TwoCitiesCapital Posted November 10, 2015 Share Posted November 10, 2015 Just thought I'd start a thread to let you guys know of an interesting opportunity in O&G. Hercules Offshore just made its return from bankruptcy. 20,000,000 shares outstanding with an additional 5,000,000 warrants with an exercise price of $70.50 that expire in 6 years. My guesstimate of the company book value is around $1.6B just from looking at the quarterly results and adjusting for the conversion of debt to equity. $1.6B is about $80 per share. It currently trades at $11.28 despite the fact that it just reorganized $1.2B worth of debt. I haven't done any deep dive diligence - this was a holding in my passive low P/B account so I just watched everything happen. I just know that newly reorganized companies are often maligned in the markets and can offer an opportunity that many of you may be interested at looking into it. It would seem buying straight out of bankruptcy at an 86% discount to newly reorganized book value could be an opportunity. Also, the warrants are interesting. There doesn't need to be any growth for the warrants to hit in the money over the next 6 years. We just need a re-rating of the stock back to a multiple closer to 1x BV and the warrants would be worth something. I don't see a price on them yet, but they may be worth watching. Link to comment Share on other sites More sharing options...
orthopa Posted November 10, 2015 Share Posted November 10, 2015 will take a look thanks. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted November 10, 2015 Share Posted November 10, 2015 An interesting idea for sure, and worth looking into... The problem is that the offshore O&G has just been completely decimated. Of course, there are still too many new builds coming into a terribly weak market. I've lost a lot in this sector. I am skeptical that oil will remain low for too much longer...but hard to say. Link to comment Share on other sites More sharing options...
mjohn707 Posted November 10, 2015 Share Posted November 10, 2015 Did all the debt convert into equity? Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 10, 2015 Author Share Posted November 10, 2015 Did all the debt convert into equity? No. Within bankruptcy, debtholders for $1.2B worth of debt converted into equity (leaving prior shareholders with just 3% of the company). After the reorganization of that $1.2B, the company issued $450M in debt plus whatever liabilities they had outside of that $1.2B. You can go look at the balance sheet from 9/30/2015 before the official reorg to get an idea. Link to comment Share on other sites More sharing options...
mjohn707 Posted November 10, 2015 Share Posted November 10, 2015 Did all the debt convert into equity? No. Within bankruptcy, debtholders for $1.2B worth of debt converted into equity (leaving prior shareholders with just 3% of the company). After the reorganization of that $1.2B, the company issued $450M in debt plus whatever liabilities they had outside of that $1.2B. You can go look at the balance sheet from 9/30/2015 before the official reorg to get an idea. Yeah I'm looking now. How did you find this thing anyway? Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 10, 2015 Author Share Posted November 10, 2015 Did all the debt convert into equity? No. Within bankruptcy, debtholders for $1.2B worth of debt converted into equity (leaving prior shareholders with just 3% of the company). After the reorganization of that $1.2B, the company issued $450M in debt plus whatever liabilities they had outside of that $1.2B. You can go look at the balance sheet from 9/30/2015 before the official reorg to get an idea. Yeah I'm looking now. How did you find this thing anyway? It was in a low P/B screen that I did before the bankruptcy. About 30% of my money is in a passively managed, low P/B portfolio that I split between 20-30 names that are the lowest P/B names and some bond funds for dry powder. When I built the portfolio back in March, it was nearly all oil/gas companies and this was one of them. The initial investment is almost a total loss, but I've been following it because I think it's interesting. Anyways, it's down over 30% today which is odd. Nothing has changed between today and yesterday except that it's back on the major exchanges instead of trading OTC and the details of the re-org have been known for awhile in terms of the absolute amount of dilution we'd face, but maybe this happens regularly with companies emerging Ch. 11? Link to comment Share on other sites More sharing options...
newbee Posted November 11, 2015 Share Posted November 11, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 11, 2015 Author Share Posted November 11, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Link to comment Share on other sites More sharing options...
hillfronter83 Posted November 11, 2015 Share Posted November 11, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 17, 2015 Author Share Posted November 17, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Very possible. I figured debt holders who got shares in return would sell overtime, but I didn't imagine they would work so hard in the negotiations just to dump it the day or two after for 30-40% less than they negotiated for. Anyways, the stock was $11-12 when I posted this. It's not at $5 and it's the first day in the green since relisting. Obviously the outlook for oil industry is very negative, but the clean balance sheet should give them some operating flexibility and puts them in a good place for any industry consolidation which is likely to take place. Link to comment Share on other sites More sharing options...
arcube Posted November 17, 2015 Share Posted November 17, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Very possible. I figured debt holders who got shares in return would sell overtime, but I didn't imagine they would work so hard in the negotiations just to dump it the day or two after for 30-40% less than they negotiated for. Anyways, the stock was $11-12 when I posted this. It's not at $5 and it's the first day in the green since relisting. Obviously the outlook for oil industry is very negative, but the clean balance sheet should give them some operating flexibility and puts them in a good place for any industry consolidation which is likely to take place. Hi TwiCitiesCapital, Do you know what the exact (latest) long term debt is on the books? I am getting different numbers from different sources (maybe due to reorg) so thought I would ask you. Thanks. Link to comment Share on other sites More sharing options...
