Houston-based Diamond Offshore Drilling Inc. (DO) on Monday sold $500 million of senior notes. These are 5.70% unsecured notes due on Oct. 15, 2039. The notes were offered at 99.344% of the principal amount. The company plans to utilize the net proceeds from the sale for general corporate purposes. The transaction is expected to close on Oct. 8, 2009.

Diamond Offshore is a major contract driller, providing comprehensive offshore drilling services to the global energy industry. The company is leveraged to global deepwater markets through its fleet of high-specification and mid-water depth equipment.

Last week, the company purchased a dynamically positioned semi-submersible offshore drilling unit (PetroRig II) for approximately $490 million. The rig was renamed Ocean Valor. The transaction is followed by the company’s acquisition of PetroRig I (renamed Ocean Courage) in June.

Diamond’s deepwater orientation and solid contract backlog offer a very high level of earnings and cash flow visibility. However, a further slowing in the pace of new contracting activity, declines in dayrates for new contracts, declines in utilization and the stacking of idle equipment remain our concerns. We expect Diamond shares to perform in line with the broader market and hence reiterate our Neutral recommendation.
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