National Bank : Target REMAINS C$ 1
NBF published a report about the amended credit agreement. Target REMAINS at C$1.
Stock Rating: Outperform (Unchanged)
Target: Cdn$1.00 (Unchanged)
Risk Rating: Above Average (Unchanged)
Tuscany International Drilling
Credit Agreement Amended
Increased Financial Breathing Room on the
Road to an Activity Rebound
Financial flexibility improves
The company’s $210 mln term loan, originally scheduled to
mature in September 2016, has had its maturity extended by
12 months. The first principal repayments now commence in
June 2013 as opposed to September 2012. Similarly, the
revolver has had its maturity extended 12 months to
September 2015, in addition to a limit increase to $45 mln
from $20 mln. Financial covenants were also relaxed,
although not disclosed. We estimate the renegotiation fee
paid to lenders was $4 mln to $5 mln, or approximately 2%.
The interest rate (LIBOR plus 6.5%) was unchanged.
Margin expansion could result from rental internalization
Approximately $10 mln to $15 mln of the additional revolver
capacity is likely to be used to purchase rental equipment; we
believe this could result in EBITDA margin expansion of 4% to
5% after the equipment is added in Q4 2012 through Q1 2013,
supporting our 300 bps margin expansion assumption in ‘13.
Activity levels improving in core operating regions
Discussions with management suggest that activity levels are
quickly rebounding in late Q3 as producers get back to work.
While Q3 is likely to be soft, a noticeable activity uptick looks
likely for Q4. We model trough quarterly EBITDA of $15.5 mln
in Q3 of 2012, rising to $18.7 mln in Q4.
Maintain $1.00 target and Outperform rating
We view this announcement positively as it provides TID with
the financial flexibility to pursue sensible high margin
expansion into rentals as LatAm activity levels rebound. Our
unchanged target represents ~1x tangible book value.