Restructuring of offshore drillers following pressures from COVID-19 and the price war

This issue of Bankruptcy Update focuses on the latest wave of restructuring by offshore drillers, including Seadrill Limited, Valaris and Diamond Offshore Drilling, as they face the double pressure of the COVID-19 pandemic and war oil prices.

Seadrill Limited

On February 10, 2021, Seadrill Limited and certain affiliated debtors filed Chapter 11 Bankruptcy Code claims for relief in the US Bankruptcy Court for the Southern District of Texas. Seadrill Limited (Bankr. SD Tex. 21-30427).

The offshore drilling company previously emerged from Chapter 11 on July 2, 2018 under a plan that restructured its secured bank indebtedness by approximately $ 5.7 billion and capitalized approximately $ 2.4 billion in unsecured bonds. , over $ 1 billion in conditional construction bonds, an unsettled collateral bond, and over $ 250 million in unsecured interest rate and currency swap claims, while leaving claims from employees, customers and mainstream businesses largely intact.

Seadrill Limited noted that debtors emerged from their above Chapter 11 cases during a sustained downturn in the oil and gas market. Ultimately, these conditions coupled with the double shock of the COVID-19 pandemic and the OPEC-Russia oil price war led the company to seek bankruptcy protection again.

The debtors entered their second bankruptcy without a full restructuring agreement in place and recorded approximately $ 6.1 billion in pre-petition funded debt, including $ 5.6 billion in total obligations outstanding under the 12 facilities. of the company’s guaranteed credit and $ 536 million in total at 12% senior secured bonds in 2025.

Debtors did not seek approval for a DIP facility early in their business and intend to rely on cash collateral from their pre-petition secured lenders to fund their Chapter 11 operations. after reaching an agreement on the consensual use of cash collateral for a period of 60 days. subject to possible extensions.

Meanwhile, debtors plan to focus initially on a possible stand-alone reorganization transaction with a full restructuring proposal due to certain lender groups by March 31, 2021 and a draft plan and statement. to be provided to be submitted on May 14, 2021.

Valaris plc

On August 19, 2020, Valaris plc and the affiliated debtors filed Chapter 11 Bankruptcy Code claims for relief with the U.S. Bankruptcy Court for the Southern District of Texas. Valaris plc (Bankr. SD Tex. Case n ° 20-34114).

The London-based offshore drilling contractor went bankrupt with $ 7.1 billion in debt, highlighting the energy sector downturn and the coronavirus pandemic as the main precursors to the filing. Specifically, debtors have lost 10 contracts since the start of the pandemic and have agreed to modify others, resulting in significant revenue losses.

Valaris filed for bankruptcy with a restructuring support agreement in place with holders of over 70% of their bond debt and agreements on a $ 500 million DIP loan as well as a $ 520 million exit facility .

On September 25, 2020, the debtors obtained final approval of the DIP facility despite objection from Citibank, agent for the lenders of the revolving credit facility prior to the debtors’ request, who argued that an alternative proposal would have cost to Valaris $ 4 million less than bond DIP. establishment. Despite the approval, the final DIP hearing set the stage for a possible confirmation battle with Citibank if an agreement on the restructuring could not be reached during the case.

Ultimately, Valaris’ fourth amended Chapter 11 reorganization plan was confirmed on March 3, 2021 following a comprehensive restructuring agreement with pre-petition revolving credit facility lenders led by Citibank and the group. holders of ad hoc unsecured bonds.

The plan, if implemented, will deleverage the company’s balance sheet through full ownership of the full $ 7.1 billion in debt obligations funded before debtors demand, pay debt holders administrative, priority, commercial and general unsecured in full in cash, will provide consideration to existing shareholders in the form of warrants valued at approximately $ 11 million and raise $ 500 million in new money in the form of financing from First rank exit tickets.

Diamond drilling at sea

On April 26, 2020, Diamond Offshore Drilling and the affiliated debtors filed Chapter 11 Bankruptcy Code claims for relief in the US Bankruptcy Court for the Southern District of Texas. Diamond drilling at sea (Bankr. SD Tex. Case n ° 20-32307).

The debtors noted that they have chosen to enter their Chapter 11 proceedings to stabilize operations while proactively restructuring their balance sheets with the aim of successfully competing in the changing global energy market. At the date of the petition, the debtors had debt obligations funded prior to the petition totaling approximately $ 2.4 billion, of which approximately $ 442 million was in loans secured under revolving credit facilities and the remainder in four series of senior unsecured notes.

Unlike most companies seeking Chapter 11 relief, Diamond Offshore had nearly $ 435 million in unencumbered cash at the time of its bankruptcy filing which it would use to fund its business operations and administrative expenses in bankruptcy case and did not apply for DIP funding or permission to use cash collateral. .

The business was initiated without a Restructuring Support Agreement in place and the Debtors have indicated they will explore various restructuring options including a note equity transaction, other stand-alone reorganization options. , a sale of assets or a combination of these as they engage with their key stakeholders.

This process resulted in a plan support agreement with the holders of over 70% of the company’s senior unsecured bonds and over 70% of their revolving credit facility loans and deposit. a plan and statement setting out the terms of such an agreement on January 22, 2021.

The proposed plan will seek to eliminate more than $ 2.1 billion in shareholder-funded debt from senior unsecured noteholders’ claims in 70% of the new diluted reorganized debtor’s equity. It is proposed that holders of receivables on revolving credit facilities receive 100% recovery of the plan in the form of cash and exit loans, while general unsecured receivables of non-holders are not impaired. A plan confirmation hearing is currently scheduled for April 8, 2021.

Edward E. Snowing is co-manager of ASK LLP, a national law firm specializing in bankruptcy law. Marianna Udem, partner at ASK LLP, participated in the writing of this column. Mr. Neiger can be reached at [email protected].

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