Transocean: First Results Of Debt Exchange Offer Are Not Inspiring (NYSE:RIG)

Earlier this month, I wrote about Transocean’s (RIG) efforts to deal with the nearest maturities by proposing a $750 million debt tender offer. The company has just provided new information about the offer, which is especially interesting, given the recent share price action. Without further ado, let’s look at the key developments:

  1. At the original early tender time, $1.13 billion of aggregate principal amount of existing Transocean notes have been tendered. These notes will be exchanged into $518 million aggregate principal amount of new notes that would be issued once the current debt tender offer is closed.
  2. Transocean decided to change the terms for holders of 6.375% senior notes due 2021 and 3.800% senior notes due 2022. Previously, they were set to get 10.00% senior guaranteed notes due 2025, but now, the holders of these notes will receive 11.50% senior guaranteed notes due 2027, just like holders of all other notes (the difference is in the amount of total consideration, of course).
  3. Transocean raised the amount of total consideration for holders of certain notes. They are marked with (5) in the table below:

Source: Transocean’s press release

4. Transocean has amended the terms of the new 2027 notes so that they include more restrictive covenants.

5. The revised early tender time is 11:59 p.m., NYC time, September 4, 2020.

It is important to note that Transocean did not provide the exact information on what bonds have been actively tendered and which bonds have lagged. As $1.13 billion principal amount of “old” notes is expected to turn into $518 million of new notes, the participation among longer-dated maturities has been much more active than among near-term maturities. This is a problem for Transocean as it needs to get rid of 2021–2022 notes rather than 2038–2041 notes.

At this point, the results of the tender offer are not very inspiring. Transocean has the capacity to issue $750 million of new senior notes, but it managed to obtain enough participants to issue $518 million of new senior notes. The participation among near-term maturities is weak, but it remains to be seen whether these creditors want to take the gamble and try to hold their notes up to maturity or they are simply forcing Transocean to come with better terms.

In my opinion, Transocean has so far failed to reach the main goal of this tender offer, so it decided to make another try with increased total consideration and revised covenants. As I write these words, Transocean shares are rebounding after the recent sell-off which was triggered by the bankruptcy of Valaris (OTCPK:VALPQ) as well as by Barron’s article (fellow contributor Henrik Alex discussed it here). However, I would not tie this rebound with the first results of the debt exchange offer which did not have much success as Transocean had to improve the terms. That said, it’s too early to judge the ultimate results of the debt tender until Transocean presents the resulting breakdown between the tendered notes.

In the short term, the tender offer story promises more volatility, so speculative traders will certainly continue to follow the stock. In the longer run, Transocean’s survival depends on the speed of the offshore drilling market rebound. As I noted in my article about Valaris bankruptcy to which I linked above, current forecasts for the shape of the floater market recovery do not look well for Transocean. I maintain my opinion that the company has a high risk of restructuring, which makes its shares suitable for traders only.

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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.

Additional disclosure: I may trade any of the above-mentioned stocks.

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