NEW YORK, April 13 (IFR) - Bonds of Mexico’s Offshore Drilling Holding enjoyed a seven-point rally Monday on news that the company had extended rig charter contracts with state-controlled oil giant Pemex.
The 8.625% 2020s were quoted as high as 87.00-89.00 Monday after being spotted in the low 80s Friday, before ODH told analysts that charters on rigs backing the bond had been extended.
“At 87 bonds are ~12% (yield-to-worst),” wrote Credit Suisse analysts today. “After this news, we believe there is still room to rally (and) don’t really think this is a 12% story anymore.”
With charter contracts expiring before the maturity on the bond, renewal risks had always been a concern for investors.
But those worries came to the fore this year with the rout in crude prices and talk that Pemex might look for business elsewhere or bring day rates down to uneconomical levels.
News that the charters on the two rigs backing the bond, the Centenario and Bicentenario, have now been pushed out to 2017 provided some relief to investors.
The charter contract on the Centenario was due to expire in September, while Bicentenario was up for renewal in July 2016.
And while day rates have been negotiated lower, the blended day rate of US$461,000 for 2015 is above the company’s break-even level of US$350,000, according to Credit Suisse.
The interest coverage for 2015 is “quite comfortable” at around 2.3 times, the bank said.
In 2016 and 2017 that drops to 1x, but that accounts for dry-docking and down-time and leaves the interest reserve account untouched, it said.
Offshore Drilling Holding is a subsidiary of Mexico’s Grupo R, a conglomerate that provides drilling and oil field services to Pemex. (Reporting by Paul Kilby; Editing by Marc Carnegie)