sdev Posted February 6, 2011 Share Posted February 6, 2011 Just wondering what you guys thought of this busted up company? I'm feeling too lazy to type out a full summary of what the situation is but basically it's a shallow water drilling company that is completely beaten up by the moratorium that continues. The company has * Current Assets - total liabilities is about (-18m) * Value of the rigs at book value is about 395m * Market value of $83m * Book value per rig is about 19m * Third party assessment of value per rig is about $15m * Implied value per rig based on stock price is about $3m. * Sold a rig for $15m in november but the deal fell through * Scrap value of the metal is roughly $5 or more. * Burning about $10m in cash per quarter * Had about $40m in cash as of end of Sept. Their options were either take on debt and buy rigs while they are depressed (discussed in the summer), slowly bleed the company by selling a rig at a time, sell the company, liquidate, recapitalize or some other unknown. The latest news was that they hired advisors to figure out strategic alternatives. Something has to give in the next 9-12 months and I just want to see why you guys might hate this stock. Link to comment Share on other sites More sharing options...
Myth465 Posted February 6, 2011 Share Posted February 6, 2011 These were my thoughts. Though HAWK is a bit more interesting now that they are open to a sell. Its also interesting that everyone is ordering tons of new rigs. Either way I think one would have been better off with ESV and NOBLE vs HAWK or HERO. I swapped some ESV for DO which has so far turned out to be a bad move. http://cornerofberkshireandfairfax.ca/forum/index.php?topic=3294" data-ipsquote-contentclass="forums_Topic" 33924#msg33924 Link to comment Share on other sites More sharing options...
Guest bengrahamofthenorth Posted February 7, 2011 Share Posted February 7, 2011 FYI Lots of Mexican tax disputes in the notes. Link to comment Share on other sites More sharing options...
merkhet Posted February 7, 2011 Share Posted February 7, 2011 I believe there is a clause in HAWK's spin-off agreement that they can not sell off the full company before August 2011. My memory may be a little fuzzy on the exact wording of what they can or can't sell. It has been a while since I took a look at HAWK. Link to comment Share on other sites More sharing options...
abcd Posted February 12, 2011 Share Posted February 12, 2011 Sounds like a bad deal for Seahawk http://www.prnewswire.com/news-releases/hercules-offshore-inc-signs-purchase-agreement-to-acquire-assets-of-seahawk-drilling-115979479.html Link to comment Share on other sites More sharing options...
Myth465 Posted February 12, 2011 Share Posted February 12, 2011 That was quick. I agree with Kuppy, always buy the best assets. Link to comment Share on other sites More sharing options...
merkhet Posted February 12, 2011 Share Posted February 12, 2011 I'm sure people here also follow SumZero to some extent, but I agree with Ben on that site -- it's a pretty crappy deal to run around telling people that your assets are worth $10MM per rig and then turn around to sell them for $5MM. Link to comment Share on other sites More sharing options...
Myth465 Posted February 12, 2011 Share Posted February 12, 2011 People need to do their own assessment of value and should stop looking at book value or management for that, but I agree - The CEO is an idiot. Aint the first and wont be the last one to run a company. These drillers annoy me (not just them but all of them). I would like to see these rigs scrapped for metal. Why have something cold stacked for 20 years. HERO is now just a big pile of junk. ESV is now in my opinion the best managed, second biggest, and second youngest driller. Thats the horse I am betting on. Link to comment Share on other sites More sharing options...
sdev Posted February 12, 2011 Author Share Posted February 12, 2011 Wowzers, that was a quick way for me to lose some money. With shares trading at 4 bucks though, seems like a good risk arb trade now. Link to comment Share on other sites More sharing options...
benhacker Posted February 12, 2011 Share Posted February 12, 2011 Sdev, With shares trading at 4 bucks though, seems like a good risk arb trade now. Excuse me, but could you share your rationale for what value you think exists? This is not a sale of the company that was announced... it was a sale of assets to HERO, right? What do you think will be left over for shareholders after all liabilities are paid? At first read, I thought HERO was paying for the company, but I think they are paying the DIP to satisfy near term liabliities, and then pulling the rigs for the rest of the share swap in an asset transaction. Shareholders are left holding the bag. Not my are of expertise, but would be interested to think why you think a recovery will exist for shareholders. Thanks, Ben Link to comment Share on other sites More sharing options...
sdev Posted February 12, 2011 Author Share Posted February 12, 2011 Hey Ben, I'm stuck doing valentines day stuff so I can't look at it in detail today, but this is the general idea of how I think it works, and I'm not 100% sure. I'd assume the Seahawk company in BK gives its assets to Hero in exchange for 22.3m HERO shares and $25m. The Seahawk holding company then has left on its balance sheet its present working capital which was about (-18m) as of the last Q if I remember right - plus the 22.3m shares and $25m (working capital is probably (-25) by now). So the valuation of the equity is all a function of the the pride claim and mexican tax issue on the liabilities side of the balance sheet. If those = 0, then the shares are a massive buy. They clearly aren't right now so thats the variable to figure out. Link to comment Share on other sites More sharing options...
