The Corporate Restructuring Report-Ocean Rig UDW Inc (ORIG) Update
On September 22, 2017, Ocean Rig UDW Inc. (Nasdaq:ORIG) emered from bankruptcy restructuring. In our note dated October 16, 2017, we were positive on the company's prospects and continue to remain bullish. The recent management changes bring in significant offshore industry experience, which bodes well for ORIG. Pankaj Khanna, with 29 years of experience in the offshore and maritime industries, has been appointed CEO, while David Cusiter, with more than 28 years in the offshore industry, has been appointed COO. ORIG has emerged from bankruptcy with negative net debt of roughly $245 million and its next debt maturity is not until 2024 (at $450 million).
The offshore drilling market may have bottomed out and is showing signs of recovery as evident from increased demand for harsh environment rigs. While we expect utilization levels and dayrates to pick up in the medium term, the strengthened balance sheet should allow ORIG to ride out an extended multiyear downcycle even if the recovery is delayed. The multiyear contract on the drillship Skyros, which is contracted through September 2021, provides cash flow visibility. We estimate the backlog on the Skyros at around $800 million, which should keep ORIG operating cash flow positive through the life of this contract.
ORIG's under-leveraged balance sheet and significant backlog makes it a potential takeout target. ORIG's largest shareholder, hedgefund Elliott Management Corp, has already called for the company to review strategic options. Despite near term challenges, we remain optimistic over the medium to long term. In our view, ORIG is well-positioned to benefit from eventual industry recovery. We belive ORIG is undervalued at current levels.
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