Shares in stricken drilling contractor, Boart Longyear (BLY) surged (yes surged) yesterday after the company’s credit rating was again downgraded – this time by Standard & Poor’s.
Citing ongoing poor performance (surely an understatement when it comes to the way Boart’s share price has been sliding now for the best part of five years), S&P said it was lowering Boart’s corporate credit rating to ‘CCC’ from ‘CCC+’.
"Boart Longyear’s liquidity position continues to erode due to persistently weak performance, which we believe will continue over the next year," S&P said in a statement issued yesterday.
Instead of the shares falling on that news, they rose 1.8c to 10.5 cents, up 20.6%.
BLY YTD – Boart Longyear shares tick up despite downgrade
That was up from the all time low of 8.7c hit during trading late last week when more rumours emerged about the company’s weakening financial state and suggestions of further breaches of loan covenants.
The rise in the share price was probably down to relief there was no more bad news from the company.
But S&P alluded to the probable future announcement of more cuts from management when it said in its statement yesterday that more restructuring was likely over the next year given that the company’s capital structure was "unsustainable in the current environment".
And S&P said a violation of the company’s financial performance covenants over the next year was a "likely event".
It added that it could lower the rating further if a default appeared inevitable within six months.
Boart chief executive Richard O’Brien said in a statement the S&P the downgrade did not affect any of the company’s bank covenants.
He said S&P’s rating now matches that given by Moody’s.
"We recognise that the recent downgrades by the rating agencies may present concerns for our creditors and other company stakeholders and we are committed to addressing those concerns as promptly as possible through the completion of the strategic review of recapitalisation options we previously announced and continue to actively pursue," Mr O’Brien said.
