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Ensign Energy Services 9.25% 2024: Another Of My Favorite Short-Dated Bonds

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Oil drilling rig successful nan field

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Situation Overview

Ensign Energy Services (OTCPK:ESVIF) is confronting a maturity wall successful nan adjacent future, arsenic its enslaved is group to mature connected April 15, 2024. Furthermore, its revolving in installments installation has a springing maturity clause that mandates nan $882 cardinal credit installation to go owed instantly if nan enslaved is not refinanced six months up of nan bond's maturity date. As a result, Ensign's nearest maturity day is connected October 15, 2023.

Although a fixed reappraisal of Ensign's financials mightiness unnerve immoderate investors, Ensign's creditworthiness is quickly improving. The proviso and request dynamics of North American drill rigs person importantly improved complete nan past 2 years, benefiting drillers, including Ensign, which has not yet adjusted its fleet prices to bespeak existent time rates. Recent weakness successful earthy state is besides expected to constrain rig reactivation, further strengthening nan favorable manufacture environment. Ensign's anticipated FY2022 EBITDA is astir $350 cardinal and is projected to summation importantly to astatine slightest $500 cardinal successful FY2023, thereby lowering its nett leverage ratio beneath 3.0x. Moreover, awesome shareholders, specified arsenic Murray Edwards and Fairfax, are expected to supply support to safeguard their equity interests via an equity offering, among different possibilities.

Company Description

Ensign Energy Services is simply a world supplier of oilfield services, offering drilling, good servicing, and oilfield instrumentality rentals to nan power industry. The institution was founded successful 1987 and has grown to go 1 of nan largest drilling and good services companies successful North America, pinch operations successful Canada, nan United States, and Mexico, arsenic good arsenic constricted world operations successful South America, nan Middle East, and Australia. Ensign's drilling services see vertical, horizontal, and directional drilling, arsenic good arsenic drilling-related services specified arsenic casing running, cementing, and drilling fluids. Its good servicing offerings see good completion, workover, and re-entry services. The institution besides offers a wide scope of oilfield instrumentality for rent, including drilling rigs, good servicing rigs, and ancillary equipment.

Capital Structure

Ensign Energy Services has a straightforward superior structure, consisting of a revolving in installments installation of astir C$882 cardinal and a elder unsecured enslaved pinch a 9.25% liking rate, which presently has an outstanding magnitude of US$417.5 million. Although nan enslaved was initially issued for US$700 million, Ensign actively repurchased galore of these bonds during nan COVID pandemic years.

Capital Structure

Company Reports

Ensign Energy Services' leverage ratio has been taxable to fluctuations, arsenic is communal successful nan lipid section work industry. As of nan latest 12-month period, Ensign's leverage ratio stands astatine astir 5.0x, but it is expected to alteration to beneath 3.0x by nan extremity of FY2023. This is because nan anticipated EBITDA is expected to transcend $500 million, generating a important magnitude of free rate travel that will let for further simplification of nett debt. With a record-high EBITDA, Ensign is poised to make important advancement successful reducing its leverage ratio successful nan coming years.

Major Shareholders

Murray Edwards, a Canadian billionaire, holds astir 23% of Ensign Energy Services, making him nan largest shareholder. Fairfax is nan second-largest shareholder, pinch ownership of astir 13% of Ensign shares aft converting a mini debenture to stocks. With these 2 awesome shareholders controlling a important liking successful nan company, they person nan expertise to lend nan basal superior to rotation nan bond, which could require up to US$400 million. Based connected nan existent liking rate, it's imaginable that Murray Edwards and Fairfax will supply betwixt US$100 to 150 million, which should beryllium capable to entice existing bondholders to rotation their holdings and moreover pull caller investors.

If a straightforward refinancing statement proves difficult, I tin envision nan 2 shareholders spearheading an equity raise to thief little Ensign's leverage. Regardless, fixed nan favorable outlook for nan power market, they are improbable to relinquish power of nan second-largest onshore driller successful Canada.

Ensign 9.25% 2024

According to TRACE, Ensign's bonds are presently trading astatine astir $98. Below is simply a output array reflecting this value astatine various redemption dates. Based connected my cautious outlook, I judge that investors person an opportunity to gain an appealing output of 12.5-32.6%, depending connected really agelong they clasp nan bond.

Yield Table

Author

Trade History

TRACE

Conclusion

Given nan existent uncertain marketplace conditions, nan return of superior is now much important than nan return connected capital. However, pinch Ensign's 9.25% bond, investors tin use from some an appealing output and a precocious grade of certainty that their superior will beryllium returned. I expect that Ensign will refinance nan enslaved by nan extremity of 2023, and I americium eager to perceive nan company's guidance talk its plans to reside nan maturity runway connected their upcoming Q4-2022 net convention call, scheduled for early March.

Editor's Note: This article discusses 1 aliases much securities that do not waste and acquisition connected a awesome U.S. exchange. Please beryllium alert of nan risks associated pinch these stocks.

This article was written by

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Event-driven, fundamentally oriented worth investor. My favourite quote - if you want to beryllium nan smartest personification successful nan room, spell to an quiet room - thing for illustration that.

Disclosure: I/we person nary stock, action aliases akin derivative position successful immoderate of nan companies mentioned, but whitethorn initiate a beneficial Short position done short-selling of nan stock, aliases acquisition of put options aliases akin derivatives successful ESI:CA complete nan adjacent 72 hours. I wrote this article myself, and it expresses my ain opinions. I americium not receiving compensation for it (other than from Seeking Alpha). I person nary business narration pinch immoderate institution whose banal is mentioned successful this article.

Editor: Naga



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