Why Teekay Corporation, California Resources Corp, and Seadrill Partners LLC Were All Crushed This Week
The energy industry continues to be pummeled by weak oil prices, which have renewed their slide in recent weeks. This weakness is really starting to spill over into the credit market, making it tougher for energy companies to get funding. These credit worries are weighing down energy stocks that either rely on debt as a key funding source, or have a lot of it on their balance sheet. That was clear by looking closer at the three most beaten down energy stocks this week, which according to S&P Capital IQ data, were Seadrill Partners (NYSE: SDLP), California Resources Corp (NYSE: CRC), and Teekay Corporation (NYSE: TK).
What: Deepwater driller Seadrill Partners (NYSE: SDLP) plunged more than 16% this week.
So What: Key driver: Seadrill Partners reduced its quarterly distribution by 55% Yielding to market pressure, the offshore driller reduced its distribution despite more than adequate coverage
Now What: The company intends to use the cash to increase its financial flexibility Key takeaway: Investors actually cheered the move after it was announced, but even with that rally shares are down substantially over the past few weeks, suggesting its troubles are far from over
What: Oil and gas producer California Resources (NYSE: CRC) slumped more than 26% this week.
So What: Key driver: California Resources closed its bond exchange The company exchanged $2.8 billion of its old notes for new second lien notes The exchange reduced its principal amount by $563 million
Now What: Despite the lower principal, the company’s interest costs will rise by $21 million due to the higher rate on the new notes Key takeaway: The company still has a lot of debt left to address, but doesn’t see any more moves this year due to the renewed weakness in commodity prices
What: Everything Teekay (NYSE: TK) crashed more than 40% this week.
So What: Key driver: Teekay, Teekay Offshore, and Teekay LNG Partners all announced significant distribution cuts The companies said they plan to use the cash to invest in growth projects and reduce debt
Now What: Adding to the selling pressure were a number of analyst downgrades Key takeaway: Investors see the steepness of the cuts suggesting that it was getting difficult for the Teekay companies to get funding by the market
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