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Transocean Affiliate Prices Senior Notes Worth $625 Million

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Transocean Proteus Limited, a fully owned indirect affiliate of offshore drilling giant Transocean Ltd. (RIG - Free Report) , announced the pricing of senior secured notes worth U.S. $625 million in a public offering. These notes are due to mature by 2024.

The Transocean unit offered Senior Notes with an interest rate of 6.25%. The offering, which is slated to close on Dec 8, 2016, will be callable after Dec 1, 2020. The company estimates net proceeds of around U.S. $609 million, after removing purchase discounts and offering costs.

The Notes will receive guarantee from Transocean, its affiliate Transocean Inc. and a wholly owned indirect subsidiary that owns Deepwater Proteus. Moreover, the Senior Notes will be secured by a lien on Deepwater Proteus and various other assets related to the rig. The subsidiary plans to utilize the net proceeds from the offering to partially finance the construction of Deepwater Proteus.

Switzerland-based Transocean is the world’s largest offshore drilling contractor and leading provider of drilling management services. The company offers unmatched levels of earnings and cash flow visibility, given its technologically advanced and versatile offshore drilling fleet, strong backlog and considerable pricing power.

Moreover, the company’s strong backlog, which now stands at an industry-leading $12.2 billion, reflects steady demand from its customers as well as offers an outstanding level of earnings and cash flow visibility.

However, we expect Transocean shares to remain soft until oil prices rebound sufficiently as deepwater/ultra-deepwater drilling – with its associated risks and steep costs – require a far higher oil price than what is prevailing currently. Also, Transocean has largely underperformed the Zacks Categorized Oil/Gas- Driling industry. The company’s current rate of return is -23.3%, compared to the industry average of -16.0% over the last twelve months.

TRANSOCEAN LTD Price

 

As a result, Transocean currently carries a Zacks Rank #3 (Hold), implying that it will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players from the broader energy sector include Braskem S.A. (BAK - Free Report) , Ultra Petroleum Corp. and McDermott International Inc. . All these stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

In the last four quarters, Braskem posted an average positive earnings surprise of 105.5%.

Ultra Petroleum, on the other hand, delivered an average positive earnings surprise of 65.91% in the last four quarters.

In the last four quarters, McDermott posted an average positive earnings surprise of 250.00%.

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