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Mr. Market Believes That Noble Corp. Is Heading For Bankruptcy

Mar. 06, 2020 1:06 AM ETNoble Corporation Plc (NE)91 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Noble Corp. shares slide towards $0.50 - market participants start pricing in a potential bankruptcy.
  • Noble's financial situation is indeed challenging, but the liquidity appears to be sufficient to get the company through 2020 and into 2021.
  • A lot will depend on the company's contracting success on the jack-up front.
  • The company will need to achieve decent contracts at improved dayrates, preferably without gaps. This will give it a chance to survive with the current capital structure for some more time.
  • Since bankruptcy is not just around the corner, speculators will likely get a chance to play upside momentum in the stock this year. Long-term investors are better off staying away from the stock.

As it turned out, the major drillship deal with Exxon Mobil (XOM) (I wrote about it here) was only sufficient enough for a one-day spike in Noble Corp. (NYSE:NE) shares back at the beginning of February. The stock briefly traded above $1.00 and trended down on liquidity fears and broad coronavirus-related sell-off. As I write these words, Noble Corp. stock is trading close to just $0.50, which means there is just about $125 million of capitalization left - the market is clearly pricing in a chance of a potential bankruptcy.

At the end of February, Moody’s downgraded Noble’s corporate family rating (CFR) to Caa2 from Caa1, its senior unsecured notes ratings from Caa2 to Caa3 and its senior guaranteed notes from B3 to Caa1. Under Moody’s methodology, obligations rated Caa are judged to be of poor standing and are subject to very high credit risk. The rating agency noted: “The outlook is negative reflecting Noble’s unsustainable capital structure and an expectation that the pace of improving business fundamentals will be slow while liquidity shrinks”.

As a reminder, Noble finished the fourth quarter with $105 million of cash on the balance sheet, short-term maturities of $62.5 million, long-term debt of $3.8 billion and $660 million of borrowing capacity available under the credit facility. During the recent earnings call, the company stated: “[…] current expectations for negative free cash flow generation […] could lead to meaningful draws under the revolver over the next two years”.

Right now, the market is acting as if Noble Corp. will enter restructuring negotiations with lenders in the near term. While the company’s finances are indeed weak, I do not expect this to happen in the upcoming months. Noble Corp. has sufficient liquidity for 2020 and will certainly wait to see what the next wave of jack-up re-contracting brings in terms of contract

This article was written by

Vladimir Zernov profile picture
I'm a trader who trades both short-term and long-term. I started my career as a day-trader for a trading firm, but then turned to longer time frames and went on my own to manage my portfolio. I use technical analysis as well as fundamental analysis in my research.

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Comments (91)

WhyNotBuy profile picture

2 insiders just sold huge share blocks of free shares they received at zero cost bases and they sold share for 44 cents !!!!!!!!!!!! What dos that tell you boys.....run for the hills with your woman and you children. Be sure said woman and children are each carrying enough supplies. IMHO
Bonds are selling at 20% of par.

Let's be real, this one is done.
@bondsmoker @WhyNotBuy

I concede! Glad I hedged with puts. Didn't make anything, but it sure helped to mitigate the losses. RIG not looking so good either...
WhyNotBuy profile picture

I am just kidding here. NE debt is unsecured. Big bubble no troubles. The debt and revolver will all be extended out - no more lawsuits for NE please. Unsecured lenders would be left high and dry if they did no extend out the debt and they do not want to go to court really. Think PGN. Unsecured debt that only a company can call puts NE in the drivers seat, maybe. A game of chicken here. IMHO
WhyNotBuy profile picture
Ironically, the reset rates on the NE drill ships with XOM only happen twice a year and for most of those rigs, the reset day rates to market are not until 2021 March and September. Now think about that. Could it be that NE ends up with some of the highest day rates paid under the XOM contracts, which by the way will be abandoning all shale cap x now to pour into deep water for 6 more years of contract work with NE when oil is in backwardation years from now. Hmmm. IMHO
WhyNotBuy profile picture
OK boys - only if day rates drop going forward are these OSD names any closer to chapter 11 today then 2 days ago or 2 weeks ago or 2 months ago. Stock price makes little difference. When you buy shares you are buying a business. Them running that business is often completely disconnected from share prices, which are not even a company asset. Watch for day rate reductions or contract cancellations as that is more important that stock price fluctuations or bond price fluctuations. Have a great day boys !!!! IMHO
Aventador profile picture
I am really going to miss WNB posts and rants.
WhyNotBuy profile picture
I will always be here for you brother. No worries....IMHO
Stock price is irrelevant. Oil price isn't. Nor is the macro-banking/finance position.

