Pacific Drilling emerges from Chapter 11

March 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

March 2021 Issue

After filing for Chapter 11 bankruptcy for a second time in three years, offshore ultra-deepwater drilling company Pacific Drilling has emerged from the process once again, signalling the successful implementation of a restructuring support agreement (RSA).

In accordance with the RSA, after emergence, Pacific Drilling will operate with a substantially de-levered capital structure, due to the elimination of more than $1bn of funded debt obligations.

Moreover, the reorganised company has approximately $100m in cash on hand, and access to an undrawn $80m senior secured delayed draw term loan exit facility, to support its ongoing operations.

The Luxembourg-based company will also have a new parent company – Pacific Drilling Company LLC – a Cayman Islands limited liability company, the equity of which is owned by former creditors of Pacific Drilling and its debtor affiliates. Additionally, all of Pacific Drilling’s outstanding common shares have been deemed to have no value and will therefore receive no recovery.

While Pacific Drilling’s 2018 bankruptcy filing was attributed to the energy industry’s preference for lower-cost shale rather than deepwater projects, the company’s 2020 iteration was a direct result of the devastating impact of the coronavirus (COVID-19) pandemic on world economies and markets, which included a substantial decline in the price of oil.

Indeed, in December 2020, the company stated that the impact of market conditions on its business had been “direct and significantly negative”, which rendered its capital structure unsustainable over the long term.

Unfortunately, Pacific Drilling is one of a number of offshore drilling firms to have filed for Chapter 11 due to the severe impact of the pandemic on the industry, a growing list that includes Seadrill Partners, Valaris plc, Noble Corporation and Diamond Offshore Drilling, among others.

However, upon filing, Pacific Drilling said that it would be emerging from Chapter 11 bankruptcy by year-end following the confirmation of its prearranged RSA – a plan that was approved by the US Bankruptcy Court for the Southern District of Texas in late December.

“We are pleased to reach the completion of the Chapter 11 process,” said Bernie G. Wolford, chief executive of Pacific Drilling. “Having now emerged with a fully de-levered balance sheet, we are well positioned to continue to deliver world class drilling services with our fleet of 6th and 7th generation drillships.”

Acting as Pacific Drilling’s financial adviser throughout the Chapter 11 process is Greenhill & Co, with Latham & Watkins LLP and Jones Walker LLP serving as legal counsel. AlixPartners acted as restructuring adviser. Additionally, Houlihan Lokey acted as financial adviser and Akin Gump Strauss Hauer & Feld LLP acted as legal adviser to an ad hoc group of noteholders.

Mr Wolford concluded: “With our best-in-class drillships and highly experienced team, Pacific Drilling is committed to exceeding our customers’ expectations by delivering the safest, most efficient and reliable deepwater drilling services in the industry. Our fleet of seven drillships represents one of the youngest and most technologically advanced fleets in the world.”

Fraser Tennant