Constellation attracts 3x demand for $650 million bond issuance

By Constellation

November 8, 2024

This is a machine translation of the press release originally published in Portuguese.

Constellation Oil Services Holding SA ("Constellation"), leader in the offshore drilling market in Brazil, concluded this Thursday, November 7th, the main stage of its debt refinancing with the issuance of US$650 million in bonds. The operation, considered one of the largest and most successful in the US High Yield market in 2024, achieved a return below initial estimates. With the completion of the recapitalization, expected in December, total debt will be reduced from approximately US$950 million to US$650 million. The expiration date will be extended from 2026 to 2029.

“Constellation’s return to the capital markets is being executed successfully. We plan to raise equity and bonds shortly after signing the new contracts for our rigs. Furthermore, we count on the boost of our solid operational results, which guaranteed us the best position in Petrobras' internal ranking – the 'Sondópolis' –, highlighting us as the largest fleet and the best performance in the segment in Brazil, the largest market of drilling in ultra-deep waters in the world”, highlights Rodrigo Ribeiro, Chief Executive Officer (CEO) of Constellation.

The company is executing the recapitalization and refinancing transaction to strengthen its capital structure and increase value for its shareholders and other stakeholders. The operation includes the issuance of US$650 million in US High Yield bonds, priced on October 24, 2024. Demand for the bonds significantly exceeded the expectations of leading banks – JP Morgan, Clarksons and Jefferies – after a three-day roadshow, with more than US$2 billion in demand, equivalent to three times the value of the offer. With strong interest from US High Yield and Emerging Market credit funds, the issue was priced with a yield of 9.375%, below the initial range of 9.75%, reflecting the high demand and success of the operation.

Previously, on October 16, Constellation completed pricing for   a private raising of US$75 million, representing 12.1% of its common shares. This private transaction is linked to the broader recapitalization plan, which, once completed, is expected to result in the listing of Constellation shares on Euronext Growth in Oslo within the next six months.

“With the new debt profile and well-distributed amortizations, we will have greater comfort to execute the fleet’s contractual transitions in 2025 and enable a substantial increase in cash generation until 2026. This will give us the flexibility to grow organically and position ourselves strategically for future potential opportunities in M&As”, adds Rodrigo.

The success of the two fundraisings reflects Constellation's strong recent performance, which recorded an Ebitda (earnings before interest, taxes, depreciation and amortization) of US$184 million in the last 12 months until June 2024, with potential projections of Ebitda growth by approximately 2.5 times by 2026, driven by contract renewals at current daily market rates.

This growth is supported by achievements in recent Petrobras tenders. On September 23, Constellation announced the signing of two new contracts of approximately 2.5 years for the Roncador field, worth a total of US$1 billion, to be executed by the Laguna Star probe, already in its fleet, and by Tidal Action, one of the most modern probes in the world, currently under construction in South Korea. Operated by Constellation in partnership with Hanwha Drilling, owner of the rig, Tidal Action will begin its operation in Brazil with this inaugural contract. These agreements should generate 250 new jobs and preserve another 250 existing ones.

With this transaction, Constellation projects a reduction in its gross debt from US$950 million to US$650 million, referring only to new bonds, and an available cash flow of more than US$100 million, resulting in net leverage of 3 times o EBITDA for the last 12 months. The debt maturity will also be extended to November 2029, compared to the previous maturity in December 2026, bringing greater flexibility to the execution of projects. This new capital structure, combined with the prospect of growth in financial results, should substantially strengthen Constellation's stability, allowing more flexibility for expansion and value creation for all its stakeholders.

About Constellation

Constellation Oil Services is the leading company in Brazil in the drilling and completion of offshore oil and gas wells, with a 22% market share in the segment. In total, there were more than a thousand wells drilled by Constellation in Brazil, the longest-running company in drilling activity in the country, with almost 45 years of uninterrupted activities. The company owns and operates seven ultra-deepwater units in Brazil and is known for its commitment to safety, innovation and operational excellence.