What happened

Shares of offshore drilling services provider Transocean (RIG 2.47%) started out on a very positive note on Aug. 24, rising as much as 13% in the first hour of trading. The big driver was a news release outlining the early results from a proposed debt exchange.  

So what

Transocean has a sizable amount of debt coming due in 2021 and 2022. With the energy sector in a deep downturn, and the company bleeding red ink because of it, those maturities presented a notable problem. To deal with it, the company offered bond holders a debt exchange, which would push the maturity out to 2027. That buys the company valuable breathing room. Based on the company's news release, it looks like around $1.1 billion worth of bonds will be traded in.  

An offshore drilling rig

Image source: Getty Images.

That's the good news. The bad news is that the interest rates on debt set to mature over the next two years were 3.8% and 6.375%. The newly issued debt will carry a rate of 11.5%. That's a very high rate given the historically low interest rate environment that exists today. Transocean may have bought itself time, but the additional interest costs involved are worrisome. It's also worth noting that the company's debt-to-equity ratio is a very high 80% or so, suggesting that there's still a lot of work to do before management can claim that the balance sheet is in good shape. 

Now what

Meanwhile, all this information has to be considered in a broader context, especially since Transocean's shares have fallen by roughly a third over the last five trading days -- including today's big gain. Clearly, investors are worried about the future here. In fact, with that backdrop, the early stock gains appear more like a bounce back than an indication that investor sentiment has vastly improved here. At this point the only thing that seems highly certain is continued volatility.