BY Fraser Tennant
Due to significant disruption in the offshore drilling market caused by the coronavirus (COVID-19) pandemic, offshore ultra-deepwater drilling company Pacific Drilling has filed for Chapter 11 bankruptcy protection.
This is the second time the company has filed for Chapter 11 in less than three years, having previously emerged from bankruptcy in late 2018.
Alongside the filing, the Luxembourg-based Pacific Drilling and certain of its domestic and international subsidiaries have entered into a restructuring support agreement (RSA) with an ad hoc group of the largest holders of its outstanding bond debt.
The RSA is intended to eliminate the company’s approximately $1.1bn in principal amount of outstanding bond debt through the cancellation and exchange of debt for new equity. Pacific Drilling expects to emerge from Chapter 11 by the end of the year with access to new capital in the form of an $80m exit facility and with approximately $100m of cash and cash equivalents on the balance sheet.
“After spending months evaluating options for addressing our long term financial needs in light of challenging market and operational conditions, we are pleased to reach agreement that paves the way for an expeditious Chapter 11 restructuring process,” said Bernie Wolford, chief executive of Pacific Drilling.
He continued: “This restructuring is intended to enhance our financial flexibility by eliminating our entire prepetition debt and cash interest burden. We expect to emerge from this process in a stronger position to compete in today’s challenging, lower-commodity-price environment.”
Since the beginning of 2020, the global health crisis caused by COVID-19 and the resulting oil supply and demand imbalance have caused significant disruption in world economies and markets, including a substantial decline in the price of oil. The impact of these market conditions on Pacific Drilling’s business has been direct and significantly negative, rendering its current capital structure unsustainable over the long term.
However, with approximately $120m of cash and cash equivalents, and seven of the most advanced high-specification drillships in the world, Pacific Drilling intends to continue its worldwide operations as usual, deliver services for existing and prospective clients and, subject to court approval, pay all obligations incurred during the Chapter 11 case.
Mr Wolford concluded: “I appreciate the ongoing support of our employees, clients and vendors as we complete this accelerated restructuring process. We remain committed to delivering the safest, most efficient and reliable deepwater drilling services in the industry.”
News: Pacific Drilling files for Chapter 11 to eliminate $1.1 billion of debt