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Seadrill -4.8% on plans to sell $1B of convertible bonds

  • Seadrill (SDRL -4.8%) opens sharply lower after launching a $1B 2019 convertible bond concurrently with a voluntary incentive payment offer to convert an existing $650M 3.375% 2017 convertible bond.
  • The senior unsecured bonds will be convertible into common shares, with an annual coupon of 2%-2.50%, and have a conversion premium of 30%-35% over the reference share price based on the volume-weighted average price of the company’s shares today in Oslo and New York.
  • SDRL intends to use the proceeds to fund its newbuild program and for general corporate purposes.
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Comments (26)
  • rjlehmann
    , contributor
    Comments (23) | Send Message
     
    Good for people who are in Seadrill for the dividend, not so good for those looking for price appreciation.
    8 Jul 2014, 10:16 AM Reply Like
  • A Prudent Investor
    , contributor
    Comments (1192) | Send Message
     
    Another $93 million dividend obligation if they continue it. Dividend cut is looming.
    8 Jul 2014, 11:45 AM Reply Like
  • rjlehmann
    , contributor
    Comments (23) | Send Message
     
    I doubt it.
    9 Jul 2014, 10:05 AM Reply Like
  • Rappenco
    , contributor
    Comments (674) | Send Message
     
    Good for people looking to get into SDRL at a lower price.
    Hard for SDRL to fund their new-build program with cash flow as much of this goes to covering the dividend.
    8 Jul 2014, 10:21 AM Reply Like
  • c3wands
    , contributor
    Comments (2) | Send Message
     
    $350 million new debt. Lower coupon. Longer term. Higher conversion price. Not the end of the world.
    8 Jul 2014, 10:24 AM Reply Like
  • A Prudent Investor
    , contributor
    Comments (1192) | Send Message
     
    New debt is $1 billion. Leave the financial analysis with pros.
    8 Jul 2014, 11:46 AM Reply Like
  • 6312061
    , contributor
    Comments (54) | Send Message
     
    I would say the way SDRL invests the proceeds will determine whether this is good for the stock price - longer term. The potential demand for the rigs with the Rosneft deal could produce the need for further rig expansion, and thus more capital. Also, substituting the 2.0-2.5% bonds, for the outstanding 3.75% bonds is a good short term reduction in interest costs to offset the expanded debt... So, I would say wait before you judge this one.
    8 Jul 2014, 10:24 AM Reply Like
  • James_B
    , contributor
    Comments (190) | Send Message
     
    That's a good point. For some reason I didn't even think about the Rosneft deal and the additional need for financing. SDRL and NADL don't have the current capacity to satisfy Rosneft's future requirements. Thanks for your comment!
    8 Jul 2014, 11:23 AM Reply Like
  • A Prudent Investor
    , contributor
    Comments (1192) | Send Message
     
    They are swapping $650 million debt for equity discount at $27+. Converted shares are going to cost them more cash if dividend stays at same rate. This deal is a sign that Seadrill's financing options with banks is limited. The $1 billion will be used to make payments for new builds that they can't finance. Seadrill needs over $4 billion to make ends meet at the expense of shareholders. They should have paid down the debt instead of financing dividends. Frontline II coming!
    8 Jul 2014, 11:54 AM Reply Like
  • James_B
    , contributor
    Comments (190) | Send Message
     
    Yawn.
    8 Jul 2014, 12:02 PM Reply Like
  • A Prudent Investor
    , contributor
    Comments (1192) | Send Message
     
    No deal terms are specified regarding Rosneft and the deal is with NADL. Speculation and gullibility is astounding.
    8 Jul 2014, 12:05 PM Reply Like
  • James_B
    , contributor
    Comments (190) | Send Message
     
    Another yawn.
    8 Jul 2014, 12:10 PM Reply Like
  • wigit5
    , contributor
    Comments (4222) | Send Message
     
    A Prudent Investor,
    A month ago you were saying it was going to see 20s before it saw 40s... I understand that eventually something you say will turn out to be right but the 'shotgun' method of investing doesn't usually work out. Maybe it is time to move on?
    8 Jul 2014, 12:19 PM Reply Like
  • wedtkip100
    , contributor
    Comments (4) | Send Message
     
    Regardless of what they choose to do with the money SDRL has become a prime trading stock rather than a buy and hold investment. I bought it at its recent low,(indicated by both candlesticks and Williams%R) and got out at its more recent top. I fully intend to re-enter but not until this move down steadies. Yes, I hate to miss a quarter's divi but that doesn't compensate for a multi dollar drop.
    8 Jul 2014, 11:23 AM Reply Like
  • randyguyer
    , contributor
    Comments (100) | Send Message
     
    Bonds also include a call feature allowing seadrill to call the bonds if the stock price hits specified appreciation levels within a defined time period.

