Ocean Rig (ORIG) - MLP creation

[jmp8822]

Ocean Rig continues to seem cheap - strong cash flow currently/upcoming, debt maturities extended, new dividend initiated.

 

One thing about ORIG that is confusing to me is the structure of how the MLP could be IPOed, translating to new value for shareholders  It seems straightforward that the MLP could unlock value with three rigs paying out cash flow at a 7-percent rate versus trading at a 12-percent cash flow yield as a part of ORIG currently.

 

Does this seem like a strong catalyst for the share price to move in relation to the valuation gap? i.e. it seems obvious that if the three rigs were spun off to existing shareholders, there could be a nice pop in the share price, but how would you expect this to translate in an IPO?  Does ORIG just keep the cash from the IPO on the balance sheet, as opposed to existing shareholders getting cash?

 

Any thoughts would be appreciated - thanks!

 

 

Prior thread on ORIG

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/orig-ocean-rig-udw/