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October 18, 2019  

Oil-Drilling Suppliers Explore Securitization

Several companies that lease offshore drilling equipment to oil and gas producers are taking a hard look at securitization.

Noble Corp., Transocean and Valaris are among the prospective issuers. Houston-based Valaris appears to be the furthest along, having already spoken to rating agencies and bankers about a deal that could hit the market in early 2020.

Each of the companies would back its bonds with leases to large oil and gas producers worldwide, with some potentially packaging cashflows from windfarm operators as well. The underlying contracts mainly would be tied to deepwater floating platforms and so-called jackup rigs, which typically are used in shallower-water applications.

Valaris, for example, is looking specifically at securitizing receivables from its portfolio of 53 jackup rigs — the largest such collection in the world.

Leases for floating platforms, which are inclusive of the facilities’ crews, can cost up to $150,000 per day, with terms ranging from one month to 10 years. With that payment structure, companies supplying the equipment receive an interest rate of roughly 5%. Leases for jackup rigs come with similar terms, at a cost of $50,000-70,000 per day and an interest rate around 6%.

Equity analysts said the sudden interest in securitization stems mainly from feedback from the companies’ shareholders, who want them to explore new ways to raise capital in preparation for a projected business slowdown in 2020. That outlook in part reflects continuing challenges energy companies have faced since oil prices collapsed in 2014. “Let’s face it, these companies are getting pinched. They’re looking for ways to bring in capital. Securitization could give them that,” one analyst said.

Many drilling-equipment suppliers have been funding their businesses via equity and unsecured debt. Their willingness to look at securitization has been bolstered by strong demand for bonds backed by equipment loans and leases. Investors have easily absorbed $17 billion of new supply in those asset classes this year, up from $12.7 billion at this point in 2018, according to Asset-Backed Alert’s ABS Database.