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Stock Strategist

Weatherford's Out of Bankruptcy and Undervalued

A recapitalization has put the company in solid financial health.


Weatherford International’s (WFTLF) new shares have begun trading following the company’s emergence from bankruptcy in December, and we’ve updated our view. Our fair value estimate is $70 per new share, of which about 70 million were issued, replacing all of the company’s old equity. Currently, the new shares are only trading over the counter, but the company expects to resume trading on the New York Stock Exchange by March at the latest.

Of Weatherford’s approximately $8.5 billion in prebankruptcy debt, about $7 billion was eliminated following completion of the bankruptcy proceedings. In exchange for this, senior noteholders received 99% of the new equity in the company, with prior shareholders receiving just 1%. We think this was a bad deal for prior shareholders, but they had virtually zero bargaining power once the company entered bankruptcy. A prolonged bankruptcy court fight would have only destroyed enterprise value and made the prior shareholders’ case harder. In any case, this recapitalization puts the new Weatherford in solid financial health. All remaining debt has a five-year maturity, and we project that net debt/EBITDA will fall below 2 times by the end of this year.

Preston Caldwell does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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