UPDATE: Goldman Sachs Downgrades Atwood Oceanics (ATW) to Sell

(Updated - March 11, 2016 9:05 AM EST)

Goldman Sachs downgraded Atwood Oceanics (NYSE: ATW) from Neutral to Sell with a price target of $5, implying downside of 46%.

Analyst Waqar Syed explained his bearish thesis, "The primary drivers include: (1) We expect a significant reduction in ATW’s EPS over the next three years as its rigs roll over from high-priced contracts to spot rates that are near cash break-even levels. For CY15 to CY18, we project ATW’s EPS to fall from $7.34to a loss of $1.23 and EBITDA to decline from $747mn to $186mn (-75%)."

The analyst continued, "(2) Of ATW’s nine currently working rigs, seven face contract expiration in 2016, one in 2017 and one in 2018. ATW also has two uncontracted underconstruction rigs joining the fleet in 2017 and 2018. The offshore jack-up and floater markets are seeing softening demand and are highly over-supplied with rig utilization around 65%-70% vs. historical average of around 80%-85%. In such an environment, we believe ATW will likely have a hard time finding work for these rigs and even if they do, rates are likely to be well below prior contracted rates, and very near cash break-even levels. (3) We project ATW to be in default of its debt covenants by CY3Q17. (4) Debt markets are estimating the probability of default for ATW’s 2020 bonds at 83% and yield-to-maturity of 28%."

For an analyst ratings summary and ratings history on Atwood Oceanics click here. For more ratings news on Atwood Oceanics click here.

Shares of Atwood Oceanics closed at $9.08 yesterday.

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