Shares of Seadrill Partners (NYSE:$SDLP) are up 19% today. How come? It all started after the company disclosed several credit resolutions connected to Seadrill Limited (NYSE:$SDRL) – the parent company of Seadrill Partners – and restored its distribution to shareholders.
What’s Been Happening?
One might say Seadrill is sinking. The company has a few credit facilities coming due for new rigs that are currently under construction, and so far the company has struggled to find volunteers willing to refinance those short-term borrowings.
Due to the debt load and the fluctuating picture of the offshore rig market, Seadrill management believes the company is bound to go through Chapter 11 proceedings.
On Thursday, the company disclosed that it had reached an agreement in which Seadrill Partners’ debts will be 100% guaranteed by its own fleet as collateral instead of by the parent company. Essentially, this agreement is meant to provide a certain level of insulation that will stop Seadrill Partners from being dragged into Seadrill’s bankruptcy negotiations.
Further, it is important to mention that thanks to this new deal, Seadrill management has restored Seadrill Partners’ distribution to shareholders.
What Does the Future Look Like?
Now that there is no fear that Seadrill will drag Seadrill Partners down with it, Seadrill Partners can now be thought of as an independent investment. Of course, Seadrill is still the general partner, but this move definitely keeps Seadrill Partners’ assets out of the ongoing negotiation.
When you look at the company by itself, Seadrill Partners appears to be an OK investment in the offshore market. First and foremost, it has a decent fleet. Second, the company doesn’t have any new construction commitments and there is more than enough cash to cover its short-term borrowings.
As of right now, it is still hard to say whether or not Seadrill’s bankruptcy will have an effect on Seadrill Partners, but at the very least this move shows that this prospect is much less likely.
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