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.
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.