On March 31, 2016, Noble Corporation’s (NE) debt was $4,163 million, which was lower than its debt of $4,488 million on December 31, 2015. Out of the total debt, $299 million, or 7%, is short-term debt. The company repaid senior notes amounting to $300 million matured in March. It utilized cash on hand. With this, the company’s debt-to-equity ratio fell to 55% from 60% in the prior quarter.
The company’s debt obligation extends for the next 30 years. For the next five years, the company needs to pay around $200 million–$300 million every year. Then, the repayment for each year rises to around $400 million or more.
In this downturn, it’s important to determine whether Noble is in a position to pay off its short-term and long-term debt with its operating profits. Offshore drilling (OIH) is a capital-intensive and highly leveraged industry. Managing money, especially during bad times, is crucial because leverage magnifies risk in a sluggish market.
Noble has a current ratio of 1.3, which signifies that the company will be able to pay off its current liabilities. The company’s assets as of March 31, 2016, were $952 million. The company has a total of $236 million in cash or cash equivalents.
Noble has a net debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) ratio of 2.7. This tells us that the company will only need more than two years to pay off the debt completely if its EBITDA figure remains at the same level.
Noble has maintained its investment-grade rating of BBB in this downturn. Diamond Offshore Drilling (DO) and Ensco (ESV) have ratings of BBB+ and BBB, respectively, while Rowan Companies (RDC) has a BBB- rating. Transocean (RIG) is below investment-grade with a BB+ rating.
In the next article in this series, we’ll look at Noble’s capital expenditure.