Is Weatherford Facing Debt Covenant Violation Concerns?

On November 1, Weatherford International (WFT) disclosed that based on its 4Q16 forecast, it meets its debt covenants. In November, Weatherford’s stock price volatility spiked following some analysts’ forecasts of Weatherford failing to meet its debt covenants. Weatherford is a US OFS (oilfield equipment and services) company. Weatherford expects to see improved EBITDA (earnings before interest, tax, depreciation, and amortization) and a reduction in its Letter of Credit (a form of bank credit) balance in 2017. Weatherford expects higher upstream capex and higher order booking in 2017, which could result in a higher profit margin.

On November 15, Weatherford announced new debt issuance. It raised $540 million debt through the issuance. Weatherford plans to repay its revolving credit facility with the proceeds from the new debt. On November 16, Weatherford International disclosed that it issued stocks and warrants for a total consideration of ~$1 billion. Read Did Weatherford International Violate a Debt Covenant? to learn more.

Weatherford plans to reduce its net debt by generating positive free cash flow from operations and the expected sale of its land rigs business. In the long run, Weatherford International targets a 25%–30% debt-to-capital ratio. Also, it aims to achieve an investment-grade credit rating. The company already restructured its debt in 2016.

As of September 30, Standard & Poor’s credit rating for Weatherford’s long-term bond was BB-. It indicates a negative outlook. Weatherford accounts for 2.3% of the SPDR S&P Oil & Gas Equipment & Services ETF (XES). The Oil & Gas Equipment & Services industry accounts for 64.4% of XES. Next, we’ll discuss indebtedness for contract drillers like Helmerich & Payne (HP) and Patterson-UTI Energy (PTEN).