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Oil downturn leads Diamond Offshore Drilling to file for bankruptcy protection

The oil industry downturn claimed another victim on April 26 as Diamond Offshore Drilling Inc. filed for Chapter 11 bankruptcy protection in Houston.

Though not entirely unexpected after the offshore driller skipped an interest payment, Diamond Offshore joins shale driller Whiting Petroleum Corp. as two of the biggest energy companies to file for bankruptcy after oil prices collapsed because of falling demand caused by the coronavirus pandemic.

"Diamond Offshore Group Companies operate in a highly competitive and cyclical industry that has experienced a sustained period of declining dayrates and demand for contract drilling services," the company said in its filing. "Such general industry downturn has worsened precipitously in recent months due to two unprecedented global developments ... an oil 'price war' between OPEC and Russia and the COVID-19 pandemic."

The company listed $5.83 billion in assets and $2.60 billion in total debts in its filing, though none of its loans were coming due in the immediate future. The debt included $250 million in senior notes due 2023, $500 million in senior notes due 2025, $500 million in senior notes due 2039 and $750 million of senior notes due in 2043.

The company also borrowed about $400 million under its credit facility in March. Diamond Offshore said it had about $434.9 million of cash on hand that it hoped to use to fund its operations during the Chapter 11 process (Case number 20-32307 in the U.S. Bankruptcy Court for the Southern District of Texas).

S&P Global Ratings on April 24 downgraded Diamond Offshore to 'D' citing a missed interest payment and an outlook for contract drilling services that continued to deteriorate. Ratings warned that Diamond Offshore was unlikely to make the interest payment on its 2039 senior notes within its 30-day grace period.

"We now believe North American and international markets are likely to contract up to 50% and 20%, respectively, with a 2021 recovery uncertain given the continued oversupply of crude oil," Ratings said. Diamond Offshore is a subsidiary of Loews Corp.