According to a report recently published by Bloomberg, Hamilton, Bermuda-based offshore drilling firm SeaDrill Limited has appointed Houlihan Lokey Inc. and Morgan Stanley to advise it in negotiations on restructuring of loans and bonds worth $11 billion.
Per sources, the restructuring may entail debt-for-equity swap and issue of at least $1 billion in new equity. The company has bank facilities worth $8.4 billion and unsecured bonds worth $2.6 billion. Bloomberg also reported that the company has debt of around $3.5 billion, due by end of 2017. Additionally, Seadrill reportedly has $948 million of bonds, due by Sep 2017, and valued at about 45 cents on the dollar.
Seadrill – the offshore driller with the biggest debtload – is dependent on crude oil and natural gas for its business transactions. Both oil and natural gas prices have been weak for a considerable length of time, primarily owing to a supply glut in the face of lackluster global demand. Crude oil price has witnessed a massive fall from the $100 per barrel mark since Jun 2014 to the current trading level of around $38 per barrel. Natural gas, on the other hand, is trading around $1.9 per MMBtu.
The fall in commodity prices has led the leading upstream players to curtail drilling, thereby reducing demand for the requisite equipments. This, in turn, has adversely affected the bookings for drillers like Seadrill, thereby resulting in less work. Hence, the offshore drillers are struggling to repay debt as competition and reduced spending by oil companies hurt profits.
Additionally, it is forecasted that the decline in drilling activities and the subsequent fall in demand for rig services will reduce sales for the world’s leading offshore contractors by 25% this year and at least 10% in 2017.
By June, Seadrill is planning to get into a restructuring arrangement with bondholders and banks. However, this is not expected to be easy as the company has more than 40 bank creditors across a dozen syndicates.
Currently, the company 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 in the energy sector include Sasol Ltd. (SSL - Free Report) , SunCoke Energy Inc. (SXC - Free Report) and Vanguard Natural Resources, LLC . All these stocks sport a Zacks Rank #1 (Strong Buy).
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