This blog article presents an investment view of Atwood Oceanics Inc., from an equity and credit perspective, based on ValueAdd’s proprietary financial model. This model helps portfolio managers/research analysts generate multiple investment ideas across the capital structure (equity and credit/debt), thus enhancing their probability to outperform the market. This article was first published on Seeking Alpha on September 6, 2016.

Summary Of Atwood Analysis

  • The oil and gas drilling services industry is under acute pressure due to low crude oil prices, sluggish demand, and an excess supply of rigs.
  • Drillers are facing contracting backlogs, difficulty locking in new contracts, and declining utilization and day rates.
  • Atwood is no exception, with contracted days falling from 61% for 2H FY 2016 to 23%, and 10% over the next two fiscal years.
  • Liquidity is key, and, I believe – despite the uncertainty in revenue flow – that ATW can comfortably service its obligatory payments and capital expenditure plan.
  • A fundamental valuation indicates a further downside for equity. I believe that yields on the senior note will tighten and will offer an opportunity for bond holders.

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