Myth465 Posted February 13, 2011 Share Posted February 13, 2011 I think there are easier ways to make a buck. You dont have to make it back the way you lost it. Link to comment Share on other sites More sharing options...
merkhet Posted February 13, 2011 Share Posted February 13, 2011 People need to do their own assessment of value and should stop looking at book value or management for that, but I agree - The CEO is an idiot. Well, I think that the value of the rigs is actually closer to $10MM than $5MM given sales of older and less useful rigs for amounts higher than $5MM. So it's not so much that management was untrustworthy concerning their valuation but rather untrustworthy/stupid concerning their decision-making... I think there are easier ways to make a buck. You dont have to make it back the way you lost it. Absolutely. I would not play this one right now considering that the purchase price is $105MM, and there's a DIP of $35MM and debt of at least $17MM that needs to be repaid. This leaves you very, very dependent on an accurate assessment on the differential between the remaining assets and liabilities. Link to comment Share on other sites More sharing options...
sdev Posted February 13, 2011 Author Share Posted February 13, 2011 I think there are easier ways to make a buck. You dont have to make it back the way you lost it. Myth - I agree. Admitting a mistake, noting it, moving on. Link to comment Share on other sites More sharing options...
eclecticvalue Posted February 15, 2011 Share Posted February 15, 2011 Today has been a heartbreak :-[. I sold out of it for a 50% loss. Learned a lesson that not all spin-offs will work out. Link to comment Share on other sites More sharing options...
Myth465 Posted February 15, 2011 Share Posted February 15, 2011 This post is a good summary of the lack of value. http://seekingalpha.com/article/252761-a-spin-off-that-went-sour?source=email_watchlist Link to comment Share on other sites More sharing options...
oddballstocks Posted June 21, 2011 Share Posted June 21, 2011 I did a writeup about Seahawk's value in BK on my blog, but wanted to post the idea here and get some thoughts on it as well. Seahawk's estate breakdown 22.3m shares of HERO as it's estate - $113.9m $14m in cash that I expect to be used by lawyers and random wind down expenses $14.6m in allowed post petition claims If only the post petition claims that are currently on record are allowed the common has a residual value of $8.35 Pride International is fighting for a claim of $54m to be allowed, the hearing for this was set for this week but the parties keep moving it around. If Pride's entire claim is allowed there will be $3.85 left for equity holders. Low: 3.85 High: 8.35 Current price: 5.72 The gamble is what % of Pride's claim will the judge allow. All of the court filings appear on http://www.kccllc.net/seahawk for free. Another aspect is a few hedge funds have purchased in the $4 range and formed an equityholder committee. I can't imagine they bought at $4 expecting to get $3.85 back, so they must believe part or all of Pride's claims are invalid. This is the guts of the writeup, on the blog I include a lot more history about the deal. I'm really interested in thoughts and opinions on this one. Thanks! Link to post: http://oddballstocks.blogspot.com/2011/06/seahawk-drilling-value-in-bankruptcy.html Nate Link to comment Share on other sites More sharing options...
Guest Hester Posted June 21, 2011 Share Posted June 21, 2011 Thanks for the writeup. I have trouble handicapping the Pride claim, so I probably won't buy unless it breaks $4. Hedge Funds have bought and want to maximize equity value as you said, but Pride is a large company and is well lawyered as well, so I find it difficult to know where the court decision will end up. Another thing is, there's the risk that HERO shares go down. If they happen to go down by 50% between now and liquidation, that wipes out almost $5 from liquidation value, maybe even leaving equity with close to zero, depending on the Pride judgement. So I think the only thing to do would be to short HERO to hedge out that risk. Even if you think HERO is undervalued, if Mr. Market goes crazy and the shares temporarily fall, and liquidation proceeds, equity value would be severely impaired. Link to comment Share on other sites More sharing options...
oddballstocks Posted June 21, 2011 Share Posted June 21, 2011 Hester, Thanks for the comment, I agree about the two moving pieces to this. The first being how much will Pride actually get and it's a tricky issue. Pride took out a loan at Seahawk's urging, but the loan is theirs. They're asking the court to have Seahawk pay it, I'm not sure of the legality of the issue, but it seems murky. If I try to think about it in non-legal terms it's as if I had my brother take out a loan so he could buy my car from me when I'm done using it, but instead of him paying off the loan with his loan I declare bk and sell my car to someone else and he's saddled with a loan. Sure I asked him to take it out, but does that mean I'm legally liable? I have no clue about this... Although I'm sure a few of the hedge funds have paid for legal advice on this aspect. The good news for the second moving part is that HERO is shortable and has options available making it easy to hedge. With perfect hindsight shorting would have been good after the HERO runup to around $7. I see they're rallying today but it's a very volatile stock. Link to comment Share on other sites More sharing options...
