Martin Whitman’s Third Avenue Management opened a new position in Tidewater Inc. (NYSE:TDW) during the third quarter, according to the fund’s Q3 investor letter. Tidewater is a $548-million market cap offshore vessels operator which is headquartered in New Orleans, Louisiana. Third Avenue shared its thoughts on TDW in its letter to investors. Let’s take a look the hedge fund’s comments.
During the quarter, the Fund purchased shares of Tidewater, owner of one of the world’s largest fleets of offshore service vessels (OSV), which provide a range of services primarily to offshore oil production platforms and offshore drilling rigs. We believe the current low levels of offshore oil and gas investment to be patently unsustainable and indeed the industry has recently begun to show signs of stabilization, albeit at low levels. Tidewater, like virtually all of its competitors, saw its income erode during the downturn and its debt become unsustainable causing it to be one of the first to seek a financial restructuring. However, you are likely to see several more bankruptcies in the OSV industry and in oil services more broadly in coming months.
Today, following its recent emergence from bankruptcy, Tidewater is a net cash company by virtue of nearly all of its debt having been converted into equity pursuant to the restructuring. Furthermore, fresh start accounting treatment of its assets saw Tidewater write its vessel fleet down by nearly 75% from levels that were already the result of a succession of write-downs. Our estimates suggest that the liquidation value of Tidewater’s fleet, which happens to be among the largest and youngest in the world, is well in excess of the current market valuation of the business, even at the current highly depressed secondary market values for its vessels. Furthermore, if one were to expect an eventual industry recovery, as we believe is more likely than not, or alternatively believe that the assets may be worth something akin to what it would cost to replace them, those scenarios imply valuations that are more than double the current market valuation in our view. Meanwhile, a net cash balance sheet and a breakeven cash flow profile, even in the presently depressed conditions, offers a comfortable position from which to wait for the industry to cyclically recover over time.
Tidewater Inc. (NYSE:TDW) owns and operates one of the largest fleets of offshore support vessels in the industry, supporting the offshore energy exploration and production activities worldwide. The company operates in Americas, Asia/Pacific, Middle East/North Africa and Sub-Saharan Africa/Europe.
In September, Tidewater completed its financial restructuring, eliminating approximately $1.6 billion in outstanding debt.
“With a young, modern fleet, a global operating footprint and a financial profile characterized by low leverage and ample liquidity, the company is in a strong position, despite the challenging medium-term outlook for offshore energy services. Our near-term goals include further reducing costs in order to achieve a cash flow break even. Our ultimate goals include a return to sustainable profitability and positioning the company for an eventual recovery in offshore energy services,” Larry Rigdon, the CEO of Tidewater, said in a statement.
Per ams-2010’s database, TDW shares were held by six hedge funds at the end of the second quarter of 2017.
Meanwhile, you might be interested in reading our research about the largest shipping companies in India.