Bloomberg News

Transocean Falls to 7-Year Low After Share Sale Announcement

December 01, 2011

(Updates with closing share price in fifth paragraph.)

Nov. 29 (Bloomberg) -- Transocean Ltd., the world’s largest offshore oil driller, fell to a 7-year low, dropping as much as 10 percent after announcing it would sell shares to finance a $1.7 billion repurchase of convertible notes.

Transocean’s offering of 26 million shares will help replenish cash reserves that were drained by last month’s acquisition of Aker Drilling ASA, the Vernier, Switzerland-based company said in a statement today. The sale represents up to 8.9 percent of the company’s total issued and outstanding shares.

Transocean, owner of the Deepwater Horizon rig that burned and sank during last year’s Macondo disaster in the Gulf of Mexico, has been at risk of losing investment-grade ratings on its debt since Nov. 9, when Moody’s Investors Service put the company on review for downgrade. Moody’s cited a looming cash squeeze and a pending February trial over claims stemming from the Gulf catastrophe.

“There’s a lot of near-term uncertainty with this company,” said Brian Youngberg, an Edward Jones analyst in St. Louis, who today lowered his rating on Transocean’s $1 billion in annual dividends to “at-risk” from “stable.”

Transocean fell 9.4 percent to close at $41.63 in New York. The stock has declined 40 percent this year.

Transocean expects to repurchase on Dec. 15 all of the 1.5 percent Series B convertible senior notes that mature in 2037, according to a Nov. 16 statement by the company. If all holders exercise their rights to tender the notes, the total cost to Transocean will be about $1.7 billion, according to the statement.

“The equity offering should address rating agency concerns and help RIG maintain its current investment grade ratings,” Philip C. Adams, an analyst at Gimme Credit LLC in New York, wrote today in a note to clients.

Aker Acquisition

Transocean’s $900 million of 6.5 percent notes due in November 2020 rose 0.8 cent to 100.4 cents on the dollar to yield 6.44 percent at 3:05 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Transocean’s $1.4 billion acquisition of Aker Drilling in October weakened the company’s cash position when the potential claims and penalties stemming from the Deepwater Horizon disaster remain unknown, Sean Sexton, a managing director at Fitch Ratings in Chicago, said in a Nov. 9 interview.

Chief Executive Officer Steven Newman told investors and analysts during a Nov. 3 conference call that manufacturing bottlenecks that contributed to the company’s biggest third- quarter loss in at least 10 years will persist into 2012.

The underwriters of the equity sale announced today, Barclays Plc and Credit Suisse Group AG, have the option to buy another 3.9 million shares, Transocean said.

--With assistance from Sapna Maheshwari in New York. Editors: Jessica Resnick-Ault, Tina Davis

To contact the reporters on this story: Bradley Olson in Houston at bradleyolson@bloomberg.net; Joe Carroll in Chicago at jcarroll8@bloomberg.net

To contact the editor responsible for this story: Susan Warren at susanwarren@bloomberg.net


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