Ensco's 2024 Bonds Offer 8% Yield To Maturity

The collapse in energy prices has had a profound impact on the offshore drilling industry. Ensco plc (ESV) has been no exception. The company's financial challenges have pushed its stock price down more than 80% since 2014. Along with a market cap well under book value, the company's bonds have sold off to create attractive yields. One such bond, which matures in January of 2024, offers an 8% coupon, is priced at 98 cents on the dollar, and yields over 8.25% to maturity.

Source: FINRA
There's no better document to demonstrate Ensco's operational challenges than its income statement. The company's $1.8 billion in revenue for 2017 is a far cry from the $4 billion threshold attained two years prior. Despite this decline, the company reported an operating loss of only $132 million and a loss of $196 million before taxes. Both loss figures included $444 million in depreciation and a $183 million non-cash related impairment charge.

Source: SEC-10K
Due to the non-cash issues listed above, Ensco managed to generate $259 in cash from operations for 2017. While this was noticeable lower than in the previous two years, the company managed to complete an $871 million acquisition and pay down $537 million in debt without issuing new debt or shares. These moves did reduce the company's cash balance and investments but left it with $445 million in cash at year end.

Source: SEC-10K
Ensco's debt reduction in 2017 was related to... Read more

Older articles featuring ESV: