American drilling company Transocean was downgraded to CC from CCC- by S&P upon its distressed debt exchange (DDE). The bonds involved in the exchange were also downgraded to CC. The offer was as follows:

  • An exchange of $73mn of its existing 0.5% bonds due 2023 for $73mn of new 4.625% senior guaranteed exchangeable bonds due 2029
  • Issuance of warrants to purchase up to 31.5% of the shares underlying the new notes
  • About $43.3mn of 7.25% senior unsecured guaranteed notes due 2025 in exchange for $38.9mn of the new 4.625% 2029s
  • A buyback of about $13.8mn of its 7.25% senior unsecured guaranteed notes due 2025 for around $11.7mn cash

S&P view the debt exchanges as distressed and tantamount to default. Overall, Transocean plans to issue $300mn of new guaranteed exchangeable notes, of which $112mn will be used for swapping bond and another $188mn for general corporate purposes, such as capital expenditures, working capital, and the repurchase of existing debt. S&P views the company’s liquidity as thin with unrestricted cash of $729mn and a fully available $774mn credit facility due 2025 as of June 2022. The rating agency expects that the company will generate about $500mn in funds from operations over the next one year. S&P’s previous downgrade of Transocean was in July where it lowered the ratings to CCC- from CCC.

Transocean’s dollar bonds were trading lower with its 11.5% 2027s up over 2 points to 97, yielding 12.39%.

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