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Junk-Rated Offshore Drillers Headed into Bankruptcy: Fitch

August 18, 2015

Junk-Rated Offshore Drillers Headed into Bankruptcy: Fitch

After fracking, offshore drilling.

At the leading edge is rig-contractor Hercules Offshore. In March 2014, before the oil price collapsed, it had the temerity to sell for 100 cents on the dollar $300 million in junk bonds. Since then, its shares have collapsed to near zero. Its bonds have collapsed too. And on Thursday last week, it and a whole gaggle of related companies filed for Chapter 11 bankruptcy.

It won’t be the only junk-rated offshore driller with that fate, according to Fitch Ratings.Investors are going to get their pockets cleaned.

“This is the lowest level of demand we have seen since the early days of the offshore industry,” Hercules CEO John Rynd had told investors in a quarterly conference call on April 29. Hercules had already cut its global workforce – about 1,800 employees at the end of 2014 – by nearly 40%, he said.

Offshore drillers have been buffeted from two directions: the collapse of drilling activity and the collapse in the daily rates they can charge for their offshore drilling rigs. So fewer rigs, and less money for each of the fewer rigs: Hercules’ revenues in the second quarter plunged 67% from a year ago!

And junk-rated companies like Hercules that need new money to stay afloat and service their debts are finding out that their burned investors have shut off the spigot.

“A leading indicator of further bankruptcies among other challenged high yield (HY) offshore drillers,” is what Fitch Ratings calls Hercules.

 

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