Seadrill (SDRL) Settles Second Debt-for-Equity Exchange

Hamilton, Bermuda-based offshore drilling firm SeaDrill Limited (NYSE:SDRL) reported that it has completed the issuance of 7,500,000 new shares of its common stock. The company now has a total of 508,444,280 shares, both issued as well as outstanding.

This debt-for-equity conversion was announced on Jun 9, 2016, and it exchanged senior notes with a total of $50 million in principal amount for 7,500,00 newly issued shares worth $1.017 billion. The underlying notes, which carried 5-5/8% interest rates, were set to mature by 2017. This exchange is expected to enhance the company’s liquidity position, reduce its debt and help it reach more favorable terms with creditors.

This is the second time within less than a month that Seadrill has opted to swap bonds for equity. The company had last exchanged 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 the demand for requisite equipment. This, in turn, has affected bookings for drillers like Seadrill and hence, has resulted in less work. Therefore, offshore drillers are struggling to repay debt as competition and reduced spending by oil companies continue to hurt their profits.

Last month, SeaDrill reported weak first-quarter 2016 results owing to underperformances by its jack-up rigs and floaters. The downside was partially offset by decreasing operating expenses.

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 from the broader energy sector are Braskem S.A. (NYSE:BAK) , McDermott International Inc. (NYSE:MDR) and Sasol Ltd. (NYSE:SSL) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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