     

    This might well be very inexpensive bridge financing if the company performs and the market appreciates the performance.
    8 Jul 2014, 12:33 PM Reply Like
  • TJ Schoenlein
    , contributor
    Comments (413) | Send Message
     
    If you believe in the deep water oil story, trying to time the in & outs of these top tier drillers is a fools game. If you are confortable with your entry cost, stay the course. The dividend is your payment for staying put. The real money will be made over the next decade.
    8 Jul 2014, 12:33 PM Reply Like
  • gennocro
    , contributor
    Comments (75) | Send Message
     
    Very well put. There will always be a need and SDRL will be at the forefront. The rewards come down the road.
    8 Jul 2014, 02:08 PM Reply Like
  • mapodga
    , contributor
    Comments (4236) | Send Message
     
    Smart move.

     

    They will got cheap money with minimum impact to the shares.
    8 Jul 2014, 12:34 PM Reply Like
  • mapodga
    , contributor
    Comments (4236) | Send Message
     
    And also now is good opportunity for all this investors that were lately arguing that would join if stock would be 39 or 38.

     

    Don't miss momentum again.
    8 Jul 2014, 12:38 PM Reply Like
  • Capt Jack Daniels
    , contributor
    Comments (1463) | Send Message
     
    Does this lady protest too much?
    8 Jul 2014, 12:58 PM Reply Like
  • jaweid
    , contributor
    Comments (160) | Send Message
     
    I dont understand what the jitters are all about concerning the new bond issue, PI notwithstanding! What has been noted above by C3wands -- raising debt for new CAPEX at longer term, lower coupon rate without diluting current shareholders and future div payments -- why would I worry if I am a long termer in SDRL?? Smart move by management to lock in low rates before global bond yields need to go up again as recovery winds up further notches in US, Eurozone and China. More debt for future cash flow so long as increasing CF keeps paying for cost of debt and dividends. Heck I have been building my own small portfolio over last 2+ years on exactly such basic fin planning -- making sure my divies always pay off for my interest cost Q-on-Q.

     

    I am already highly invested in SDRL (biggest 10% share) or I would have sought to build further now as others panicked driven by the likes of PI.
    8 Jul 2014, 02:22 PM Reply Like
  • gennocro
    , contributor
    Comments (75) | Send Message
     
    I cannot understand this sell off!! To put it simply, the company issued bonds to acquire capital to continue investing in state of the art equipment (which is in demand) to stay well ahead of the competition. You can make the numbers from this transaction look as good or bad as you want. Unreal!!!!!
    8 Jul 2014, 02:46 PM Reply Like
  • randyguyer
    , contributor
    Comments (100) | Send Message
     
    Sell off is somewhat understandable. There is a risk of dilution should the bonds not be called. That risk is going to be considered by the market. Interesting to watch this evolve since there is certainly not enough information available on which to base any well formed opinions on what will ultimately happen with the bonds.

     

    Does this create an unfounded dip in the stock price? Time will tell.
    8 Jul 2014, 03:20 PM Reply Like
  • Peter999
    , contributor
    Comments (16) | Send Message
     
    The bonds are convertible at 30-35 percent above the average price today, so the price of the stock needs to be over about $47.00 in order for dilution to occur. Since they are trying to retire $650 million of current convertible bonds at a higher interest rate, the net addition at a higher price in exchange for 2.5 percent interest rates seems like a good deal. The reaction today is understandable though, as this will be seen as dilutive. The reaction is also being enhanced by the general selloff in the market today. I thought about selling a few shares, but after reading the comments here and the actual news release I think I am going to hold.
    8 Jul 2014, 03:50 PM Reply Like
  • randyguyer
    , contributor
    Comments (100) | Send Message
     
    Stock has to stay about the specified level for some period of time for the call feature to kick in.

     

    Agreed about not selling. I have a full position right now but would consider adding some if the price continues to drop.
    8 Jul 2014, 04:33 PM Reply Like
  • jaweid
    , contributor
    Comments (160) | Send Message
     
    Randy,

     

    Couldn't agree more -- same here!! But of little use as debt issue has been cancelled and stock price has bounced back today. Pity that low view by market caused JF / management to hold back on the trigger for additional debt. Let's see now how this Q earnings report and FFO look like.
    9 Jul 2014, 03:40 PM Reply Like
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