Update: New Financing Leaves Seadrill Acquisitive And Well-Financed

Jul.11.14 | About: Seadrill Limited (SDRL)


SDRL announced a new $1.35 billion credit facility at low rates and a desire to make acquisitions taking advantage of today's weak market.

Financing flexibility and acquisitiveness are new and positive developments.

Buy confirmed as Board expresses confidence in management and delights in financial progress and flexibility.

This morning Seadrill (NYSE:SDRL) announcement of a new $1.35 billion credit facility to refinance three ultra-deepwater rigs was the culmination of an unusual sequence of bond issuance announcements (my article), cancellations (my update) and now, new financings (SDRL press release). The new financing reaffirms SDRL's ability to raise a large amount of money in short fashion for low rates (LIBOR + 200 basis points) as well as the desirability of its rigs as collateral for these large dollar loans. Overlooked by most observers was SDRL's hint that it may be making strategic acquisitions at opportunistic prices. Also overlooked was the Board's very conscious praise of management for the "significant progress made on the financing front" and complementing it on its "hard work and solid execution."

Today's announcement was unexpected and positive on three fronts. First, SDRL has demonstrated a nimbleness with respect to management and financing options that was not previously apparent; the strength of its credit and collateral has been validated. Second, SDRL has indicated it will use its aforementioned flexibility and credit capability to "buy low" in making strategic acquisitions; it also signals management's feeling that today's stock market prices are a "discount" to the future. Third, SDRL's board has given its management a very public pat on the back and vote of confidence.

I am reiterating my original thesis that recent market action on SDRL represents an opportunity to buy a Company with a bright future at a discount to recent prices. The events of the past few days have enhanced my belief in SDRL's ability to successfully ride out today's rough waves and provided me greater insight and confidence in the management that is guiding the SDRL ship.

Disclosure: The author is long SDRL. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.