Seadrill, which remains my largest personal holding, took another beating overnight in Oslo.  They announced a big new sale/leaseback deal with Ship Finance Limited, which is more of the what they have been saying they would do.  They have now essentially put financing in place for their entire newbuild program in place — future increases in leverage, which will take place through more sale/leaseback deals, will enable them to release cash to shareholders or grow the company.

But the market hates it.

As far as I can tell, the fall is likely from one of two reasons — first, that Lehman Brothers or their account holders owned a fair chunk of Seadrill (I wasn’t worried about this, as I commented a while back, but it may be factor in driving the shares down, at least in the short run, if those shares are liquidated); or second, that people are just terrified that Seadrill is a company that is designed to take on heavy leverage in a time when everyone is trying to avoid debt.

The special dividend of 30 cents is not terribly significant at this point, though it brings the current yield up well over 10% since the shares have collapsed so completely as oil has fallen.  More importantly, the sale/leaseback deal confirms that when you have extremely valuable assets that are locked up in long term backlog contracts, you can still get financing for those assets.

John Fredriksen, the founder and major owner of Seadrill, was quoted in the latest press release:

“This sale and leaseback arrangement confirms the attractiveness of the Seadrill deepwater assets and associated future cash flow from already committed long-term contracts. The positive reception of this Seadrill credit and the tight pricing in a difficult banking market proves our Company’s credibility and good standing in the banking market. The sale and leaseback arrangements improve our flexibility for increased dividend distribution without adding material financial risk. It further contributes strongly to our efforts in optimizing the equity return as we have promised our shareholders. In addition to the immediate cash which is freed up when the deals are completed, significant additional cash will be generated based on the difference between the charter rate and the lease rate plus operating cost. To be able to pay a fourth consecutive cash dividend since February 2008 with a cumulative distribution of US$1.75 per share is an important ...