GulfMark inches closer to a buy

The company announces a restructuring and gets a new loan as revenue falls.

By Jim J. Jubak Feb 2, 2010 7:10PM

Jim JubakLots has been happening at GulfMark Offshore (GLF) over the last quarter. Much of it good. 

But nothing yet indicates the decisive turn in the company's business that I've been looking for. The best I can say is that it feels closer.

First, at the end of October, the company announced a restructuring, scheduled for completion in the first quarter of 2010, that would merge the existing GulfMark Offshore with a wholly owned subsidiary, New GulfMark Offshore, in order to limit the percentage of stock owned or controlled by non-U.S. citizens to a maximum of 22%. 

This is intended to preserve the company's status as a U.S. citizen under the Jones Act, which governs maritime activity in U.S. ports. 

I'm sure this has engendered confusion and probably some selling, but the reorganization is a neutral event (other than for the confusion that led to selling) for most investors, since each common share of the existing company will be converted into one share of New GulfMark Class A stock. The new stock will be governed by the ownership provisions of the Jones Act.

Second, on Dec. 17, GulfMark Offshore announced that it had arranged a new $200 million term loan facility to replace the prior loan facility of $220.6 million. 

The interest rate on the new loan (LIBOR plus 2.5 percentage points) is a modest step up from that of the old facility (LIBOR plus 1.5 percentage points). The new facility runs through December 2012. 

The takeaway message here, though, is that GulfMark was able to roll over the loan and extend the maturity without paying an arm and a leg for the privilege. This is an important sign of health in a financial market where rolling over a loan isn't guaranteed. None of the company's debt now matures before 2012.

Third, the company announced that in the third quarter, revenue fell to $90.8 million, a 27% drop from the third quarter of 2008. 

The company's oil-services business was strong in Southeast Asia but weak in the Gulf of Mexico and the North Sea. GulfMark CEO Bruce Streeter told Wall Street analysts and investors to expect a difficult fourth quarter (GulfMark reports on Feb. 10) but noted that the company's new loan facility and the delivery of three new ships in the first half of 2010 put the company in a good position for the eventual turnaround in oil company capital spending budgets. (For my take on the economy in 2010, see this recent post.)

As of Feb. 2, I'm lowering my target price for GulfMark slightly to $37 a share from the prior $41 and stretching out the schedule to December 2010 from September.

At the time of this writing, Jim Jubak did not own shares of any stock mentioned in this post. 


Tags: oil


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