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What: Shares of offshore rig-service specialist Tidewater (NYSE:TDW) are down 20% as of 11:00 a.m. EDT after the company disclosed yesterday after the market close that it failed to meet some of its debt covenants at the end of the second quarter. 

So What: If falling revenue and a big earnings loss weren't enough bad news for Tidewater investors, the notice that it was in non-compliance with its debt covenants really has the market rattled today. The company announced that, at the end of the fiscal quarter, it had failed to meet its interest-coverage ratio of 3.0 times. Technically, that should put the company into default on its loans. However, it has received a temporary waiver from its creditors to either redetermine these covenants, or actually be in default. The company has received an extension until September 14 to renegotiate its debt.

Now What: Tidewater picked probably the worst time to decide to expand its fleet of rig-support vessels, and now it's paying the price. Customer demand has dried up, and the debts it issued to build its fleet are too onerous for the company in today's market. If the company is able to renegotiate its debt covenants, it will buy the company time for the rig-support vessel demand to pick back up again. The problem is, we have no idea how long that could take. For investors, this is a major red flag that means stay away.