RATIONALE FOR NEGATIVE OUTLOOK

The negative outlook reflects tighter headroom on Topaz’s maintenance covenants. The negative outlook also reflects the challenging operating environment with expectations of prolonged low oil prices until at least 2018.

WHAT COULD CHANGE THE RATING UP/DOWN

Given the challenging operating environment, an upgrade is unlikely in the near term. However, the outlook on the ratings could be changed to stable were Topaz to increase its backlog through re-contracting its vessels when coming to expiration and finding new contracts at decent day rates for its available vessels so that Moody’s adjusted debt to EBITDA was to sustainably decrease to below 3.5x.

A rating downgrade could occur if the company’s leverage profile trends toward 6.0x adjusted debt to EBITDA. Negative rating pressure could also develop if (1) Topaz’s financial covenants become too tight and the company fails to negotiate headroom with its lenders, (2) the company’s liquidity deteriorates, (3) if the company loses contracts with some of its major customers or is unable to secure new contracts at decent day rates, while being unsuccessful in reducing its operating costs.

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