Paragon Offshore files for Chapter 11 protection

April 2016 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Paragon Offshore plc has announced that it (and certain of its subsidiaries) has elected to commence proceedings under Chapter 11 of the United States Bankruptcy Code in the United States Bankruptcy Court in the District of Delaware.

Prior to this, Paragon entered into a Plan Support Agreement (PSA) to support a restructuring of the company’s balance sheet. Under the terms of the PSA, the action to be taken is to significantly reduce Paragon’s outstanding debt, provide certain covenant relief and help to position the company to emerge from the current industry downturn in a more competitive stance.

Upon completion, the restructuring is expected to eliminate more than $1.1bn of debt and approximately $60m of annual cash interest expense for Paragon, the principal executive offices of which are located in Houston, Texas.

Paragon’s unsecured senior noteholders will exchange $984m in senior unsecured notes for $345m in cash up-front plus 35 percent of equity, while Paragon’s revolver banks will receive $165m in exchange for providing covenant relief. Paragon intends to facilitate the restructuring through a voluntary filing of a petition of relief under Chapter 11 of the United States Bankruptcy Code. Its existing equity holders will retain 65 percent of the company’s resulting common equity, and the company intends to emerge from Chapter 11 with a significantly stronger balance sheet and maintain its position as a drilling contractor delivering safe, reliable and efficient operations to customers.

The PSA has been signed by an ad hoc committee representing approximately 77 percent in the aggregate of holders of its senior unsecured notes and a group comprising approximately 96 percent of the amounts outstanding under Paragon’s senior secured revolving credit agreement.

An additional member of the revolving credit agreement group signed the PSA subsequent to the announcement of the Chapter 11 filing. Approval of the transaction by the revolver lenders and the bondholders will require that two-thirds in principal amount and one-half in number of those voting in each class approve the transaction.

Paragon has also announced that it has filed certain ‘first-day’ motions with the court to facilitate operating in the normal course throughout the Chapter 11 process. These motions will ensure that the company’s vendors, as well as employees, will continue to be paid. Paragon expects to maintain sufficient liquidity throughout the restructuring process to maintain its business operations.

“Paragon has acted proactively to strengthen the company’s balance sheet in this challenging environment,” said Randall D. Stilley, president and chief executive of Paragon. “We look forward to moving as quickly as possible through this process while maintaining our focus on delivering safe, reliable, and efficient operations as the industry’s high-quality, low-cost drilling contractor. We are confident that Paragon will emerge as an even stronger company, better positioned for long-term growth and success.”

Serving as legal counsel to Paragon during the Chapter 11 filing and the PSA is Weil, Gotshal & Manges LLP. Lazard is serving as financial adviser.

A global provider of offshore drilling rigs, Paragon’s operated fleet includes 34 jackups, including two high specification heavy duty/harsh environment jackups, and six floaters (four drillships and two semisubmersibles). Paragon’s primary business is contracting its rigs, related equipment and work crews to conduct oil and gas drilling and workover operations for its exploration and production customers on a dayrate basis around the world.

Keen to reassure interested parties that the restructuring through Chapter 11 is a financial restructuring, and not an operational one, a Paragon statement said: “We are confident that this agreement is in the best interests of all stakeholders and will allow us to significantly reduce our debt, positioning Paragon for long-term growth and success.”

Fraser Tennant