Ocean Rig's Restructuring Likely Bad For Shareholders; Deutsche Sinks Rating To Hold

Despite its difficult cash/liquidity position, Ocean Rig UDW Inc. ORIG took the market by surprise by announcing it is likely to undertake restructuring over the next several months.

Deutsche Bank’s Mike Urban downgraded the rating on the company from Buy to Hold, while lowering the price target from $4 to $1.

Unfavorable For Shareholders

Urban explained that the decision to take on restructuring was “prompted by prepayments triggered by contract terminations and the restructuring of shipyard commitments with an undercurrent of self-preservation.”

While Ocean Rig has a very high quality, completely ultra-deep-water fleet and has been able to do well on the cost front, the analyst mentioned that the restructuring was likely to be unfavorable for existing shareholders.

Q2 Results

The company reported its Q2 results above consensus, with the operating EPS at $0.86, ahead of the consensus but below the estimate.

Related Link: Could Ocean Rig Be The First Of The Deepwater Dominoes To Fall?

“Excluding early termination payments, we estimate revenue came in at $361 million which is below our $389 million estimate and consensus of $377 million,” Urban stated, while adding, “The soft adjusted revenue drove the EPS miss relative to our numbers however this was partially offset by continued cost-cutting.”

The EPS estimates for 2016 and 2017 have been lowered from $3.83 to $3.46 and from ($0.15) to ($0.84), respectively.

Full ratings data available on Benzinga Pro.