Weatherford buys back $1.9 billion debt in Q2, eyes further reduction

By Lisa Kerner

Charlotte, N.C., July 28 – Weatherford International plc successfully upsized and issued $1.27 billion of convertible notes and $1.5 billion of five-year and seven-year senior debt at “very good” interest rates during the second quarter, according to chief financial officer Krishna Shivram.

“A big part of these proceeds totaling $1.9 billion were used to buy back debt maturing in 2017, 2018, 2019 and 2020 pursuant to the tender offer and the rest of the proceeds were used to pay down the revolver,” Shivram said during the company’s second-quarter earnings call on Thursday.

As a result, Weatherford’s maturity profile “has changed substantially, derisking the liquidity profile of the company materially,” said the CFO.

Prior to the transactions, Weatherford had $2.1 billion of maturities over the next three years. That figure has been reduced to $639 million, with $88 million due in 2017 and $66 million due in 2018.

Weatherford expects that in 2021 when the convertible debt becomes due, it will issue shares to debtholders in exchange, structurally reducing debt by $1.27 billion.

In addition, Weatherford expects to use positive free cash flow from operations, as well as proceeds from the eventual sale of the land rigs business, to further reduce debt.

Shivram said the company’s banks recently unanimously approved an amendment to its revolver agreement to ease certain restrictions and adding a $250 million accordion feature.

The company is targeting a 25% to 30% debt-to-cap ratio and to recover its investment-grade credit rating, Shivram said.

At June 30, Weatherford had $1.8 billion of available liquidity, including $1.3 billion of revolver capacity and $452 million of cash balances.

The company “is now materially derisked from a liquidity standpoint, has a clear, achievable plan to delever over the next several years and the company is now at the takeoff point as the market recovers with industry-leading earnings and cash flow incrementals,” Shivram said.

Free cash flow disappoints

Shivram said the negative $160 million of free cash flow in the second quarter was “disappointing,” but it was a $56 million improvement from the first quarter.

“The shortfall can be explained quite simply,” he said. “Customers in general, but particularly national oil companies, have begun to manage their cash flows actively thereby delaying payments to contractors.”

Weatherford anticipates full-year free cash flow to be in the range of positive $100 million to $150 million. The second-half cash flow is expected to be “bolstered by improved results, stronger customer collections, lower inventory levels, much lower severance cash costs, absence of employee annual bonus payments and continued discipline in capital spending,” said Shivram.

Revenues down 11%

Second-quarter revenue declined 11% sequentially to $1.4 billion, and sequential operating income margins declined by 168 basis points to a negative 8.3%.

Operating EBITDA was flat quarter over quarter at $58 million.

The company had net loss for the quarter of $565 million, or a net loss of $0.63 per share.

Weatherford is an oilfield service company based in Baar, Switzerland, with operational headquarters in Houston.

© 2015 Prospect News.
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