ragnarisapirate Posted June 21, 2011 Share Posted June 21, 2011 Hester, Thanks for the comment, I agree about the two moving pieces to this. The first being how much will Pride actually get and it's a tricky issue. Pride took out a loan at Seahawk's urging, but the loan is theirs. They're asking the court to have Seahawk pay it, I'm not sure of the legality of the issue, but it seems murky. If I try to think about it in non-legal terms it's as if I had my brother take out a loan so he could buy my car from me when I'm done using it, but instead of him paying off the loan with his loan I declare bk and sell my car to someone else and he's saddled with a loan. Sure I asked him to take it out, but does that mean I'm legally liable? I have no clue about this... Although I'm sure a few of the hedge funds have paid for legal advice on this aspect. The good news for the second moving part is that HERO is shortable and has options available making it easy to hedge. With perfect hindsight shorting would have been good after the HERO runup to around $7. I see they're rallying today but it's a very volatile stock. I would be willing to bet that the lawyers for the hedge funds are a bit more devious than the ones for the corporation too... which never hurts in a court of law! ;) Link to comment Share on other sites More sharing options...
Kraven Posted June 21, 2011 Share Posted June 21, 2011 Hester, Thanks for the comment, I agree about the two moving pieces to this. The first being how much will Pride actually get and it's a tricky issue. Pride took out a loan at Seahawk's urging, but the loan is theirs. They're asking the court to have Seahawk pay it, I'm not sure of the legality of the issue, but it seems murky. If I try to think about it in non-legal terms it's as if I had my brother take out a loan so he could buy my car from me when I'm done using it, but instead of him paying off the loan with his loan I declare bk and sell my car to someone else and he's saddled with a loan. Sure I asked him to take it out, but does that mean I'm legally liable? I have no clue about this... Although I'm sure a few of the hedge funds have paid for legal advice on this aspect. The good news for the second moving part is that HERO is shortable and has options available making it easy to hedge. With perfect hindsight shorting would have been good after the HERO runup to around $7. I see they're rallying today but it's a very volatile stock. I would be willing to bet that the lawyers for the hedge funds are a bit more devious than the ones for the corporation too... which never hurts in a court of law! ;) I guarantee you that the hedge funds have paid for legal advice on this. Wouldn't cost too much to do a preliminary work up on it and would guide their approach. Ragnar, not sure the hedgie lawyers are more devious, but they do tend to be more aggressive, both by their own nature and by direction. Perhaps at the end of the day it amounts to the same thing. Link to comment Share on other sites More sharing options...
ragnarisapirate Posted June 21, 2011 Share Posted June 21, 2011 Hester, Thanks for the comment, I agree about the two moving pieces to this. The first being how much will Pride actually get and it's a tricky issue. Pride took out a loan at Seahawk's urging, but the loan is theirs. They're asking the court to have Seahawk pay it, I'm not sure of the legality of the issue, but it seems murky. If I try to think about it in non-legal terms it's as if I had my brother take out a loan so he could buy my car from me when I'm done using it, but instead of him paying off the loan with his loan I declare bk and sell my car to someone else and he's saddled with a loan. Sure I asked him to take it out, but does that mean I'm legally liable? I have no clue about this... Although I'm sure a few of the hedge funds have paid for legal advice on this aspect. The good news for the second moving part is that HERO is shortable and has options available making it easy to hedge. With perfect hindsight shorting would have been good after the HERO runup to around $7. I see they're rallying today but it's a very volatile stock. I would be willing to bet that the lawyers for the hedge funds are a bit more devious than the ones for the corporation too... which never hurts in a court of law! ;) I guarantee you that the hedge funds have paid for legal advice on this. Wouldn't cost too much to do a preliminary work up on it and would guide their approach. Ragnar, not sure the hedgie lawyers are more devious, but they do tend to be more aggressive, both by their own nature and by direction. Perhaps at the end of the day it amounts to the same thing. Yeah, that's kinda what I was getting at. :) Link to comment Share on other sites More sharing options...
Guest Hester Posted August 18, 2011 Share Posted August 18, 2011 I hope the longs were hedging out HERO share price risk. Right now there is less than a dime of equity value assuming the pride claims are paid in full. Link to comment Share on other sites More sharing options...
Josh4580 Posted August 19, 2011 Share Posted August 19, 2011 Hester good call on the HERO hedge Link to comment Share on other sites More sharing options...
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