Songa’s Misguided Misadventure

In a presentation on Monday, Songa Offshore sought to explain its unexpected private placement of shares the previous week, at a discount of approximately 34% to the prior day’s close. The share placement alleviated a short-term liquidity shortfall as well as a breach of covenants.

The main culprit was its historic financial strategy. Over the last few years, Songa intentionally kept cash at tight levels of around $30 to $70 million, which level was increased as rigs were added. In addition, the company entered into TRS agreements during the 12-month period until January 2008.  Both worked as planned until worlds collided. In a matter of five weeks, the company’s TRSs went from $16.7 million in the money to $26.8 million out of the money a swing of $43.5 million

This is only an excerpt of Songa’s Misguided Misadventure

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