Citing Rising Risk Of Default, Argus Downgrades Tidewater To Sell

Argus’ David Coleman believes that Tidewater Inc. TDW, having violated “violated a key covenant in its revolving credit and term loan agreement, may have difficulty paying off debt scheduled to mature in fiscal 2017.”

Coleman downgraded the rating on shares from Hold to Sell.

Near-Term Concerns

The analyst mentioned that Tidewater’s results depended highly on offshore E&P spending, and the oilfield services that has been most hit by the downturn in the energy sector has been offshore. This segment is unlikely to recover in the near term.

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“Due to a poorly timed newbuild cycle, the industry also has a substantial supply of vessels looking for work at a time of reduced activity. We thus expect further downward pressure on vessel day rates and margins in the near term,” Coleman stated.

However, the analyst also believes a company that was financially more robust could purchase these inactive vessels in expectations of a recovery in the industry, while Tidewater lacks the resources to purchase additional assets.

“The shares are trading at a steep discount to the Argus peer group of oilfield services companies based on price/ book, price/sales and price/cash flow,” Coleman added.