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What happened

Shares of Weatherford International (NYSE:WFT) got walloped on Tuesday, plunging more than 20% before recovering, though the stock was still down 10% by 2:30 p.m. EDT.

So what

Fueling Weatherford's initial sell-off was a report by Wolfe Research. The firm said that Weatherford might have a tough time meeting its debt covenants over the next few quarters if it does not start hitting the consensus estimates and generating more free cash flow. Because of that, the research firm believes Weatherford should raise $250 million in equity to get itself through the current rough patch, and might need to raise as much as $850 million.

That report sent shares plunging until Weatherford responded by saying, "Based on our current fourth quarter 2016 forecast, we expect to meet all covenants at the end of the year." Further, it noted, "Given our growing order book, increasing tender flow and the recovering levels of customer activity, we expect to continue to meet all applicable revolving and term loan revolving and credit facility covenants through the remainder of 2017." That outlook helped to ease the market's fears that the company had any plans of selling stock.

That said, Wolfe brought up a valid argument, which is that one of Weatherford's problems is that it is having a tough time matching its guidance with results. That was evident last quarter when the company missed third-quarter earnings expectations rather badly. Needless to say, the company must meet guidance expectations going forward to stay within its covenants.

Now what

Weatherford might have enough breathing room to make it through the next few months. However, the company still has too much debt compared to its rivals, which handcuffs its flexibility. That could cause it to underperform its competitors as conditions improve because it might not be able to take advantage of opportunities as quickly as its stronger peers.

Matt DiLallo has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.