Ocean Rig UDW Inc. (ORIG)

[Wildbilly]

ORIG may have avoided "Turtling" for the moment

and instead caught a new breeze in her sails or a puff at least...or cracked the window a bit or not?

Read on:

Ocean Rig Loses Ownership Of The Drillship Ocean Rig Apollo

Summary

Amended the Ocean Rig Apollo credit agreement with drillship ownership being transferred to a trustee.

Holding company gets released from its loan guarantee.

Mandatory prepayment under the credit agreement will be reduced by an undisclosed amount.

Actions taken potentially open up other scenarios than bankruptcy.


This afternoon, Ocean Rig has filed a 6-K with the SEC, announcing that

the Company has entered into an amending and restating agreement, dated August 31, 2016 (the "Amending and Restating Agreement"), to amend and restate the secured term loan facility agreement, entered into on February 13, 2015, by and among Drillship Alonissos Shareholders Inc., a wholly owned subsidiary of the Company, as Borrower, a syndicate of lenders and DNB Bank ASA, as facility agent and security agent, for up to $475.0 million to partially finance the Ocean Rig Apollo (the "Loan Agreement").

Pursuant to the Amending and Restating Agreement, (NYSE:I) the Company has been released from its guarantee under the Loan Agreement, (ii) the amount of mandatory prepayment required to be made due to the termination of drilling contract for the Ocean Rig Apollo with Total E&P Congo has been reduced, (NASDAQ:III) the ownership of the Borrower and Drillship Alonissos Owners Inc., as owner of the Ocean Rig Apollo, has been transferred from the Company to a trustee, and (iv) the Company has been given an option to purchase the shares of Drillship Alonissos Owners Inc. upon satisfaction of certain conditions.



So what is going on here ?

While Ocean Rig has - at least temporarily - now lost ownership of the drillship Ocean Rig Apollo which has been transferred to a trustee, the company did get something in return:

The exchange listed holding company has been released from its corporate guarantee under the credit agreement.
The mandatory prepayment triggered by the recent contract termination with Total, previously stated as $145 mln will be reduced by an unknown amount.
Ocean Rig has been given an option to buy back the drillship upon the satisfaction of certain unknown conditions.
So quite interestingly Ocean Rig has negotiated just another corporate guarantee release after recently coming to terms with Samsung Heavy Industries regarding the company's newbuild contracts.

Moreover, the company will save some cash on the upcoming mandatory prepayment under the credit line.

Lastly, Ocean Rig will be able to retake possession of the Ocean Rig Apollo under certain circumstances, unfortunately this will not come for free as the company is required to repurchase the shares in the subsidiary owning the drillship.

To better assess the situation, a detailed look at the amended credit agreement would be necessary but unfortunately the company has not filed it with the SEC at this point.

Clearly, the lenders don't put much trust in the company's colorful CEO and chairman, Greek shipping magnate George Economou, anymore given the rather bold move to more or less seize the collateral here.

Still, all is not lost here as Ocean Rig will have the chance to revert today's events by successfully performing under the terms of the amended credit agreement.

Particularly interesting to me are the company's ongoing efforts to be released from corporate guarantees for loans and newbuild contracts.

Should the recent Debtwire report prove true, Ocean Rig's senior lenders are currently preparing to take over the company's remaining drillship subsidiaries and re-organizing them into a new corporate structure followed by the injection of some fresh money.

These actions might very well lead to the release of the holding company's corporate guarantees under the remaining term loans and would basically leave Ocean Rig with two old semi-submersibles (one working on a short term contract, one cold-stacked), the recently acquired Ocean Rig Paros (cold-stacked) and perhaps the newbuilds Ocean Rig Santorini and Ocean Rig Crete (still under construction) against the remaining outstanding 2017 and 2019 notes of $591 mln as of June, 30.

Add the company's substantial cash position of still more than $500 mln, that will be further bolstered by the reduction of the mandatory prepayment under the Ocean Rig Apollo credit line discussed above and the company's ability to theoretically buy back the remaining outstanding notes at a substantial discount to par, the remainder of Ocean Rig might end up as a virtually debt free entity still owning or at least having access to five drilling units, two of them being brand-new 7th generation drillships.

Unfortunately, the company would be more or less required to remain in some kind of hibernation state given that it has no contracts to perform on with its assets either being cold-stacked or still under construction with the exception of the semi-submersible Leiv Eiriksson, that is currently under a short-term contract with Lundin Norway. But the company would most likely have enough cash to weather the storm this way which is widely expected to last a couple of more years, particularly when it comes to cold-stacked assets or unproven units coming out of a shipyard.

While certainly not a great or perhaps not even realistic scenario, this would at least be an option to potentially preserve some value for current shareholders but admittedly the information available at this point isn't sufficient to make a bold case for this kind of outcome.

Bottom line:

The Ocean Rig saga continues with just another unexpected twist here. While the loss of the Ocean Rig Apollo is certainly nothing to cheer about, the company will save some cash on the mandatory prepayment and moreover gets released from just another corporate guarantee, potentially opening up future scenarios other than bankruptcy. Investors should be cautioned though as there's not enough information available at this point to adequately assess this latest move by the company.

Personally, so far I have been rather bold in my assessment of the situation with bankruptcy being the most likely outcome due to conflicting interests of the company's noteholders and senior lenders.

Perhaps I have underestimated George Economou's ability to orchestrate just another set of dodges, but at this point I still doubt it.

http://seekingalpha.com/article/4003723-ocean-rig-loses-ownership-drillship-ocean-rig-apollo