Banks a whole lot more skittish today than yesterday.

NE should just go ahead and file.
WhyNotBuy profile picture
As the unpleasant socialism of OUR future forbids gatherings under the ruse of a engineered virus threat, the world will socialize online and Facebook will for to 6000 a share. Mark this post boys. Of course the Central Bankers own most of Facebook. IMHO
WhyNotBuy profile picture
2008 Central Banks stole the homes and sent the middle class to the poor class. 2020 the Central banks wiped out the stocks and sent the rich to the middle class. The Central Banks need one more CRISIS row of the economy in 2032 to send the 'new' middle class to the poor class. Then we have Central Banks that own everything and all assets. This is socialisms and globalism boys. Accumulate RIG. IMHO
Noble is toast. The Russia-OPEC failure and Saudi’s response to flood the market all but guarantees Noble’s bankruptcy. I’ve been trading this stock for years and sadly the past 4 weeks+ of coronavirus and now an oil price war are causing me to bow out with some significant losses as I don’t see any hope of a rebound even from $0.43/share.
WhyNotBuy profile picture
Think of this boys. All money/liquidity must seek out yield.

Gold offers no yield
Savings offer no yield
US Treasury's offer no yield
Stocks offer massive dividends now (could be cut or bankrupt)
Homes offer no yield
Oil offers no yield
Indexes offer massive yields now (cannot go bankrupt)

All money remans in a closed debt based financial system, so where will all the money go after the Central Bank is done rowing the economy THIS TIME like for the last 300 years to transfer your wealth to them?? Answer that, and you can be rich, again. IMHO
Aventador profile picture
All anyone had to do was the opposite and they are already rich. It was just that simple.
WhyNotBuy profile picture
The final petrodollar collapse is here boys. No nation will hold our dollar as the ten year treasury yield is at .50 !!!!! and QE4 will be in the trillions now to devalue the dollar to 0. Oil at 20 is a last attempt to save the dollar as they move inverse, but with treasury yields so LOW it will not work no matter what. As the dollar dies now, oil will shoot north of 100 after first collapsing but unfortunately most drillers will file chapter 11 before that, because this is their chance to remove debt. The domestic dollar is here, along with hyperinflation soon, and the new world reserve currency as the IMF SDR. Get out of America boys and run for the hills. I have told you now for 5 years the dollar would fail so you had warning. IMHO
NE is done and probably most deep water drillers. Chapter 11 won’t solve their problems. Chapter7 is the answer. We need one or two deepwater drillers.
Henrik Alex profile picture
Most drillers would still be viable on a standalone basis without the debt but the new oil price war provides an additional layer of risk here. Anyway, time to get out of oil and oil service stocks, particularly OSD.
Whonoz profile picture

A couple questions that puzzle me regarding bankruptcy..

1) Chapter 11 - why would the creditors want the rigs? It will guarantee substantial losses for them going forward when they could simply issue waivers on the existing covenants and kick the can down the road. All the while making money by interest payments. (even more of a positive considering the likely rate decreases by the FED?)

2) Chapter 7 - who would or could by the assets and what price would they bring? Do you think they would bring enough to come close to the existing debt? What is the chance that any of the other drillers would want to by more steel that they can't find work for?
Henrik Alex profile picture
They don't want the rigs, distressed debt investors want the new equity.

Chapter 7 makes no sense as creditors would be getting just pennies on their dollars.
Aventador profile picture
Buckle up for Monday boys and girls. With oil prices multi year prop up finally over lets see what real glut oil prices look like. Any one who has been paying attention knew this day was coming and the nonsense about utilization ect wont mean a thing in a few short hours.
Aricool profile picture
their bonds agree with author and his short-term trade proposal. 2021 bonds still trade at par, so NE must have at least 2 years of debt coverage. Then the 2024 bonds are pricing in 60% chance of bankruptcy. 2040 bonds are even worse, at .35 of par.

if covid19 actually subsides w/ spring weather, V-shaped consumption returns, and OPEC+ can do their cut, then by end of summer I figure Brent should get back over $55. global helicopter money (already started in HK) should pop up oil too.

