Entering text into the input field will update the search result below

Transocean: Is A Credit Event Imminent?

Aug. 02, 2022 11:26 AM ETTransocean Ltd. (RIG)92 Comments
The Energy Realist profile picture
The Energy Realist


  • Transocean released earnings on the back of positive updates to its fleet status report.
  • The fundamentals are better than they have been in a long time.
  • Interestingly, S&P Global Ratings downgraded Transocean to CCC- on the high probability of a distressed debt restructuring.
  • The S&P release reads somewhat backward-looking and most of its assumptions appear incorrect.
  • I think the probability of a credit event is lower compared to 2021, not higher.

oil grill ship lights in the night

izzetugutmen/iStock via Getty Images

This article focuses on S&P Global Ratings' opinion from July 7 which lowered the issuer credit rating of Transocean Ltd. (NYSE:RIG) to CCC-. The linked press release isn't behind a paywall, but requires registration. S&P is ringing

This article was written by

The Energy Realist profile picture
I believe in the value approach to investing and focus on the energy sector. I write mostly about stocks I own. Twitter: @_EnergyRealist  Disclaimer: My articles, blog posts and comments on this platform do not constitute investment recommendations, but rather express my personal opinions and are for informational purposes only. I am not a registered investment advisor and none of my writings should be considered as investment advice. While I do my best to ensure I present correct factual information, I cannot guarantee that my articles or posts are error-free. You should perform your own due diligence before acting upon any information contained therein.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of RIG either through stock ownership, options, or other derivatives. 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.

My articles, blog posts, and comments on this platform do not constitute investment recommendations, but rather express my personal opinions and are for informational purposes only. I am not a registered investment advisor and none of my writings should be considered as investment advice. While I do my best to ensure I present correct factual information, I cannot guarantee that my articles or posts are error-free. You should perform your own due diligence before acting upon any information contained therein.

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 (92)

The Energy Realist profile picture
Since this article was mostly a response to the S&P downgrade and was submitted to SA before all Q2 news, I wanted to mention here also these announcements from management:

- The $915 million contract for Petrobras 10000 over 5.8 years; this is an implied day rate of $420,000

- The $321 million for the Deepwater Conqueror at $440,000/day in the GoM

This news reinforces the bull thesis and reduces further the chance of a "distressed restructuring." The company shouldn't be price for bankruptcy any longer.
Desert Wolf profile picture
@The Energy Realist Events change rapidly RIGs outlook has not been this positive for many years. After surviving the last 6 years I find a major restructure unlikely with today's current market and outlook.
kingRIG2.0 profile picture
@Desert Wolf yet we’re still at $3 dollars a share, Wall Street doesn’t like to send a stock higher until most retail are out, they don’t like when retail dumb money makes money
Desert Wolf profile picture
@kingVRX A few more long term contracts and stock has to start moving upward.
Desert Wolf profile picture
How much momentum will Biden's announcement of Reinstating GOM Lease Sale 257 (80 million acres) have?
Best News to come out of this Administration to date.
vitullijoe profile picture
consistent improvement?
kingRIG2.0 profile picture
@LukkiC for how bad oil getting beat up today RIG is holding up pretty good today
The Energy Realist profile picture
@kingVRX BORR even finished in the green. Strange times
@The Energy Realist I want to believe we are in a new paradigm. The last few years there were only contracts with short durations and low rates with no hopes for the investors except an increase in the oil price. Today we see a recovery, the oil price is clearly an important factor but at those levels (between 85 - 100) most of the offshore projects are more than profitable...hence I would expect the price of the shares will be less correlated with the oil price at those levels.
These guys are not out of the woods. No one is giving them credit here at this point. They will have to sell stock, don't see the stock breaching $4.75 anytime soon
PapaWhisky profile picture
@Jon Bobolia

They just extended their credit facility
ramgaana profile picture
@Jon Bobolia no. They don't HAVE TO sell stock. But Mark Mey said on the call they may seek approval for another ATM to keep handy. They haven't even used the existing ATM fully. And even if they did another ATM for a similar amount, the resulting dilution will be insignificant when compared to the sheer potential of the stock. For example, if another ATM means stock goes to 16 instead of 20, fine by me. Or to 12 instead of 15, that's also fine. You need to appreciate that at present the stock is priced for bankruptcy
Henrik Alex profile picture

The stock is NOT priced for bankruptcy. Net asset value including estimated discounted cash flows from the backlog is WELL below the current market price and this does not assume any sort of fire sale of the company's assets.

Please note also that in a hypothetical bankruptcy, shareholders would likely end up with nothing given the sheer amount of debt ahead of them. Bondholders would become the new owners while current equityholders would hold the bag and some penny warrants.
Desert Wolf profile picture
Either S&P Rating Department is away on holidays or simply did not do ant analazizes. Either way they (S&P) are Out to Lunch on this.
Expect an Updated Rating Shortly
@Desert Wolf they mailed it in from some resort….probably Europe what with euro parity & all. Sad. Maybe they are shilling for Soros sgain.
I think many people were surprised with the lowered credit rating. Now they’ll have to send out an increase in rating soon, otherwise they’ll look like fools.
kingRIG2.0 profile picture
@Long-investor90s it was an obvious last attempt to flush out weak retail before to the moon Alice
The Energy Realist profile picture
@kingVRX I'd rather defer to the folk rule that when you have to attribute something to malice or stupidity, you go with the latter...

It is unfortunate though because most of the financial industry is now biased against anything hydrocarbon related.

I was looking recently for a different purpose at the OFS methodology of Moody's, and it struck me that under "business profile" they had capped the industry at something like "medium."

So in their view an OFS company can never have a "strong" business profile. It is sad because institutional money is herded by informal gatekeepers like credit agencies and it raises the capital cost to the industry.

For a more meaningful multiples repricing (generally the industry, not RIG necessarily) we'll need also to see some change in the political discourse on ESG topics.
@The Energy Realist yes some WS ‘cabron’ stated that the industry eould need three solid years in a row before they would consider investing. (I mean with the growth of EVs & Uber’s oil & gas use will be zero right?-hahaha what do they teach in the ivy League these days…hahaha ‘wokeism & CRT’ ? My wife’s company had a weekly 3 hour team meeting that instead of talking about project progress focused on ‘diversity training’…pure BS…management needs to tell employees to get back to work or leave….WS is now full of woke idiots who are really ‘asleep st the switch’)
A desparate attemtpt by S&P to save some friends, who are enjoying shorter's face rip-off.
Good one. Thx.
ramgaana profile picture
This is a10-12 dollar stock right now. What credit event? Ignore S&P. They don't understand credit risk. That report was hilarious when it came out
@ramgaana - Thank you my friend. Your conviction helped increase my stake in RIG during the recent pullback. What a gift? Path to more oil is only possible through RIG.
dlevine007 profile picture
@ramgaana I bought more today. S&P seems like they wrote a report with 2 year old information. I think the top of this sector will be marked by mergers and acquisitions but regardless I’m holding for 12-14.
ramgaana profile picture
@dlevine007 it's the same rating agencies that said you can combine lots of junk rated bonds to create a AAA rated bond. I don't pay any attention to what these folks have to say. The S&P analyst who wrote that report obviously has no clue about where the deep water drilling market is and where it is headed. I was stunned at the sheer idiocy of the report when it came out. To be fair, it gave me an opportunity to add to my already very big position at 2.5 - I mean if they are going to hand it to me on a silver platter, I am not going to be shy in taking the gift. Best wishes
OverTheHorizon profile picture
Good article. Thx
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.