Seadrill Partners files for Chapter 11 bankruptcy protection

February 2021 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

February 2021 Issue

Seadrill Partners LLC and several related corporate entities filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court in Houston in early December as a means of restructuring the company’s existing debt. The company listed assets of nearly $4.58bn and debt of around $3.12bn.

Amid a deteriorating market due to the COVID-19 crisis and a marked oil price decline, the company posted an operating loss of $923.6m in the first half of 2020, from total operating revenues of $314m. This represented a decrease from the previous six-month period, where it recorded operating revenues of $367.8m. The company also noted that due to COVID-19 and the state of the oil market, it recognised a non-cash impairment of $922.9m in respect of certain idle drilling units.

Prior to the filing, Seadrill Partners had been in negotiations with an ad hoc group of lenders under the company’s Term Loan B credit facility regarding a consensual reorganisation of its balance sheet.

In 2020, the company also entered into forbearance agreements with certain creditors in respect of the group’s senior secured credit facility agreements, senior secured notes and guarantee facility agreement. Notably, the forbearance had not been agreed concerning termination events that may arise under the company’s leasing agreements in respect of its West Hercules, West Linus and West Taurus rigs.

Seadrill Partners, which was set up as an asset-holding unit for Seadrill Ltd, owns four drillships, four semi-submersible rigs, and three so-called ‘tender rigs’, all of which are operated by Seadrill Ltd.

“In consultation with – and with the support of – the ad hoc group, the Company has filed voluntary petitions under chapter 11 of the Bankruptcy Code to preserve value and to continue the operation and marketing its assets,” Seadrill said in a statement. “The Company intends to use the bankruptcy process to ensure that all customer, vendor and employee obligations are met without interruption and to complete a consensual restructuring of its debt.”

The struggles of Seadrill Partners have been replicated across the wider Seadrill group of companies in recent months. Seadrill Ltd, which owns 35 percent of Seadrill Partners, suspended its own interest payments in September after failing to agree amended terms for $5.7bn of bank debt.

Furthermore, Seadrill Ltd has been working with its senior creditors to provide an interim solution to its high cash outflow for debt service since the end of 2019. In June 2020, the company moved to delist from the New York Stock Exchange and focus upon the Oslo Stock Exchange going forward.

The 2014 oil price crash had a significant impact on the Seadrill group as the demand for rigs fell, triggering a restructuring at the Seadrill group. In 2018, Seadrill emerged from bankruptcy after converting billions of dollars of bonds into equity. However, the group’s bank debt still remained.

Seadrill Partners is one of several other offshore rig operators to have filed for bankruptcy in recent months, including Pacific Drilling SA, which undertook a second Chapter 11 filing in 2020 after emerging in 2018. Diamond Offshore started voluntary Chapter 11 proceedings to restructure and strengthen its balance sheet in April 2020. Valaris, an offshore drilling contractor with the world’s largest fleet, filed for bankruptcy protection in August. Noble Corporation announced it was preparing to exit Chapter 11 in early November and a bankruptcy court approved its reorganisation plan shortly thereafter.

In March 2020, Seadrill Partners noted that Grant Creed would step down as its chief financial officer (CFO) to support Seadrill Ltd. John T. Roche, chief executive of Seadrill Partners, will assume the responsibilities of CFO in addition to his current role until a suitable replacement is found.

Richard Summerfield