Atwood Oceanics Prices Notes

Zacks

Atwood Oceanics, Inc. (ATW) announced the pricing of senior notes worth $200 million due to mature in 2020. The Texas-based offshore drilling contractor also declared that the notes will carry a yearly interest of 6.5%. The offering is expected to close on Jun 21, 2013.

Atwood plans to use the net proceeds from the offering for general corporate purposes, including funding its newbuild program. A consortium of banking giants such as Barclays Capital Inc., Wells Fargo & Company (WFC), Credit Suisse Group (CS) and The Goldman Sachs Group, Inc. (GS) are acting as the joint book-running managers for the offering.

The company has recently increased its external borrowings to fund its expansion plans. Earlier in Jan 2012, the company issued $450 million worth of senior notes with a coupon rate of 6.5%.

Founded in 1968, Atwood Oceanics is a global offshore drilling contractor focusing on the drilling and completion of exploratory and developmental oil and gas wells. The company currently owns 13 mobile offshore drilling units and is constructing three ultra-deepwater drillships.

We see Atwood Oceanics’ leverage to the global drilling market rather than the domestic market as its biggest advantage over most of its peers. The international drilling outlook is strong versus the muted fundamentals in the U.S. In our view, the company presents investors with growth opportunity from any global deepwater drilling recovery.

However, there are certain factors that are likely to keep near-to-medium term earnings under pressure. The termination of any contract for tender-assist rigs is bound to affect the earnings and cash flow to the company. Also, downtime in any of the company’s rigs currently under contract will be an additional blow to the bottom line.

Atwood Oceanics currently retains a Zacks Rank #3 (Hold), implying that it is expected to perform in line with the broader U.S. equity market over the next 1 to 3 months.

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