by Alexander Gladstone, and Kyle Younker
Ocean Rig has retained Evercore to assist with restructuring negotiations after operational challenges sunk the offshore driller into distressed waters, said two sources familiar with the matter.
The Cyprus-based company engaged with lenders beginning in February after a lost drilling contract with Total triggered amounts due to the class. Negotiations most recently have centered around re-organizing the Drillships Ocean Ventures and Drillships Financial entities into a new structure owned by lenders following a new money injection, one of the sources said.
In addition to the loan payment, the borrower faces a wave of upcoming maturities that will be difficult to address given that its contract backlog rolls off significantly over the next two years. The company’s contract book coverage ratio of 88% for this year is projected to fall to 55% in 2017. As such, analyst projections for 2017 EBITDA are around USD 500m, a big drop from 2016 EBITDA estimates of USD 900m, according to multiple buyside and sellside sources.
As of 31 March, Ocean Rig had an all cash liquidity position of USD 828m, according to public filings.
Ocean Rig’s next debt maturity is of its USD 456m 6.5% secured notes due October 2017. Thereafter, it will face the maturity of its USD 130m 7.25% unsecured notes in 2Q18, then its USD 1.8bn Libor+ 500bps (1% floor) TLB due 2020, then USD 1.255bn L+ 450bps (1%) floor TLB due 2021.
The TLB due 2020 is quoted today at 59/60, down from quotes at 62.2/63.875 early last week, Markit shows. The TLB due 2021 is quoted 38.5/40.33 today, down from 44/45 in early June.
The company’s USD 456m 6.5% secured notes traded at 56.18 on 23 June, according to MarketAxess.
Ocean Rig equity trades today at USD 2.94 per share and a market cap of USD 407m.
One of Ocean Rig’s major stakeholders, DryShips, which owns 40% of the company’s shares, is also going through its own set of challenges. The dry bulk shipper is in restructuring negotiations with its lenders after having announced that it will be suspending interest and principal payments.
Ocean Rig and Evercore officials did not respond to requests for comment.