Why Seadrill Ltd (SDRL) Plunged Today

Seadrill Ltd (NYSE:SDRL) shares are down 34% in pre-market trading after the company said the following in terms of a press release concerning amendments to secured credit facilities that it just made (emphasis ours):

These extensions provide additional time for the Company to further advance the ongoing negotiations with its banks, potential new money investors, and the advisers to the ad hoc committee of bondholders regarding the terms of a comprehensive restructuring plan, which may include the infusion of new capital. While no definitive terms have been reached, based on stakeholder and new money investor feedback, as well as the Company’s existing leverage, we currently believe that a comprehensive restructuring plan will require a substantial impairment or conversion of our bonds, as well as impairment, losses or substantial dilution for other stakeholders. As a result, the Company currently expects that shareholders are likely to receive minimal recovery for their existing shares. We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement or chapter 11 proceedings, and we are preparing accordingly. The Company’s business operations remain unaffected by these restructuring efforts and the Company will continue to meet its ongoing customer and business counterparty obligations.

With Brent still below $60 per barrel and unlikely to rally meaningfully enough, it seems Seadrill Ltd (NYSE:SDRL) management is acknowledging that the worst-case scenario is a possibility for common equity shareholders.

What Does The Smart Money Sentiment Say?

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According to our data, not many elite funds owned Seadrill at the end of December. Of the 742 elite funds we track, 17 were long $52.23 million of Seadrill Ltd (NYSE:SDRL) and accounted for 3.00% of the float on December 31, versus 18 funds and $33.66 million respectively on September 30.

The Bottom Line

Seadrill Ltd (NYSE:SDRL) shares are down due to a press release today that warned investors of the potential of chapter 11 proceedings and minimum recovery of existing shares if a comprehensive restructure plan were to take place currently. For those of you interested, check out the ‘10 Largest Oil Tanker Shipping Companies In The World‘.

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