Sure, but NE was well on its way to CH-11 even with Brent at $60.
WhyNotBuy profile picture
Secretary and crew all just got big stock awards, so say it ain't so brother. Joke. IMHO
Vladimir Zernov profile picture
OPEC+ is now dead, so I guess that only speculative short-term trading based on charts will now be possible in OSD for some time.
Crevalon profile picture
If one wants to bet on survival of a name , aside RIG why not buy Valaris which has much more liquidity runway, better debt metrics and more established fleet than Noble.
Henrik Alex profile picture
After today's events there appears not much sense in owning oil or oil service stocks for the time being.
Crevalon profile picture
My point was comparative
Henrik Alex profile picture
Do you still expect Valaris to escape debt restructuring. Cash flows of supermajors and NOCs will be heavily impacted, particularly the supermajors will have to remain committed to their dividend policy.

Doesn't bode well for upcoming FIDs.
While they have liquidity to survive into 2021, does it makes sense to keep burning up liquidity to make interest payments on debt that is almost certainly going to end up being converted to equity anyway?

Once a company is doomed to reorg, it makes sense to reorg asap.

I think its relatively clear Noble is beyond the point of no return.
Golden Sage profile picture
June 20 $1 calls cheap exposure to upside
Thanks for the article Vlad. Borr is bottoming even worse. Freefall every day. Uggh. I currently own no OSDs or anything oil-related and my portfolio is much happier. I’ll cherry pick some big dividend names as they become more “bargains”; looks like today could be some bargain prices - stuff like CVX, EPD, TOT, etc.
Vladimir Zernov profile picture
A lot of them are going to become huge "bargains" today.
Corona-virus is the knife to heart
Whonoz profile picture
With way things are looking now...it looks like the knife is cutting the heart OUT. Not just NE...out of the OSD market.
Vladimir Zernov profile picture
Very unfortunate timing, that's true.
WhyNotBuy profile picture
If any OSD has a chance to survive for two more years, they need shale to be dead first. This oil price collapse could just be a blessing in disguise for OSD. Who can hold their breath the longest at 30 oil. The OSD can because they do not care about OIL spot prices in contango, but they care about long term OIL prices in backwardation, maybe. IMHO
The way this is free falling, it won't be long before you are paid to take the shares. Train wreck.
The provided guidance of noble was reliable in the past.
In 2020 they should burn 84 million less :-). Plus around 50 million of reimbursed CapEx.
The difficult segment of the fleet (drillships) are covered with contracts.
The market for their high spezification jack-ups should still be good. And even if there would be a gap in the second quarter only four units would be affeced in the short term.
IMO Shale in the US should far worse and allow shallow-water to remain in good demand.
I would expect that the 660 millions will be sufficent for 2020-2022.
A hell of a timeline to recover.
-What do you think Vlad ?
Vladimir Zernov profile picture
They should get a contract for Lloyd Noble. Losing $451k/d, or $13.5M/mo would be a very negative development that NE has to avoid. Many drillers spoke about the unexpected softness in UK. It should not get better with the coronavirus so it's a main risk right now, imo.
The 13,5 million lost in 2020 are still far below the improvement from other areas.
Thus: Less burn of cash in 2020.
IMO they will not burn more than 200 each year.
And they have always acted very successfully on the contract-side.
Therefore I believe they should be able to make it.
What do you think Vlad?
Vladimir Zernov profile picture
Everything now depends on coronavirus and oil price following Russia's move.
Piggybank Revolution profile picture
Vladimir, have you looked at Noble's bonds? I think there could be some value at these prices even if they enter CH11.
Vladimir Zernov profile picture
I'm not into bond trading but typically bonds do offer opportunities at such situations.
LongRoser profile picture
How do I trade bonds ?
Seems like DO too
Vladimir Zernov profile picture
DO lost a lot of ground, but I don't think that a bk possibility in DO case is seriously implied in recent price action.
David_MV profile picture
Current stock prices are reflecting panic from the Coronavirus. They will likely fall further due to this weekends events.
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