Deutsche Bank Downgrades Pacific Drilling To Hold, Remains Positive Over Longer Term

Deutsche Bank downgraded Pacific Drilling SA PACD to Hold from Buy and slashed its price target by 40 percent to $6, saying the "recent oil retrenchment has pushed an already tenuous recovery out further."

Despite acknowledging the company's cost control efforts, the brokerage noted Pacific Drilling faces increased risk of a restructuring, which would be unfavorable to equity holders. The heightened risk of restructuring stems from looming debt maturities and weak contract coverage with only one rig fixed past April 2017.

"Although some meaningful equity value may remain, it is difficult to quantify at this point which seems likely to serve as an overhang on the shares until a new capital structure is finalized," analyst Mike Urban wrote in a note.

Urban's 2016 EPS estimate falls to $(1.02) from $(0.47) as he no longer expect idle rigs will return to work in 2016. For 2017, the analyst's EPS estimate improves to $(10.06) from ($13.20) to reflect continued cost reduction efforts.

Meanwhile, the analyst expressed confidence in the long-term fundamentals of the company due to the type of assets of PACD's fleet and potential recovery in the deepwater demand.

At time of writing, shares of Pacific Drilling fell 10.13 percent to $5.41.