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GulfMark Files for Bankruptcy Protection to Cut Debts


Houston-based offshore service provider GulfMark Offshore, Inc.(GULF) filed for Chapter 11 bankruptcy protection on May 17 in order to restructure its balance sheet amid the plunging oil prices. Chapter 11 will protect the company’s restructuring deal from distressed debt investors and enable it to pursue its debt-for-equity swap with the lenders.The company has also negotiated $35 million interim financing facility to see it through the bankruptcy filing process.

What Triggered This?

The offshore drilling and support services industry has been one of the worst sufferers of the oil industry downturn. Due to the plunge in oil prices in 2014, energy companies reduced their spendings, leading to lowered demand for offshore support vessel services. Further, the construction of the offshore support vessels during the boom period led to oversupply, leaving the vessels unutilized. The company has removed nearly 50% of its vessels from active service.

During the prolonged downturn, the day rates of the offshore support vessel services have fallen to much lower levels making it difficult for the company to sustain profits. Reduced activities and diminishing contract backlogs have created pressure on revenues, earnings and cash flows of GulfMark. The company reported its last financial results for the third quarter of 2016, wherein it reported a loss of $24.7 million with negative cash flows of 12 million. The company lost around 50% of its book value from $1 billion in 2014 to $5.18 million in the last quarter.

Earlier this year, GulfMark received a delisting warning from New York Stock Exchange (NYSE) due to the low price of its shares. On Apr 10, NYSE had begun the delisting proceedings as the stock has been trading below $1 per share for over 30 consecutive days.

GulfMark has just been one of the victims of the 2014–2016 downturn in the oil and gas prices. Many offshore drilling companies like Ocean Rig UDW LLC. ORIG, SeaDrill Limited SDRL, Paragon Offshore, Hercules Offshore, Inc. and Vantage Drilling Company have also filed for bankruptcy protection amid declining oil prices.

GulfMark which had been contemplating restructuring under bankruptcy for quite some time has recently reached an agreement with certain noteholders.

What Lies Ahead?

The restructuring agreement will help the company to eliminate approximately $430 million in debt and $27 million in annual interest payments. The conversion of the unsecured debts has already been approved by 47% of the senior noteholders. Additionally, GulfMark will also launch $125 million rights offering, under which the holders will receive 60% of the equity in the company, providing liquidity to fund the operations. Existing shareholders will receive 0.75% of the equity along with warrants for an additional 7.5% of the equity in the company.

The restructuring agreement is expected to improve the competitive position GulfMark and will help the company to meet its obligations to various stakeholders. This debt reduction and rights offering is also likely to strengthen the company’s liquidity and capital structure.

Zacks Rank & Key Pick

GulfMark provides marine transportation services to the energy industry through a fleet of offshore support vessels serving every major offshore energy industry market in the world. The company currently carries a Zacks Rank #3 (Hold).

The company has underperformed the Zacks categorized Oil and Gas Field Services industry year to date. During the aforesaid period, shares of GulfMark declined almost 89% while the broader industry fell 18%.

Some of the better-ranked stocks within the same industry include Flotek Industries, Inc. FTK and C&J Energy Services, Inc. CJ. Both the companies carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Flotek Industries is expected to post year-over-year growth of 181.08% on its earnings in 2018.

C&J Energy is expected to post a year over year growth of 840% on its earnings in 2018.

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