SeaDrill (SDRL) To Exchange Debt For Equity Again In A Month

With an intention to lower debt, SeaDrill Limited (NYSE:SDRL) , an offshore drilling firm, is again about to exchange debt-for-equity within a period of less than one month. Following the announcement, SeaDrill slipped almost 10% on the NYSE.

The drilling player will likely exchange senior notes with a total of $50 million in principal amount for 7,500,00 newly issued shares. The notes carrying 5-5/8% interest rates are set to mature by 2017. The settlement is scheduled for Jun 13, 2016. Thereafter, SeaDrill is anticipated to have a total of 508,444,280 shares both issued as well as outstanding.

As already mentioned, this is the second time within less than a month that the company has opted to swap bonds for equity. The last time, it had agreed to exchange around $55 million convertible senior notes with a total of 8.18 million new shares of its common stock on May 18, 2016.

SeaDrill is already in hot water due to its heavy debt, a number of obligations for new vessels, and a shrinking backlog of contracted business. The fall in commodity prices forced leading upstream players to curtail drilling, thereby reducing demand for requisite equipment. This, in turn, has affected bookings for drillers like Seadrill, thereby resulting in less work. Hence, offshore drillers are struggling to repay debt as competition and reduced spending by oil companies hurt their profits.

Hamilton, Bermuda-based SeaDrill currently carries a Zacks Rank #3 (Hold), which implies that the stock will perform in line with the broader U.S. equity market over the next one to three months.

Some better-ranked players in the same space include Independence Contract Drilling Inc. (NYSE:ICD) , North Atlantic Drilling Limited (NYSE:NADL) and Hercules Offshore Inc. (NASDAQ:HERO) . Independence Contract and North Atlantic sport a Zacks Rank #1 (Strong Buy) while Hercules Offshore carries a Zacks Rank #2 (Buy).