US high-yield offshore drillers are at heightened default risk given their backlog burn rates, declining revenue profiles, limited liquidity, and highly leveraged capital structures, according to Fitch Ratings. These characteristics provide limited through-the-cycle financial flexibility in the current weak pricing environment and make an analysis of potential recovery prospects for the high-yield offshore drillers especially relevant.
Fitch calculated recovery values for three high-yield offshore drillers –Vantage Drilling Co. (VTG), Pacific Drilling SA (PACD), and Ocean Rig UDW Inc. (ORIG) – using three approaches: going concern EBITDA, implied market liquidation, and book liquidation. Sensitivities surrounding post-default EBITDA and implied market rig values were calculated to provide a range of outcomes from which Fitch chose an indicative value. The Fitch analysis found, based on our assumptions, that these three approaches resulted in recovery prospects that were generally consistent with one another.
Fitch concluded that ORIG and PACD have superior senior secured debt recovery ratings of “RR2” (71%–91%), while VTG has a good senior secured debt recovery rating of “RR3” (51%–71%). Senior unsecured tranches, on the other hand, have poor recovery prospects with VTG and ORIG recovery ratings of “RR6” (0%–10%).