of its rigs are pledged to the note and term loan lenders.

The outlook could return to stable once Tungsten Explorer is successfully mobilized under a long term drilling contract and leverage is reduced below 8x on an LTM EBITDA basis.

For a rating upgrade, we would look for ongoing strong utilization rates for all rigs and leverage that appears poised to approach 5.0x.

Given the company's high leverage, a decline in EBITDA will likely be the primary driver of a downgrade whether resulting from contract termination, contract re-pricing or unexpected downtime. A downgrade could also occur from a leveraging transaction or if it appears that OGIL may not have sufficient liquidity to fund the next two coupon payments on its notes.

The principal methodology used in rating Offshore Group was the Global Independent Exploration and Production Industry Methodology published in December 2011. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Offshore Group Investment Limited is a wholly owned subsidiary of Vantage - an offshore drilling contractor headquartered in the Cayman Islands.

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Sajjad Alam Analyst Corporate Finance Group Moody'sInvestors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653Steven Wood MD - Corporate Finance Corporate Finance Group JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653 Releasing Office: Moody's Investors Service, Inc.250 Greenwich StreetNew York, NY 10007 U.S.A. JOURNALISTS: 212-553-0376 SUBSCRIBERS: 212-553-1653(C) 2012 Moody's Investors Service, Inc. and/or its licensors and affiliates (collectively, "MOODY'S"). All rights reserved.

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