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Weatherford Might Need $1 Billion To Prevent Bankruptcy


In my opinion, Weatherford's goodwill and inventory impairments could total $2.3B or more.

Such asset impairments could cause a breach of debt covenants, acceleration of $1.7B in short-term debt, and/or bankruptcy.

At impairments of $2.3B, a $1B capital raise could potentially prevent debt acceleration. It could be highly-dilutive as well.

Weatherford cancelled a $1B capital raise in September due to poor pricing.

A capital raise or bankruptcy could be disastrous. Avoid WFT.


I recently outlined my major issues with Weatherford International (NYSE:WFT). I believe the company's goodwill and inventory could be overstated by over $2 billion. Asset write-downs of that size could cause Weatherford to breach its debt covenants. This article outlines [i] the potential write-offs and [ii] the capital Weatherford may need to raise to avoid a breach of its debt covenants and/or bankruptcy.

Scenario 1

The following scenarios project [i] potential asset impairments and [ii] the capital required for Weatherford to remain in compliance with its debt-to-capitalization of 60% pursuant to its debt covenants with JP MorganChase (NYSE:JPM).

Q3 2015 Actual Capitalization

At Q3 2015 the company's capitalization (debt and equity) was $14.9 billion. The $7.2 billion equity includes [i] actual equity of $5.8 billion plus [ii] an add-back of $1.4 billion for foreign exchange currency translation adjustments. According to management this add-back is allowed.

$1.8 Billion Goodwill Mark

At Q3 Weatherford had $2.8 billion of goodwill and $400 million in intangible assets primarily related to acquisitions. Many of those acquisitions were made when oil prices were much higher. $1.8 billion of the goodwill is attributable to the company's North American operations. Through YTD September 30, 2015 ("September YTD") North America had revenue of $2.8 billion, EBITDA of $133 million, and a pretax loss of $156 million.

These figures do not include allocations...