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Hornbeck Offshore Services Called Its Shot

Jenks Jumps profile picture
Jenks Jumps


  • Hornbeck Offshore announced fiscal 2018 first quarter results on May 2. A surprising distraction to its dismal results was the announcement of a capital investment.
  • Facing more debt than it is able to pay off in 2020 and 2021, the cash-conserving company acquired four vessels from Aries Marine for $36.6 million, funded by cash on hand.
  • Though the announcement was a surprise to many, Hornbeck actually called its shot in February 2017.

The last company one might have expected to spring news about a capital investment in an earnings report is Hornbeck Offshore Services (HOS). But that is exactly what the offshore provider of OSVs (offshore supply vessel) and MPSVs (multi-purpose support vessel) did in its 2018 first quarter release. Hornbeck has been extremely conservative with its cash balance since the downturn in the offshore drilling industry. Thus, the announcement seemed to dwarf the quarter's dismal results.

Capital Constraints

Hornbeck announced its fifth newbuild program in November 2011. After several expansions, the program now consists of the build of four 300 class OSVs, five 310 class OSVs, 10 320 class OSVs, three 310 class MPSVs and two 400 class MPSVs. As of February, 2018, 22 vessels have been placed in service. The two remaining MPSVs should be placed in service in 2019. Over 95% of the cost of the program has been paid.

At year-end 2017, Hornbeck had a cash balance of $186.8 million. Installments for the remaining capital commitment of $62 million on the last two MPSVs will be due in 2018 and 2019. Debt obligations that helped fund the program also are coming due. On April 1, 2020, $367 million of 5.875% senior notes will mature. Then, $450 million of 5% senior notes mature March 1, 2021.

“.....the Company does not currently expect to have sufficient liquidity to repay the full amount of its 5.875% Senior Notes and 5.000% Senior Notes as they mature in fiscal years 2020 and 2021, respectively.”

Though Hornbeck is negotiating with note holders, an agreement has not yet been reached.

The Surprise

Hornbeck has been quite transparent about the situation it is trying to survive. It doesn't see demand growing. It has called market conditions “anemic.” Its competitors have already filed for bankruptcy and emerged with less debt. Throughout the

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Jenks Jumps profile picture
I am a self-taught investor. As a member of an investment club, I provide the majority of research to the club. When I started writing for SA, the club was interested in stocks offering growth at a reasonable price (GARP) and stocks that were undervalued. We have since adopted a dividend growth investing (DGI) strategy. We search for GRAVY - our acronym for "GR"owth "A"bility, "V"alue and "Y"ield. I am very interested in other active investors critiquing my research. I believe this critique will make me a better investor for my own interests as well as the club's.

Analyst’s Disclosure: I am/we are long HOS. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

I belong to an investment club that owns shares in HOS.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (17)

Haha well it dropped a little more right before I get paid again! I guess I’ll be buying more Hornbeck!
parisbiker profile picture
If Todd is spending precious cash on more boats he must be feeling confident the can will be kicked down the road?

I say BUY all up & down the capital structure at current prices.
Jenks Jumps profile picture

Certainly looks like it will be a heel or hero move. Although, I've also read comments that think $37 million, in the whole scheme of things, won't be the tipping or breaking point.
JustSomeGuy32 profile picture
Well, if you break out the costs to reactivate 4 cold stacked ships of similar capabilities to the ones HOS is buying, the deal becomes even better. Just a thought..
Jenks Jumps profile picture

I wondered if Hornbeck even had smaller ships with similar capabilities in their fleet.
Flipper2058 profile picture
THanks. If you had to ball park a liquidation value what number might you guess?

The bond negotiations appear to have gone poorly. The firm wants to hammer them one way or another. I wonder what they have up their sleeve as more and more firms are walking a thin legal line to change bond indentures and screw creditors.
Jenks Jumps profile picture

That's also a great question! I'm afraid I don't have a good guess.

I'm just speculating but I wonder if Hornbeck feels it still has time to negotiate and needs more information on how things play out in 2018. If oil prices stay higher, if interest rates do rise, etc. - all could factor into what makes sense to do on the 2020 and 2021 obligations.
Jenks Jumps profile picture

If there's one thing that makes me nervous about Hornbeck, it's that without offshore activity, there really isn't a glaring need for their assets.
SBInvestments profile picture
Thanks for your article. I didn't see this coming as I always thought Todd H was talking about other companies, not his company as involved in the consolidation. I thought he expected to benefit, but only by utilizing his bloated capacity, not acquiring even more!

Even after following everything HOS has said and done for several years, I still cannot understand why such an investment would be made unless it is an all or nothing bet by Todd Hornbeck. "Nothing" is the bankruptcy side and "all" is the recovery side with Hornbeck very well positioned to need one of his MPSVs to haul all the cash to the bank if it does. I'm not in a good position with my HOS investment as I got in far too early during the latest downturn. That said, I bought more on this news. All or nothing for my position and yes, I'm well aware that the "nothing" side is possible. I'm betting on the "H" in HOS.
Jenks Jumps profile picture

I was shocked too........and then I remembered what he'd said over a year ago.
What type of contracts, if any, come with the purchase of the Aries boats ?
Jenks Jumps profile picture

I wondered the same. Great question! Perhaps that will be disclosed after they take possession.
thecloser profile picture
You won’t get many comments because this name is either off the radar or left for dead but I love it. Todd Hornbeck is apparently not willing to take the cowards way out as tidewater did because his name is on it and he has balls. He would have done it by now if he wanted to and of course it would “help the company” to blah blah “survive the downturn” but I can’t tell you how much respect I have for not only not folding to the pressure but also for making an acquisition when everyone hates it. Guaranteed he could renegotiate with bond holders and lock up a larger % ownership for himself and management than he currently has but this man appears to have some dignity and self respect. At the end of his run if he can claim that he never screwed a shareholder he will sleep like a sweet little baby even if he hasn’t slept well in the last two years. Lower for longer was the biggest and most misinformed lie of all time and within 6 months everyone will realize offshore and ofs is not only, not dead, but absolutely vital to the future of the worlds oil needs. Fast approaching supply gap. Hornbeck f’s.
Jenks Jumps profile picture

Thank you taking the time to comment. I agree with you about Mr. Hornbeck's character. He seems quite respectable.
They are going to have to give something up. Cap structure is broken but good assets.
Serious game theory going on with Mr. Hornbeck and current/potential creditors
Jenks Jumps profile picture

Thank you for taking the time to read and start the discussion!
Serious kudos to Hornbeck as well if they survive this downturn without having to file for bankruptcy. I'm rooting for them to pull it off.
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