Vantage Drilling Bonds Plunge as Petrobras Cancels Deal Amid Bribe Probe

Titanium Explorer drillship. Photo: Vantage Drilling
Titanium Explorer drillship. Photo: Vantage Drilling

 

By Sridhar Natarajan

(Bloomberg) — Bonds of Vantage Drilling Co. dropped as Petroleo Brasileiro SA terminated a $1.7 billion drill deal amid a bribery investigation.

The deepwater-rig owner’s $1.1 billion of 7.5 percent secured bonds slid 5 cents to 42 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Its contract for the drillship Titanium Explorer was terminated by Petrobras for an alleged breach of obligations, according to a regulatory filing on Wednesday.

The Petrobras contract represented a majority of Vantage’s revenue backlog and its termination may impact the company’s ability to service debt, according to Bloomberg Intelligence analyst Andrew Cosgrove.

The company was yet to realize $1.2 billion on the original value of the $1.7 billion contract. The remaining backlog represented 61 percent of its $1.9 billion revenue backlog as of June 2015, according to Cosgrove.

Early termination occurred based on contract terms, due to operational failures from Vantage, Petrobras said in an e-mailed response.

Vantage “strongly disagrees” with the allegations of contractual breaches made by Petrobras subsidiaries and has filed for arbitration, the company said in its website. “Vantage believes that it is in compliance with all of its obligations under the Drilling Contract.”

Paul Bragg, Vantage’s chief executive officer, wasn’t available for comment.

Vantage said in an Aug. 4 regulatory filing it became aware that its agent involved in the contracting of the Titanium Explorer had entered into a plea agreement with Brazilian authorities in connection with obtaining bribes on behalf of Petrobras executives.

The company said in the filing that, at the time the alleged bribe was made, the Titanium Explorer was the property of a company solely owned by a former board member.

Vantage had more than $2.5 billion of long-term debt at the end of last quarter, Bloomberg data show. Its stock market capitalization has plunged to less than $25 million, from $355 million last year.

Moody’s Investors Service cut the company’s credit rating in July to Caa3, a level that indicates very high credit risk.

“The downgrade was driven by deteriorating credit metrics due to weak contract coverage beyond 2015, exacerbated by the unfavorable supply-demand dynamics of the offshore rig market,” Moody’s analyst Sreedhar Kona wrote in the report.

–With assistance from Sabrina Valle in Rio de Janeiro.

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