Why Diamond Offshore Drilling's And Transocean LTD's Dividends Are Safe - For Now

A recent note put out by analysts at FBR, once again calls into question the sustainability of dividend payouts within the offshore drilling sector. In particular, analysts called into question the sustainability of dividend payouts at Diamond Offshore Drilling Inc (NYSE: DO) and Transocean LTD (NYSE: RIG). The reason cited for this concern was the soaring cost of credit protection, or credit default swaps. With CDS prices rising, investors are being asked to pay a higher premium for default protection -- a sign of a weakening balance sheet -- as the outlook for drillers deteriorates and the future becomes uncertain. Specifically, the note reports that: "…CDS spreads have surged over recent weeks, approaching heights last hit in the wake of the Macondo catastrophe and, in our judgment, chiefly expressing rising expectations of dividend cuts and/or credit rating downgrades. Notably, spreads for Diamond Offshore and Transocean closed yesterday at 148.5 and 290.2, respectively,... Read more