OREANDA-NEWS. Weatherford International plc's (Weatherford) announcement to issue a combined \\$1 billion in the company's common equity and Weatherford International Ltd, a wholly owned Bermuda subsidiary, mandatorily exchangeable subordinated notes has no near-term rating impact, according to Fitch Ratings. The company intends to use the proceeds to pre-fund potential acquisitions and for general corporate purposes. Proceeds are expected to temporarily reduce borrowings under its revolving credit facility and commercial paper program until potential acquisition funding is needed.

Weatherford's announcement signals that management believes the current downturn and evolving oilfield services landscape may introduce attractive acquisition targets. Further, the equity and equity-like offering suggests the company is conscious of the possible credit implications of an acquisition and signals its willingness to use equity and equity-like funding. Fitch cautions, however, that the ultimate credit implications of an acquisition, if greater than the announced \\$1 billion offering, will depend on the size, funding, and cash flow implications.

Fitch views the company's announced mandatory exchangeable subordinated notes as an equity-like instrument principally due to its three year mandatory conversion into common shares of Weatherford. Other supportive equity-like terms of the mandatory convertible securities include a predetermined conversion range (to be determined at the time of pricing), favorable coupon deferral terms, and automatic conversion to common shares in an event of default linked acceleration.

Fitch's base case, assuming a WTI price of \\$50 and excluding any potential acquisition results, forecasts Weatherford will be approximately \\$150 million-\\$175 million free cash flow (FCF) positive in 2015. The FCF estimate considers operating cost savings, capex rationalization efforts, and near-term working capital improvement gains. Fitch's base case continues to result in heightened debt/EBITDA metrics, mainly due to lower through-the-cycle EBITDA results, of nearly 5.6x in 2015 based on the approximately \\$7.8 billion in balance sheet debt outstanding as of June 30, 2015. Pro forma 2015 debt/EBITDA, assuming offering proceeds are applied to pay down the revolving credit facility and commercial paper balances, falls to approximately 4.9x. Thereafter, Fitch's base case forecasts that leverage will decline further, driven by a combination of improving EBITDA, modestly positive FCF, and moderate further reductions in balance sheet debt. Fitch notes that capex remains a source of cash flow flexibility.

Weatherford had adequate cash and equivalents of \\$611 million, as of June 30, 2015. Supplemental liquidity is principally provided by the company's \\$2.25 billion senior unsecured credit facility due July 2017 and commercial paper program. Total availability under the credit facility was about \\$1.3 billion, as of June 30, 2015, reduced by the outstanding credit facility (\\$730 million) and commercial paper (\\$190 million) borrowings, as well as letters of credit (\\$16 million).