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Varco Begins Offer of Debentures : Hard-Hit Oil Services Firm Intends to Pay Secured Debt

January 28, 1987|KEN CHAVEZ | Times Staff Writer

Looking to pay off $10.4 million in secured debts, Varco International Inc. on Tuesday launched a long-planned $20-million offering of 10% convertible debentures.

Most firms in the oil services industry have been in a slump since 1984 and face the prospect of yet another poor year before there is enough new drilling to begin boosting sales and profits.

But T. Wayne Whipple, an oil service analyst with Merrill Lynch in New York, said he expects that Varco's debentures will sell well because the offer is being made when there is "a pretty good environment" for oil services companies' stock on Wall Street. Many analysts believe the recent rise in oil stock prices was caused by investors who believe that crude oil prices will rise above the $20-per-barrel mark within the next year.

Stock prices now have leveled off, but Whipple believes that a market exists for Varco's debt, even though sales of the Orange-headquartered company have been declining for several years.

"A firm like Shearson Lehman would not be offering (the debentures) if they're not assured" that the risk is fairly low, he said.

The debentures, convertible into Varco common stock at $2.50 a share, pay interest semiannually--on Jan. 15 and July 15, the company said.

Underwritten by Shearson Lehman Brothers Inc., the bonds are due to mature in 2007, but they are subject to mandatory redemption in 1996 to retire $15 million of the issue, Richard A. Kerston, the company's chief financial officer said.

The offer is scheduled to close Feb. 3, Kerston said. Varco filed the offering with the Securities and Exchange Commission in October.

Aside from paying its debts, Varco said, proceeds from the offering will be used for working capital and general corporate purposes.

Varco's stock closed on the New York Stock exchange at $2.625 per share Tuesday, down 12.5 cents for the day, but 75 cents higher than its 52-week low of $1.875 a share.

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