mjohn707 Posted November 17, 2015 Share Posted November 17, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Very possible. I figured debt holders who got shares in return would sell overtime, but I didn't imagine they would work so hard in the negotiations just to dump it the day or two after for 30-40% less than they negotiated for. Anyways, the stock was $11-12 when I posted this. It's not at $5 and it's the first day in the green since relisting. Obviously the outlook for oil industry is very negative, but the clean balance sheet should give them some operating flexibility and puts them in a good place for any industry consolidation which is likely to take place. Hi TwiCitiesCapital, Do you know what the exact (latest) long term debt is on the books? I am getting different numbers from different sources (maybe due to reorg) so thought I would ask you. Thanks. I read the recent 10-Q and I believe it's 450M now Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted November 17, 2015 Author Share Posted November 17, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Very possible. I figured debt holders who got shares in return would sell overtime, but I didn't imagine they would work so hard in the negotiations just to dump it the day or two after for 30-40% less than they negotiated for. Anyways, the stock was $11-12 when I posted this. It's not at $5 and it's the first day in the green since relisting. Obviously the outlook for oil industry is very negative, but the clean balance sheet should give them some operating flexibility and puts them in a good place for any industry consolidation which is likely to take place. Hi TwiCitiesCapital, Do you know what the exact (latest) long term debt is on the books? I am getting different numbers from different sources (maybe due to reorg) so thought I would ask you. Thanks. The $1.2B of debt on the books was wiped out in the reorg and replaced by issuing equity equivalent to about 97% of the company to debt holders. It's my understanding that was all of the debt on the books at that time, BUT part of the reorg has provided a $450M credit facility that will be drawn on to complete current projects. So, $450M on a credit facility that will need to be repaid should be the only debt that I'm aware of. I haven't studied their financial statements though - just going off my understanding from following this at a high level. Link to comment Share on other sites More sharing options...
mjohn707 Posted November 17, 2015 Share Posted November 17, 2015 TCC, where do you see the number of shares exchanged for the debt and outstanding common stock after the reorg. unable to find any reference to 20,000,000 shares issued. can you please provide some link, thanks As per the re-org doc(Link below), "General. The Company has authority to issue 139,650,000 shares of Common Stock. In addition, the Company has authority to issue 350,000 shares of preferred stock which will have such rights, powers and preferences as the board of directors of the Company (the “Board of Directors”) shall determine. " http://ir.herculesoffshore.com/phoenix.zhtml?c=192573&p=irol-SECText&TEXT=aHR0cDovL2FwaS50ZW5rd2l6YXJkLmNvbS9maWxpbmcueG1sP2lwYWdlPTEwNTYzMzIxJkRTRVE9MCZTRVE9MCZTUURFU0M9U0VDVElPTl9FTlRJUkUmc3Vic2lkPTU3 http://edgar.sec.gov/Archives/edgar/data/1330849/000119312515370276/d58553d8k.htm On the Effective Date, the Company will distribute (a) New Common Stock (as defined below) to creditors of the Company and its debtor affiliates and (b) New Common Stock and Warrants to stockholders of the Company, in each case in accordance with the Plan. On the Effective Date, the Company issued the following: • 20,000,000 shares of new common stock, par value $0.01 per share (the “New Common Stock”) • Warrants to purchase 5,000,000 shares of New Common Stock The New Common Stock and the Warrants were issued under the Plan pursuant to an exemption from the registration requirements of the Securities Act under Section 1145 of the Bankruptcy Code. I'm pretty surprised at the velocity of the selling. down 30+% yesterday. Another 20% today. I get the troubled industry, troubled company, poor outlook etc, but they just reorganized the vast majority of their debt and have plenty of liquidity. I would've though that it would have traded flat upon relisting and not down 40+% in 2 days. Forced selling from all the bond fund? Very possible. I figured debt holders who got shares in return would sell overtime, but I didn't imagine they would work so hard in the negotiations just to dump it the day or two after for 30-40% less than they negotiated for. Anyways, the stock was $11-12 when I posted this. It's not at $5 and it's the first day in the green since relisting. Obviously the outlook for oil industry is very negative, but the clean balance sheet should give them some operating flexibility and puts them in a good place for any industry consolidation which is likely to take place. Hi TwiCitiesCapital, Do you know what the exact (latest) long term debt is on the books? I am getting different numbers from different sources (maybe due to reorg) so thought I would ask you. Thanks. The $1.2B of debt on the books was wiped out in the reorg and replaced by issuing equity equivalent to about 97% of the company to debt holders. It's my understanding that was all of the debt on the books at that time, BUT part of the reorg has provided a $450M credit facility that will be drawn on to complete current projects. So, $450M on a credit facility that will need to be repaid should be the only debt that I'm aware of. I haven't studied their financial statements though - just going off my understanding from following this at a high level. My understanding is that they're going to draw the whole 450M to pay for the new lift rig and to add to cash on hand, and that this will be the only debt they have afterwards Link to comment Share on other sites More sharing options...
arcube Posted November 17, 2015 Share Posted November 17, 2015 Thank you everybody. Much appreciated. Link to comment Share on other sites More sharing options...
Guest 50centdollars Posted May 28, 2016 Share Posted May 28, 2016 Bankruptcy again http://www.wsj.com/articles/hercules-offshore-files-for-chapter-11-again-hit-by-oil-price-slump-1464358632 Link to comment Share on other sites More sharing options...
Deepdive Posted June 5, 2016 Share Posted June 5, 2016 I think that Hercules Offshore is cursed. In 2011, Hercules acquired Seahawk Drilling when Seahawk filed for bankruptcy following the BP oil spill. Later on, Hercules filed for bankruptcy. Now, Hercules files for bankruptcy a second time. I will probably never invest in drilling unless they're paying a 30% dividend, a 5 year contract is in place and the management isn't buying any more rigs. I think everyone should study Hercules to get a sense of what could go wrong Link to comment Share on other sites More sharing options...
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