Trading at less than it costs to sneak a treat through a gumball machine, Hercules Offshore Inc.’s (NYSE: HERO) share prices – 14 cents a pop – are reflecting its precarious bankruptcy status.
By midday Tuesday, it was clear there’s blood in the water for other offshore drillers, too:
- Diamond Offshore Drilling’s (NYSE: DO) deepwater work was generating $22.36 per share, about half its 52-week high of $48.02 per share.
- Transocean Ltd. (NYSE: RIG) was trading at $13.81 per share, a 72 percent cut to its 52-week high of $41.87 per share.
- Atwood Oceanics (NYSE: ATW) shares were trading at $21.95 each, down by more than half of their 52-week high of $49.67.
- Parker Drilling Co. (NASDAQ: PKD) was $2.56 per share, above its 52-week low of $2.48, but still half the 52-week high of $6.86.
Hercules chose to restructure sooner rather than later based on the risk to its $140 million in cash on hand needed to maintain operations and fully fund the jackup Hercules Highlander (400’ ILC) in Southeast Asia, Senior Managing Director at Evercore ISI James West said in a note to investors. Based on a number of factors, Evercore ISI rates Hercules a SELL.
In June, Hercules said it achieved a restructuring support agreement with the steering group of its senior noteholders. Hercules CEO John Rynd told investors in a July 23 conference call the plan converts Hercules’ outstanding debt of about $1.2 billion into 96.9 percent of company equity. Current equity holders will receive 3.1 percent of the restructured equity plus warrants that are exercisable during the next six years.
The deal also secures $450 million in new debt financing, with $200 million earmarked for the final work on the Highlander. The remaining funds, Rynd said, will help the company navigate the down cycle.
“The financial restructuring is intended to impact our balance sheet only, so I want to emphasize that we work to effectuate the recapitalization, so operations are to continue with business as usual,” he said during the call.
CFO Troy Carson said during the call that the solicitation for Hercules’ prepackaged reorganization plan ends Aug. 12, and the company intends to file Chapter 11 bankruptcy protection thereafter.
Carson added that between now and then, the company wants to minimize disruptions.
Carson said Hercules’ leadership acted pre-emptively with the prepacked reorganization plan to maintain “adequate liquidity to maintain day-to-day operations to come to an agreement that better positions the company and all of our stakeholders to weather this down cycle.”