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Vantage Drilling Company Message Board

  • play_tow play_tow Oct 18, 2013 11:44 AM Flag

    VTG Options ......

    VTG has various options to reduce the risk related to its debt load.

    One is to focus free cash flow on paying their debt down. As is clear from the above, it will take some time to reduce the debt ratio to levels held by SDRL....which itself is quite leveraged. According to their latest filled 10-Q, cash flow from operating activities was a negative $97M. The situation will change to the better in 2014, but the company has yet to show an ability to generate cash from operations. That will be a key metric to watch, and another reason why the shares languish.

    A second is to raise equity in the capital markets, and use those proceeds to retire debt. They currently have 300M shares outstanding. An SPO at the current share price is not desirable, especially for shareholders. However, if it were pursued, a 150M share offer at $1.75, which is 50% dilution), would only raise about $250M. That only cuts long term debt down by about 10%.

    Another option is to get more favorable terms on current debt costs. They have made progress in that direction, with refinancing efforts saving about $90M annualized interest expenses. However, their cost of borrowing remains high (higher by almost 1/2 than SDRL for instance).

    They may also consider a partnering/investor relationship...some entity that would acquire a stake in VTG.
    They have arguable the best assets in the industry at this time, making for some attraction....but this would likely require evidence of fiscal discipline by the management.

    This is a wait and see story, for both small and potentially larger investors. Once management shows a pathway that reduces their market risk (eg, to possible charter rate fluctuations and interest rate increases), then the share price has the possibility of sustained ascent, imo.

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    • As Bragg has said on previous conference calls, Drillships are 35 year assets. Anyone who thinks the debt will be paid off before the rigs hit the water doesn't understand the industry.

      • 1 Reply to happyhorn52
      • Bragg may have said that, but the market says otherwise. Much of the interest in securing a new modern fleet is that the utilization and contract value for the new jackups and drillships is appreciably greater than the older equipment. Older is now generally understood to mean 20 yrs. To be sure, equipment of early 1990s vintage is still in use, but the maintenance, dock time, etc costs significantly reduce the return on investment. It is for this reason too that VTG is in a great position vis-a-vis its jackup fleet, since a large fraction of the existing jackup fleet is older than 20 yrs.

        FWIW, investing in new jackups today is likely a safer overall play given the age of that fleet, so that if rates soften, the old vessels will retire while the new will stay in full utilization and supply quickly tightens to permit recovery in rates. That is much less the case for UDW, so that if (for what ever reason) deepwater contracts appreciably soften, there is little elasticity in rates related to scrapping.

    • Yes... "This is a wait and see story" TRUE !!!!!!! Think with current contracts they will earn $$$ and reduce debt...

      Sentiment: Strong Buy

      • 1 Reply to chkotime
      • another option is, depending on circumstances, a sale of some of their drilling assets.

        They could sell a Jackup and a UDW asset, with contract, and raise near $750M-$1B.

        Applying that to debt wold have a big impact, and I think would be very positively seen by the Street.

        VTG management has been reaching for asset growth that is likely beyond its means, at least within a reasonable risk profile, which clearly the Street feels has been breached....imo

 
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