MOODY'S UPGRADES PRIDE INTERNATIONAL'S LIQUIDITY RATING TO SGL-2

Source, Corporate Rating News  (The following statement was released by the ratings agency)

NEW YORK, June 20 - Moody's upgraded Pride International's liquidity rating to SGL-2 from SGL-3, indicating good combined direct and alternative liquidity. Pride's senior implied rating is Ba1 and its senior unsecured note rating is Ba2. The upgrade to SGL-2 reflects: (1) rising operating cash flow cover of interest expense and capital expenditures, (2) successful refinancing earlier this year of Pride's putable convertible debt, (3) the fact that cash balances, cash flow, and fully-undrawn bank revolver availability indicate internal coverage of scheduled capital spending and debt maturities over the next twelve months, (4) a fully undrawn available $250 million revolver, and (5) good alternative liquidity. Moody's estimates that Pride's 2003 EBITDA will be in the range of $450 million to $470 million range and free cash flow after interest expense, working capital changes, and capital spending will be in the range of $110 million to $130 million. After issuing $300 million of unrated convertible senior notes this year and repaying $211 million of putable notes and $165 million of bank revolver debt, Moody's estimates cash balances to now be roughly $135 million. By year-end 2003, cash balances may materially exceed $200 million. The SGL-2 rating is restrained by, and sensitive to, bank loan covenant coverage that may continue to be tight at June 30, 2003, December 31, 2003, and again in 2004. Pride's expected pace of earnings and cash flow growth is nearly matched by covenant tightening during that period, though the tightening covenants do further reinforce Pride management's and board of directors' clear intention to significantly reduce leverage. The SGL-2 rating cannot rise if Pride continues to operate relatively close to its bank loan covenants. An upgrade of the SGL rating over the next twelve months would likely require a substantial debt reduction with proceeds of either newly issued equity or conversion of existing convertible instruments. In the meantime, retaining the SGL-2 rating depends on Pride meeting its bank loan covenants while firming of the rating would occur when Pride also refinances or extends the maturity of an early 2004 $86 million seller note maturity and a $75 million 2004 European credit line maturity. The SGL-2 rating is supported by significant alternative liquidity. While the $250 million bank revolver and $200 million bank term loan are secured by twenty-eight GOM jack-up drilling rigs and by two semisubmersible rigs, the unencumbered base is relatively large. This includes receivables of over $300 million at mid-year 2003, roughly $400 million of mostly offshore unencumbered jack-up and platform rigs, and Pride's large valuable South American land rig business. Unencumbered rigs can be monetized, but proceeds must first retire Pride's loan facilities, whereas qualified receivables could be monetized without retiring bank debt. Trailing four quarters net income and defined EBITDA are expected to continue rising as previous trough quarters are replaced by stronger quarter results but Pride's Debt/Capital, Defined EBITDA/Interest, and Defined Debt/Defined EBITDA convenant tests will retighten through to March 31, 2004. The Debt/EBITDA test (trailing four quarters) declined from 4.95x at September 30 and December 31, 2002 to 4.75x on March 31, 2003, 4.50x on June 30 and September 30, 2003, 4.0x at year-end 2003, and 3.50x on March 31, 2004. Net Debt/Total Capital steps down from 55% through to September 30, 2003, to a possibly tight 50% by year-end 2003, and 45% by March 31, 2004. The EBITDA/Interest test stepped up from 3.0x in 2002 to 3.25x through 2003, and 4.00 by March 31, 2004. Pride easily meets its Net Worth Test. Moody's anticipates ongoing net debt reduction due to constrained capital spending, rising cash flow from new term drilling contracts and firming in rig activity in the Gulf of Mexico, assuming Pride's other markets do not decline materially. After political and fiscal turmoil in Argentina and Venezuela, Pride reports that its Argentine land rig business is operating at high utilization and that its Venezuelan land rig and barge rig business is firming too. One hundred percent of Pride's international jack-up, semisubmersible, and drillship fleet are under contract. However, Pride's U.S. GOM mat-supported jack-up fleet is at 46% utilization (six of thirteen rigs utilized) and Pride's mat-supported Gulf of Mexico jack-up rigs face stiff marketing competition from a key competitor. Along with other competitors, Pride is deploying rigs out of the U.S Gulf of Mexico market and into the Mexican Gulf of Mexico market. Moody's expects debt and leases at year-end 2003 of roughly $1.8 billion, down $40 million from March 31, 2003, and excluding $225 million in non-recourse debt in the now 30% owned Amethyst 4 and 5 joint venture. In the 1997 through 200x period, Pride incurred very substantial leverage to fund acquisition and construction of an offshore drilling rig fleet, including a deepwater semi-submersible drilling rig and drillship fleet now generating strong core contracted cash flow. Core cash flow should rise as term contracts generate a full quarter's activity for the deepwater fleet and as the rising number of term contracts with PEMEX for commodity jack-up rigs impact cash flow. Fairly recent term contracts include the Pride South Pacific semisubmersible, twelve contracts with Pemex for mat-supported jack-up rigs (bringing to sixteen its total rigs on contract with Pemex), and two jack-ups signed for other offshore markets. Eleven of the fourteen rigs placed into contracts here came off of inactive status. For 2003, Moody's projects $450 million to $470 million of EBITDA, with roughly $100 million of increased working capital investment absorbing that amount of cash flow. EBITDA peaked at $511 million in 2001 during up-cycle conditions and on the placement of Pride's new high-end drilling assets into drilling contracts. EBITDA bottomed at $369 million in 2002, beating Moody's projection of $362 million, on down-cycle conditions in the Gulf of Mexico and disruption in its Argentine and Venezuelan markets. Working capital increases absorbed approximately $114 million of cash flow in 2001 and reductions in working capital investment freed-up approximately $79 million of cash in 2002. Pride International, Inc. is headquartered in Houston, Texas.