Investors Excited With Seadrill Ltd’s (SDRL) Major Debt Restructuring Agreement
Struggling to survive so far, Seadrill Ltd (NYSE:SDRL) now has got a major financial lifeline as it restructured nearly all of its debt with secured bank lenders, almost two-fifths with the bondholders and leading shareholders. Reaching an agreement with its capital providers after one year of negotiations, SDRL finally filed “prearranged” chapter 11 bankruptcy cases in the Southern District of Texas. Company shares jumped 17% during market-hours yesterday and were up nearly 11% in pre-market Wednesday. “This is a testament to our position in the sector, having a large, modern fleet, a top-quality customer base and a proven operating track record… With our improved capital structure, we will be in a strong position to capitalise when the market recovers”, said CEO Anton Dibowitz. SDRL will raise $1 billion of new capital — $860 million and $200 million through secured loans and equity respectively. How the company, despite its modern fleet, reached this point, where a failure to restructure would have ended it, is evident from the trend in its revenue and income — reflecting excess supply in the contract-offshore drilling markets as its clients suffered one of the biggest downturn in commodity markets. High costs and low dayrates caused significant operating losses, bringing down its market capitalization to nearly a percent of the mid-2014 levels. SDRL got trapped in a badly-timed substantial capital expenditure on growth, which worked initially, but became untenable as its end-markets crashed. While revenue is expected to stabilize, profitability seems a far-fetched idea over the next few years, as per sell-side analysts’ estimates. “The secured lending banks have agreed to defer maturities of all secured credit facilities, totaling $5.7 billion, by approximately five years with no amortization payments until 2020 and significant covenant relief”, said the company. Five-year runaway is a welcome news for shareholders, who, most, if not all, hardly had any good reasons for expecting a revival in their holdings before the restructuring plan.