Offshore Drilling Giant Seadrill Files For Bankruptcy

Seadrill Ltd., the London-based offshore driller controlled by billionaire Norwegian shipping magnate John Fredriksen, filed bankruptcy protection in the Southern District of Texas after working out a deal with most of its senior lenders to inject $1 billion of new money into the company pursuant to a pre-arranged plan of reorganization.  The filing was largely expected and came just a couple of days before the company's $843 million 5.625% Notes of 2017 came due. 

According to Bloomberg, Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services.  Daily leases for the company’s rigs, which once commanded up to $800,000, have dropped to around $200,000 as cheap oil from U.S. shale drilling continues to flood the market.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” Chief Executive Officer Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Bondholders are currently predicting their ultimate recovery is worth about 25 cents on the dollar as of today.

Of course, Seadrill is just the latest bankruptcy filing in an industry that has been devastated by persistently weak commodity prices.

In late July, Ocean Rig UDW Inc. filed for bankruptcy protection in the U.S. Hercules Offshore Inc., GulfMark Offshore Inc., Toisa Ltd. and Vantage Drilling Co. have also spent time in bankruptcy court since oil and gas prices cratered.

 

Paragon Offshore PLC emerged from Chapter 11 in August but was forced back into bankruptcy after it was unable to transfer two rigs to its reorganized entity. Its successor, Paragon Offshore Ltd., isn’t under bankruptcy protection and was unaffected by Paragon Offshore PLC’s new filing.

Under the proposal, lenders will extend the maturity on $5.7 billion in debt, with no amortization payments due until 2020.  Meanwhile, the company will get a new $1 billion capital injection which will come in the form of $860 million in secured notes and $200 million in equity.  If bondholders ultimately sign on to the current deal, they would be converted into a 15% pro forma ownership stake in the restructured company.  Here is a brief recap of the reorg plan from Seadrill's presentation:

After the restructuring is complete, Seadrill's capital structure should look something like this:

Meanwhile, some very expensive lawyers at Kirkland and Ellis are predicting that the whole process should be complete by next summer.

And, here are the obligatory "hockey-stick" financials that accompany most bankruptcy disclosure statements..."everything should be awesome" again in just a couple of years.

Finally, here is a list of the advisors who will be leeching millions in fees from the bankruptcy estate throughout the process.

The Company has engaged Kirkland & Ellis LLP as legal counsel, Houlihan Lokey, Inc. as financial advisor, and Alvarez & Marsal as restructuring advisor. Slaughter and May has been engaged as corporate counsel, and Morgan Stanley served as co-financial advisor during the negotiation of the restructuring agreement. Advokatfirmaet Thommessen AS is serving as Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda counsel.

As always, we very much look forward to reviewing future expense reports from these folks throughout the bankruptcy process.

Comments

hedgeless_horseman The_Juggernaut Wed, 09/13/2017 - 12:27 Permalink

 Is Noble Energy next? 

So, with Assad and Putin's recent defeat of the Israeli-American backed terrorists in Syria, and the Israeli people protesting the industrialization of their beautiful but limited seashore, the Israeli Ministry of Energy and Noble Energy may need to revise their plan of exporting gas to neighboring countries...via pipeline...through Syria...before the end of 2019.    What effect any delay would have on, "Israel's economy for years to come," and Noble Energy's PL and stock price remains to be seen.   http://www.zerohedge.com/news/2017-08-23/moar-pipeline-wars-jews-fear-b…

In reply to by The_Juggernaut

BuddyEffed hedgeless_horseman Wed, 09/13/2017 - 12:58 Permalink

Will end up on FEDs balance sheet ?
Hoping there is an untapped Saudi Arabia equivalent under Antarctica. Good probability on that. How many continents have had a large source of oil underground someplace?
America had oil in Texas and Pennsylvania and California and Alaska. Africa / Mid East has Saudi, Kuwait, Libya. South America has Venezuela. Asia has Russia. Europe had the North Sea.

In reply to by hedgeless_horseman

Clock Crasher Wed, 09/13/2017 - 12:26 Permalink

Money velocity/supply is a zero sum game at the level of surfs.Destroy disposable income, destroy demand for oil, add demographics and sharing economy for good measure.

NEOSERF Wed, 09/13/2017 - 13:14 Permalink

Time to start taking a page from China's "capitalists"...no reason for a solid company to go BK just because there is no demand...have the Fed backstop them and put other country's crappy businesses into BK.

NoWayJose Wed, 09/13/2017 - 14:35 Permalink

What is interesting is that the deep water drillers are going belly up (hey it is very expensive) while we get pummeled by stories of frackers in trouble - yet the frackers seem to be doing much better. It's all about debt - it's relatively cheaper to toss a rig up in the Bakken compared to drilling off the Nigerian coast.