Hercules Offshore files for Chapter 11

November 2015 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Hercules Offshore, Inc. has announced that it has filed a pre-packaged plan of reorganisation under Chapter 11 of the US Bankruptcy Code.

The plan filed for court approval will allow Hercules to continue its financial restructuring process and ensure that trade creditors, suppliers and employees are paid in full.

The filing follows the completion of the solicitation process of Hercules’ senior noteholders – a process which resulted in overwhelming approval of the pre-packaged plan presented by the shallow-water drilling and marine services company.

More than 300 senior noteholders – with aggregate holdings in excess of $1.2bn of senior notes – have voted to accept the pre-packaged plan while only two holders – with approximately $320,000 of the senior notes – decided to vote against it.

The response from senior noteholders to the solicitation process represents a 99 percent approval of the plan proposed by Hercules.

The plan, filed in the US Bankruptcy Court for the District of Delaware in Wilmington, provides a substantial deleveraging transaction pursuant to which more than $1.2bn of Hercules’ outstanding senior notes would be converted to 96.9 percent of new common equity, and $450m in new debt financing would be provided by those holders of the senior notes who wish to participate on a pro rata basis.

Hercules’ filing also provides for its current shareholders, who, despite being substantially ‘out of the money’ by approximately $500m, will be given the opportunity to receive a pro rata portion of the remaining 3.1 percent of the new common equity (as well as certain warrants), subject to the requirements of the pre-packaged plan as well as court approval.

Hercules anticipates that it will receive court authority to pay employee wages and benefits without interruption and continue to pay trade creditors and suppliers as it would normally do in its ordinary course of business.

Founded in 2004 and headquartered in Houston, Hercules Offshore operates a fleet of 27 jackup rigs, including one rig under construction, and 21 liftboats. The company offers a range of services to oil and gas producers to meet their needs during drilling, well service, platform inspection, maintenance and decommissioning operations in several key shallow water provinces around the world.

“Today’s filing is the next step in our financial restructuring,” said John T. Rynd, president and chief executive of Hercules Offshore. “We are working toward a new capital structure which will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the downcycle in crude oil prices and expected influx of newbuild jackup rigs over the coming years.”

Mr Rynd is keen to stress that his company has sufficient resources and recurring revenue from operations to continue serving its customers. Furthermore, he says, Hercules will remain focused on maintaining the highest quality of service and safety in daily operations, meeting customer needs and keeping employees and creditors informed as the restructuring progresses.

Mr Rynd continued: “The overwhelming support by the noteholders of the plan will enable Hercules to expedite the restructuring process and emerge by mid-fall. We do not expect any interruption to our daily operations as a result of today’s filing.”

As well as lower oil prices bringing down prices for drilling contracts (several US oil producers including Sabine Oil & Gas, Quicksilver Resources and American Eagle Energy Corp., have recently filed for Chapter 11 bankruptcy protection), Hercules’ chief financial officer, Troy Carson, also cited a weakened offshore drilling market for jackup rigs as one of the main reasons for the financial troubles currently surrounding the company.

Hercules Offshore’s Chapter 11 financial restructuring is expected to conclude by the end of 2015.

Fraser Tennant