Turnaround Letter Hold-rated Weatherford International (WFT) announced that it intends to file for Chapter 11 bankruptcy on or before July 15th, as it has reached an agreement with holders of 62% of its senior unsecured notes. The pre-packaged bankruptcy agreement exchanges $7.4 billion in debt for 99% of the company’s equity and provides for additional funding. As current equity holders would be left with minimal value along with the possibility that the plan may change during the bankruptcy process, we are moving WFT shares to a SELL.
During a weak drilling environment, CEO Mark McCollum did an impressive job of slashing costs and attempting to integrate a vast collection of disparate assets around the globe that were accumulated over decades. However, this more-focused and partly-integrated asset base is attached to what has proven to be an over-leveraged balance sheet.
Under the plan, the company will reduce its total debt to about $2.5 billion from about $8.0 billion (based on year-end 2018 totals). Combined with additional cash provided with the plan, the company would emerge with a net leverage ratio (net debt/EBITDA) of about 2.7x. This level is much more appropriate for the company, and comparable to Halliburton (at 2.6x), which is the former employer of Weatherford’s current CEO, although a bit higher than Schlumberger (at 1.7x).
Operationally, the company would continue with the current leadership and strategy. Given the reduced debt burden and less-pressing maturity horizon, Weatherford is likely to become a more stable competitor.
We are moving WFT shares to a SELL.
Disclosure Note: An employee of the Publisher owns WFT shares.