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Pocket 25% YTM With Hornbeck Offshore, Bonds Mature April 2020, A Durig Capital Review

Randy Durig profile picture
Randy Durig


  • Revenues increased 34.1% year-over-year.
  • Q4 EBITDA totaled $13.9 million, a massive increase over Q4 2016 EBITDA of $1.1 million.
  • Operational cash flow in Q4 added nearly $8 million to Hornbeck’s balance sheet.

This week, Durig Capital reviews a provider of marine transportation services to the oil and gas, construction and military industries primarily in the Gulf of Mexico. Hornbeck Offshore Services has been building momentum over the past few quarters, posting consecutive, quarter-over-quarter increases in revenues. Its latest quarterly results (Q4 2017) continues to build on this momentum.

  • Revenues increased 34.1% year-over-year.
  • Q4 EBITDA totaled $13.9 million, a massive increase over Q4 2016 EBITDA of $1.1 million.
  • Operational cash flow in Q4 added nearly $8 million to Hornbeck’s balance sheet.

Hornbeck was able to secure a new credit facility in June 2017 and subsequently repurchased at a discount and retired $200 million of its outstanding bonds. The company has come through what appears to be the worst of the oil recession of the past few years and is ready to move forward. Hornbeck’s 2020 bonds, couponed at 5.875%, are currently selling at a significant discount, giving these a yield-to-maturity of about 25%. The discounted price and corresponding outstanding yield make these bonds an ideal candidate for addition to Durig Capital’s Fixed Income 2 (FX2) managed income portfolio, the most recent aggregated performance of which is shown below.

Q4 2017 Results

Hornbeck’s most recent quarterly results show some improvements for the offshore oil services firm.

  • For Q4, revenues were $56.2 million, an increase of $14.3 million or 34.1% over Q4 2016.
  • Q4 revenues also increased sequentially over Q3 2017, coming in $2.5 million or 4.7% higher. This sequential increase was due to higher effective dayrates of the company’s MPSV fleet (multi-purpose support vessels).
  • Q4 EBITDA was $13.9 million, an impressive increase from $1.1 million in Q4 2016, as well as a sequential improvement over Q3 2017 which registered EBITDA of $10.6 million.
  • Net cash provided by operating activities for Q4 2017

This article was written by

Randy Durig profile picture
Durig Fixed Income provides market leading products and services: Please review our performances:  Durig's Fixed Income 2 (FX2)  &  Durig's Distressed Debt 1 Hedge Fund (DD1)  We  provide a Free Newsletter updating the fundamental research on several high yielding institutional bonds at Bond-Yields.com, combined with our low cost assistance, often allows our clients to broadly diversify their fixed income portfolio while often greatly enhancing their yields plus attaining superior overall returns. This service often allows our clients to achieve a much higher income combined with far greater diversification. -  call us at 971-327-8847

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

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Comments (12)

Are 100% shares currently held by insider executives required to be continually held as part of an executive employment contract clause or something? It seems like not one insider has sold a share the last 3 years outside of a insignificant amount for tax liability. Should this be taken as a sign of confidence of a turnaround? Or does it not matter for them, as they would be granted a significant amount of shares in the event of a restructuring?
Flipper2058 profile picture
Hornbeck has bought a lot of open market stock. He stands to benefit if they push existing debt into a corner and force them into unfavorable terms.
I have invested in a number of bonds issued by offshore drillers and oil service providers (mostly Norwegian owned companies). Most of the Norwegian owned companies (for example Seadrill) have a lot of bank debt senior to the bonds. I find Hornbeck interesting because they have little bank debt and good value backing, hence there is more downside protection compared to the Norwegian peers.
One quarter does not a year make; this is the first quarter they have even covered their interest expense in the last 5 quarters... TTM EBITDA does not cover 1/2 the interest cost and they added another 70MM in debt beyond their negative cash burn. With leverage over 44x, where on earth can they find the money to pay the principal due 2020....The pain is not worth the pleasure ...sorry!
Very good chance these bonds don’t pay and are equitized in a restructuring ( in or out of court). No mention that 70% of HOS fleet is laid up and has been for several quarters now. Bottomline, it’s a race now....can offshore drilling in the GOM pickup over the next few years to a point HOS can obtain financing to refi the 2020 debt.
With that in mind, I wouldn’t mind owning the bonds in the $50’s, if they ever dip back down again. $70 not as compelling a risk/reward, even with the likelihood they pay 2018 coupons.
Alexbr profile picture
The later maturities are in the mid 50's. If they restructure it does not matter which one you own if of equal seniority...
QSIP please? Also on 99 cent only stores. These are hard to find without it. Thanks.
Henrik Alex profile picture
That's a bold call, particularly in light of the company having already exchanged proposals for a distressed debt exchange with its creditors. At this point, it seems highly unlikely that the 2020 bonds will be paid back in full at maturity.
parisbiker profile picture
The debt exchange would be voluntary.
Henrik Alex profile picture
Yes, you can try to hold out, of course, risking the potential deal to fall through and Hornbeck filing for bankruptcy instead.
Flipper2058 profile picture
Its likely non Qualified Institutional Buyers will be subordinated severely and stripped of all or most of protective covenants.
Not a bet I'd make ahead if a deal that's already been turned down by management that assures less than par.
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