Atwood Oceanics (ATW) is trying to manage its capital efficiently to sustain its position in the industry downturn. Offshore drilling (IYE) is a capital-intensive and highly leveraged industry. Managing money—especially in a bad economy—is crucial, as leverage magnifies risk in a sluggish market.
ATW had a total debt of $1.2 billion as of September 30, 2016, compared with $1.4 billion at the end of the previous quarter. During fiscal 2016, the company repurchased $201.4 million in senior notes. Along with this, it made credit facility payments of $215 million. Atwood’s debt is 27% lower than the debt of $1.7 billion reported a year ago.
The company expects its debt to remain relatively flat, near $1.1 billion, during fiscal 2017. It expects to generate sufficient free cash flow to fund operations and the final payment for the Atwood Admiral.
Atwood Oceanics ended fiscal 2016 with cash in hand of $145 million and $615 million available under a revolving credit facility. The company’s cash in hand target is $125 million, which will provide liquidity of over $800 million through fiscal 2017.
Atwood Oceanics has been assigned a credit rating of “Caa1” by Moody’s. A “Caa1” credit rating signifies non-investment grade or high-yield bonds, or junk bonds.
Some other offshore drilling (OIH) companies have better credit ratings. Diamond Offshore Drilling (DO) has a credit rating of “Ba2,” which means that it’s slightly below investment grade. Two notches below “Ba2” is the “Ba1” rating, which has been assigned to Ensco (ESV), Rowan Companies (RDC), and Noble (NE).