SeaDrill Limited recently announced that it anticipates emerging from bankruptcy by the first half of July, bringing in pleasant news for its investors. Notably, the company’s shares have rallied about 60% over a month, handily outperforming the industry’s decline of 4.4%. The elevated investors’ optimism is a result of the company’s restructuring plan that won approval from the U.S. Bankruptcy Court in April, after almost a year-long struggle to survive.
The company’s financial restructuring plan received approval from 99.8% of the creditors. Per the restructuring agreement, the international offshore drilling company will witness capital injection of $1.08 billion, which would comprise $880 million secured loans and $200 million equity. The existing shareholders will receive only 1.9% stake in the post-restructuring equity. Under the restructuring plan, banks will defer the maturities of all secured credit facilities worth $5.7 billion by five years, with no amortization payments till 2020, along with significant covenant relief. The plan will also witness the conversion of $2.3 billion worth unsecured bonds into 15% of equity in the restructured company.
With Seadrill nearing bankruptcy exit with its restructuring plan, it will improve the liquidity position of the company and provide growth opportunities. SeaDrill, having one of the youngest and most advanced drilling fleets, will be poised to secure more contracts post restructuring, helping the company to stabilize its revenues.
SeaDrill, whose peers include Diamond Offshore Drilling, Inc. (DO - Free Report) and Nabors Industries Limited (NBR - Free Report) among others, has a high economic utilization for its floaters. Post restructuring, the company is likely to gain a competitive advantage with its newly restructured balance sheet.
SeaDrill also intends to expand its relationship ties with Schlumberger Limited (SLB - Free Report) , — the world’s largest oilfield service provider — with which it is already collaborating to offer integrated services in India.
Reportedly, the company is also in talks with other major oil service companies for strategic collaboration opportunities. As it is, a wave of consolidation has hit the industry in the last couple of years amid the oil slump, in order to take advantages of integrated offerings, increased scale, synergies and new capabilities. The service providers believe mergers and acquisitions will help them cut their average costs and benefit from mutual technical expertise exchange.
Although SeaDrill has no immediate consolidation plans, the company’s CEO Dibowitz is looking for strategic opportunities to enhance its long-term growth prospects. SeaDrill carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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