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Vladimir Zernov
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Valaris May Need To Consider Bankruptcy Soon
Apr. 30, 2020 1:38 PM ETValaris plc (VAL)RIG, SDRL10 Comments9 Likes
Summary
Valaris reports its first-quarter results, and it's a nightmarish report.
The company records a net loss of $3 billion as it has to scrap modern rigs.
Operating cash flow is -$204 million. Valaris is not a viable enterprise with the current capital structure.
I expect a complete wipeout of the common equity and further scrapping of rigs as Valaris tries to survive as a business.
Valaris (NYSE:VAL) has just reported its first-quarter results and they look very ugly. The company reported revenue of $457 million and net loss of $3 billion (!) which was driven by the decision to scrap modern rigs.

Finally, this day has come: a major driller decided to scrap modern floaters. In the press release, Valaris announced its decision to retire drillships Valaris DS-3 (2010), Valaris DS-5 (2011), Valaris DS-6 (2012) and semi-subs Valaris 8500 (2008), Valaris 8501 (2009) and Valaris 8502 (2010).

I'd note that drillships Valaris DS-4 (2010), Valaris DS-11 (2013) and Valaris DS-17 (2014) remain cold stacked together with semi-subs Valaris 8504 (2011) and Valaris 8506 (2012).

In addition to drillships, Valaris decided to retire jack-ups Valaris JU-71 (1982), Valaris JU-75 (1999), Valaris JU-87 (1982), Valaris JU-100 (1987), Valaris JU-104 (2002), Valaris JU-105 (2002) and Valaris JU-109 (2008).

The decision to scrap modern rigs is a move to adjust the fleet ahead of the upcoming restructuring so that the "new" company does not have to deal with the cost of stacking rigs that have no chance to work again. This is a good move for the industry, and I'd expect similar "adjustments" during the restructuring processes in other industry players.


Valaris finished the first quarter with $185 million of cash on the balance sheet, $225 million of short-term debt maturities, $6.15 billion of long-term debt and $1.3 billion available under the credit facility. The company had to rely on credit facility during the quarter since it had only $97 million of cash at the end of 2019. Operating cash flow performance was horrendous, and Valaris used as much as $204 million of cash in its operations. This is absolutely not sustainable.

The company commented:

"[…] we expect to continue to report losses and negative cash flows throughout the remainder of the year […] We are also evaluating various alternatives to address our capital structure and annual interest costs, including, without limitation, a comprehensive debt restructuring that may require a substantial conversion of our indebtedness into equity".

Valaris is simply too big for the current market environment and it does not have much support from its $1.9 billion backlog. The company is burning through cash at a very fast pace so it should draw the available amount under the credit facility and enter into bankruptcy. "Substantial conversion" of debt into equity will only help if the company wipes out the common equity completely and emerges with zero debt on the balance sheet, fully equitizing the existing indebtedness.

In this scenario, Valaris will have a chance to continue operating as a business. Also, the company will likely need to scrap more rigs that roll off contracts or are without contracts in order to save money as I do not believe that it will find an investor who will be ready to provide additional cash for the business. Thus, it will have to rely on the liquidity it will borrow from the credit facility to support its operations up until the time it becomes a financially viable enterprise again.



Valaris still has about $50 million of market capitalization but its true value is zero. The question is not whether the common equity can receive a token recovery or not. The question is whether the company, which burns through cash at an alarming rate and whose size is inappropriate for the post-coronavirus oil world, can actually survive as a business. In these circumstances, there's certainly no hope left for the common equity.


Valaris' best chance is to file for bankruptcy as soon as possible to stop the bleeding from interest payments and try to right-size the operation for the future. For the industry, Valaris problems are a blessing because the company's attempts to survive as a business will lead to more rig scrapping. Perhaps, we'll see a similar scenario during the upcoming restructuring of Seadrill (SDRL) which also has many rigs to scrap.

Investors should stay away from the stock. Traders may try their luck on big positive days for oil prices, awaiting for a repeat of price action at the beginning of April, but I think that speculative trading will gradually shift to Transocean (RIG) shares since Transocean has no immediate liquidity problems (although I believe that it will also need to restructure its debt).

[Chumbi]

Hola chumbi llegaste tarde, la BK mas cantada de la historia.

Matu la puse porque leí hace unos días que la veían para un tiro... por si alguno se tienta con semejante baja para el rebote, que no se cebe...

[Bati]

DYNT hermoso piso

jajaja justo comentaba.... tiene que despegar en algún momento.

[Matu84]

Es feriado aca, en usa no. El 1 de mayo nació por una fuerte huelga de trabajadores anarquistas en Chicago que arranco ese dia, a la cual el gobierno de EEUU reprimio duramente y cuando termino ejecuto a todos los que participaron, como EEUU nunca reconoció que se le fue un poco la mano con eso jamas puso el 1 de mayo como dia del trabajador. Para algo sirvió la facu de cs sociales

Sos abogado newbie?

[Bati]

No me gusta los balances

A mi la verdad que tampoco. No me gusta estar adentro cuando viene el balance. Es una lotería.

Arranca o no arranca DYNT !?!?!?!

[Fotón]

DYNT hermoso piso

[Bati]

Es feriado aca, en usa no. El 1 de mayo nació por una fuerte huelga de trabajadores anarquistas en Chicago que arranco ese dia, a la cual el gobierno de EEUU reprimio duramente y cuando termino ejecuto a todos los que participaron, como EEUU nunca reconoció que se le fue un poco la mano con eso jamas puso el 1 de mayo como dia del trabajador. Para algo sirvió la facu de cs sociales

Fuiste a sociales, sos casi comunista jajaajja

[newbie]

No amigo, no son humo, es la herramienta principal de un daytrader es como si un doctor quisiera operar sin saber que es una célula.

Me las voy a poner a estudiar entonces, siempre las puse dentro del AT y como parte de los dibujos de figuras que hacen en los gráficos, aunque veo que muy pocos de los ateitas les dan bola.

Una nueva herramienta a profundizar sumada al bagaje de conocimientos necesarios para sobrevivir como daytrader, gracias amigo

[Fotón]

Si. Pensaba que no.

No me gusta los balances

[newbie]

Si. Pensaba que no.

Es feriado aca, en usa no. El 1 de mayo nació por una fuerte huelga de trabajadores anarquistas en Chicago que arranco ese dia, a la cual el gobierno de EEUU reprimio duramente y cuando termino ejecuto a todos los que participaron, como EEUU nunca reconoció que se le fue un poco la mano con eso jamas puso el 1 de mayo como dia del trabajador. Para algo sirvió la facu de cs sociales

[gustino61]

Diría PI si ves la deuda a largo plazo solos corriendo.
In TVIX 177,10 como cobertura SL 174,50

Out tvix 200,80

[Fotón]

No amigo, no son humo, es la herramienta principal de un daytrader es como si un doctor quisiera operar sin saber que es una célula.

[Matu84]

EXCLUSIVE-CHESAPEAKE ENERGY CORP PREPARING FOR POTENTIAL BANKRUPTCY FILING -SOURCES

Hola chumbi llegaste tarde, la BK mas cantada de la historia.

[Bati]

Pero mañana tenemos rueda !?!?!?

Si. Pensaba que no.

[Bati]

Che mañana presenta balance MIST

Pero mañana tenemos rueda !?!?!?