Norwegian offshore drilling contractor SeaDrill Limited (SDRL) declared that it has launched a new voluntary incentive offer for converting any or all of its $650 million worth convertible bond into shares. The bond – with a 3.375% interest rate − is scheduled to mature by 2017. The company revealed that more than 60.0% of its bondholders are in favor of the conversion and have already made commitments.
SeaDrill added that the bondholders willing to exercise their conversion right will likely get 3,612 of its ordinary shares per $100,000 principal of the bond they hold. Moreover, the bondholders will also get an extra cash payment of $11,840 for every $100,000 principal value. The accrued interest of the bond between Apr 27 and Jul 28 will also be added to the bondholders’ kitty.
SeaDrill had announced the bond-to-share conversion on Jul 8, 2014 along with another $1.0 billion worth convertible bond offering, which was expected to mature by 2019. The annual coupon of the $1.0 billion bond, was declared in the range of 2.00–2.50%, is supposed to be paid semi annually.
Incidentally, the twin offerings got an unfavorable investor reaction post announcement. Shares of SeaDrill had dropped over 5.0% on the day as investors feared liquidity concerns owing to the huge $1.0 billion debt burden that the company was planning to take on its shoulders. Shareholders were tensed as this bond would result in considerable cash outflow for the coupon payment that would in turn hurt their returns to a great extent.
Keeping investor skepticism in mind, SeaDrill had cancelled both the offers on Jul 9. The $650 million conversion, however, has been well received.
Hamilton, Bermuda-based SeaDrill currently carries a Zacks Rank #5 (Strong Sell), which implies that it is expected to significantly underperform the broader U.S. market over the next one to three months.
Meanwhile, one can look at better-ranked players in the same industry like Helmerich & Payne Inc. (HP), Nabors Industries Ltd. (NBR) and Patterson-UTI Energy Inc. (PTEN). All these stocks carry a Zacks Rank #2 (Buy).
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