Please ensure Javascript is enabled for purposes of website accessibility

Diamond Offshore Drilling Files for Bankruptcy

By Matthew DiLallo - Apr 27, 2020 at 9:55AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The offshore drilling contractor is the latest casualty of the oil-price crash.

Diamond Offshore Drilling (DO) filed for Chapter 11 Bankruptcy over the weekend, becoming the latest energy company aiming to restructure its debt. The widely anticipated move comes just a couple of weeks after the offshore drilling contractor skipped an interest payment

Diamond Offshore intends to use the bankruptcy proceedings to restructure and strengthen its balance sheet so that it can have a more sustainable capital structure. The company entered this year with about $2 billion of long-term debt, with the nearest upcoming maturity in 2023. It had lots of liquidity, with $156 million in cash and nothing drawn on its $950 million credit facility. 

A ship near an offshore drilling rig at sunset.

Image source: Getty Images.

However, its business had been bleeding cash even before oil prices crashed in late April. Diamond stated in February that it expected to be cash flow negative in 2020, which had it on track to start borrowing on its credit facility by year-end. With industry conditions worsening since that time, the company is voluntarily filing for bankruptcy so that it can shore up its financial profile by eliminating some of its debt and the associated interest payments.

Diamond Offshore's bankruptcy filing could cause a wave of similar moves by its peers in the offshore drilling space. Rivals Valaris and Transocean both have significant near-term debt maturities that make them likely restructuring candidates. Valaris has already reportedly hired advisors to begin talks with creditors.

Meanwhile, Dimond's filing will have a major impact on diversified holding company Loews (L 0.03%), which owns 53% of the offshore driller's stock. The debt restructuring will likely significantly dilute that interest, if not completely wipe it out.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Diamond Offshore Drilling, Inc. Stock Quote
Diamond Offshore Drilling, Inc.
DO
Loews Corporation Stock Quote
Loews Corporation
L
$59.79 (0.03%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/27/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.