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Diamond Offshore: Here Comes The Real Test For The Balance Sheet

Mar. 10, 2020 7:02 PM ETDiamond Offshore Drilling, Inc. (DO)78 Comments
Vladimir Zernov profile picture
Vladimir Zernov


  • Diamond Offshore shares drop hard, pressured by low oil prices and coronavirus fears.
  • Moody's downgrades the company's debt as it expects increased cash flow problems.
  • The good news is that the company does not need additional access to capital markets in the next few years.
  • While risks have certainly increased, Diamond Offshore's position looks more favorable than those of its peers.

Ocean GreatWhite

Just like other offshore drilling stocks, shares of Diamond Offshore (NYSE:DO) got absolutely crashed this year and are down nearly 80% year-to-date. As my loyal readers know, I've always noted that the company had one of the most comfortable balance sheet situations in the industry. Apparently, the company's balance sheet will now be put to test by a mix of coronavirus-related problems and the collapse of the OPEC deal.

Moody's has recently downgraded Diamond Offshore's corporate family rating from B2 to Caa1 and its senior unsecured notes from B3 to Caa2 with a negative rating outlook. Moody's commented:

The downgrade of Diamond's ratings reflects lower earnings and higher negative free cash flow in 2020 than we previously expected, combined with few signs that offshore drilling fundamentals are going to greatly improve anytime soon. Without a much more robust improvement in dayrates, Diamond's debt burden will become untenable".

Source: Diamond Offshore 2019 annual report

Diamond Offshore finished the year 2019 with $156.3 million of cash on the balance sheet and $1.98 billion of debt. The company's nearest maturity comes on November 1, 2023, so Diamond Offshore has a lot of time before the first senior note debt comes due. The problem is that the company will have to use its revolving credit facility this year because of negative cash flow in 2020 (this view was reiterated during the most recent earnings call). The credit facility has a capacity of $950 million and matures in October 2023. So, the company will have to deal with maturities from the credit facility and the senior notes in late 2023, roughly three and a half years from now.

In these circumstances, Diamond Offshore's main goal is to limit cash bleed in 2020. To do this, the company must ensure that its active fleet is working. Diamond Offshore's

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.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in DO over the next 72 hours. 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 may trade any of the above-mentioned stocks.

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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