Markets
RIG

Why Transocean Stock Jumped 13% at the Open on Aug. 24

What happened

Shares of offshore drilling services provider Transocean (NYSE: RIG) started out on a very positive note on Aug. 24, rising as much as 13% in the first hour of trading. The big driver was a news release outlining the early results from a proposed debt exchange.  

So what

Transocean has a sizable amount of debt coming due in 2021 and 2022. With the energy sector in a deep downturn, and the company bleeding red ink because of it, those maturities presented a notable problem. To deal with it, the company offered bond holders a debt exchange, which would push the maturity out to 2027. That buys the company valuable breathing room. Based on the company's news release, it looks like around $1.1 billion worth of bonds will be traded in.  

An offshore drilling rig

Image source: Getty Images.

That's the good news. The bad news is that the interest rates on debt set to mature over the next two years were 3.8% and 6.375%. The newly issued debt will carry a rate of 11.5%. That's a very high rate given the historically low interest rate environment that exists today. Transocean may have bought itself time, but the additional interest costs involved are worrisome. It's also worth noting that the company's debt-to-equity ratio is a very high 80% or so, suggesting that there's still a lot of work to do before management can claim that the balance sheet is in good shape. 

Now what

Meanwhile, all this information has to be considered in a broader context, especially since Transocean's shares have fallen by roughly a third over the last five trading days -- including today's big gain. Clearly, investors are worried about the future here. In fact, with that backdrop, the early stock gains appear more like a bounce back than an indication that investor sentiment has vastly improved here. At this point the only thing that seems highly certain is continued volatility.

10 stocks we like better than Transocean
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Transocean wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

 

*Stock Advisor returns as of August 1, 2020

 

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

RIG

Latest Markets Videos

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More