Seadrill files for Chapter 11 bankruptcy

November 2017 | DEALFRONT| BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

November 2017 Issue

Oil rig firm Seadrill Limited has filed for Chapter 11 bankruptcy protection in the US after agreeing a restructuring plan which will virtually wipe out its existing shareholders.

According to the restructuring deal that the company has struck with a consortium of investors, bank lenders and bondholders, the company will benefit from $1bn in fresh funding which will allow it to maintain its fleet of drilling units and pay creditors and staff. However, Seadrill’s existing shareholders will see their stakes in the company drastically diluted. “Holders of Seadrill common stock will receive approximately 2 percent of the post-restructured equity,” the company said in a statement. Seadrill filed for bankruptcy in federal court in Victoria, Texas, citing liabilities of more than $20bn. Deutsche Bank Trust Co. was listed as the company’s biggest unsecured creditor with bond debt totalling $1.74bn.

The deal has won the approval of more than 97 percent of Seadrill’s secured bank lenders, including DNB, Danske Bank and Nordea, which supported the deal. Around 40 percent of the company’s bondholders and a consortium of investors led by Fredriksen’s Hemen Holding also agreed to the deal. Seadrill expects to emerge from Chapter 11 in six to nine months.

Seadrill has received approval from the court over its first-day motions related to the authority to, among other things, continue to pay employee wages and benefits without interruption, continue to utilise its cash management system and continue to pay all suppliers and vendors in full under normal terms. “Specifically, the company requested authority to pay its key trade creditors and employee wages and benefits without change or interruption. Additionally, the company expects it will pay all suppliers and vendors in full under normal terms for goods and services provided during the chapter 11 cases,” Seadrill said in a statement.

Under the proposal, lenders have agreed to extend the maturity on $5.7bn in debt, with no amortisation payments due until 2020. Should lower-ranking creditors join the proposal, $2.3bn in unsecured bonds would be converted into a 15 percent stake in the company, according to Seadrill.

Centerbridge Partners is investing in the restructuring deal. Aristeia Capital and Man Group Plc’s GLG unit, as well as Saba Capital LP, Whitebox Advisors, ARCM and Fintech will also invest in the new secured notes and equity. “We are excited to invest alongside Hemen,” said Jed Hart of Centerbridge Partners Europe, which will be in the restructuring deal. “We view Seadrill as a high-quality, global business with a top-tier employee base that will be well positioned when the industry recovers.”

“The restructuring agreement we signed today is a comprehensive plan that raises over $1 billion of new capital, is underpinned by Hemen Holding Ltd., our largest shareholder, and is overwhelmingly supported by our banks and approximately 40 percent of our bondholders. This is a testament to our position in the sector, having a large, modern fleet, a top-quality customer base and a proven operating track record. With our improved capital structure, we will be in a strong position to capitalise when the market recovers,” said Anton Dibowitz, chief executive and president of Seadrill Management Ltd. “The continued focus and dedication of all our employees throughout this process has been exceptional. It is due to our people’s commitment to deliver safe, efficient operations day in, day out that we have succeeded in reaching this restructuring agreement.”

Seadrill owns or leases about 51 drilling rigs, representing more than 6 percent of the global fleet, according to a court filing. It employs around 4780 workers, down from about 9500 at the end of 2014. The company is also under contract to build 14 new rigs, and the counterparties in those deals did not reach deals to support the driller’s bankruptcy plan. Seadrill has endured a difficult couple of years; indeed, the company’s shares have fallen more than 99 percent from their 2013 peak. Accordingly, Seadrill has been in protracted, year-long negotiations with its creditors to adjust its debt obligations.

As part of the deal, the company has 90 days to shop for an alternative offer, chief financial officer Mark Morris said in a court filing.

Richard Summerfield