Noble Corp. Has Already Engaged With Restructuring Advisors And Will Likely File For Bankruptcy In The Next Few Months
Summary
- Noble Corp. provides its first-quarter report and reveals that it has already hired restructuring advisors.
- The cash flow situation in the first quarter was better than I expected but this won't help as the second-quarter performance was hit by negative contract developments.
- Noble Corp. will need fresh capital injection so common equity has no chances to get any recovery.
Noble Corp. (NYSE:NE) has just released its first-quarter results and it's high time to look at the company's financials in the midst of the coronavirus pandemic.
Noble Corp. reported revenues of $281 million and net loss of $1.06 billion or $4.25 per share. The net loss was driven by the impairment of semi-subs Noble Danny Adkins and Noble Jim Day as well as drillships Noble Bully I and Noble Bully II. These rigs are cold stacked and do not have any chances to return to work.
In my previous article on the company, I stated that Noble Corp. was quickly running out of liquidity and would soon hit the liquidity covenant on the credit facility. As it turned out, I overestimated the cash burn at Noble Corp. but this does not change the big picture.
Noble Corp. finished the first quarter with $176 million of cash on the balance sheet, $261 million of short-term debt and $3.69 billion of long-term debt. Following the recent repayment of seller loans on jack-ups Noble Joe Knight and Noble Johnny Whitstine, the company had $297 million available under the credit facility.
Noble Corp. commented: "While we are in compliance with all covenants today, the negative impact on our financial condition of the oversupply of oil, and the substantial decline in demand for oil as a result of COVID-19 and related mitigation steps, raises significant uncertainty as to whether we can remain in compliance throughout 2020".
In the first quarter, Noble Corp. had negative operating cash flow of just $1 million but the cash flow situation is set to worsen as the company's contracts got hit by the collapse of oil prices (I wrote about the recent fleet status report here). In addition to the previously announced bad news, Noble Corp. stated that the jack-up rig Noble Scott Marks was suspended at the request of the client, Saudi Aramco (ARMCO).
The previous fleet status report indicated that Saudi Aramco requested a dayrate reduction, but the ultimate outcome of this situation is much worse because the rig will spend 365 days at zero dayrate. Noble Corp. has the right to pursue other contract opportunities during this time but chances to find work in the current environment are slim. This development will put additional pressure on Noble Corp.'s finances.
Not surprisingly, Noble Corp. is pursuing restructuring: "[…] we have engaged Evercore as a financial advisor and are actively working with them to evaluate alternatives to enhance our liquidity position and reduce our total amount of debt and corresponding interest costs. These alternatives include, but are not limited to, potential capital exchange transactions as well as a more comprehensive debt restructuring".
Noble Corp.'s cash flow situation has materially worsened in the second quarter as many rigs rolled off contracts with no follow-up work, suffered stand-by periods or even suspension, so its cash position will rapidly deteriorate. In this light, Noble Corp. needs not only the equitization of debt but also fresh capital injection.
Noble Corp. still has about $60 million of market capitalization and there's no chance that so much money will be left for the common equity in the upcoming restructuring. In fact, I'd expect a complete wipeout of the common shareholders because debtholders are set to take a haircut while the company needs fresh capital infusion. I'd note that even "obvious" bankruptcies never force the stock to trade at zero before the actual bankruptcy is announced.
This happens because some shareholders simply give up on their shares and do not want to pay transaction costs for exiting their positions while short sellers are subject to ultra-high margin fees while shares are hard to borrow.
I expect that Noble Corp. will soon follow Diamond Offshore's (DO) example, with or without a pre-negotiated deal with creditors. Valaris (VAL) will also restructure its debt soon. In short, we are witnessing a very interesting period in the industry which will likely determine how it will look like for several decades to come. Stay tuned!
If you like my work, don't forget to click on the big orange "Follow" button at the top of the screen and hit the "Like" button at the bottom of this article.
This article was written by
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 (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.
Recommended For You
Comments (59)
2) 2026 notes are structurally senior
3) Material amount of exit financing will be required