The U.S. Bankruptcy Court approved Seadrill’s emergency motion for interest rate caps.
As previously reported, “The Debtors’ capital structure is composed of twelve secured credit facilities (the ‘Bank Facilities’) and six issuances of unsecured bonds (the ‘Bonds’). All of the Bank Facilities have floating interest rates that are tied to LIBOR, and three of the Bonds are denominated in non U.S. currencies. Historically, this subjected the Debtors to both interest rate and currency risks, which the Debtors hedged against through a series of interest rate and currency swap agreements….Obtaining the proper interest rate protection is a key component of successful implementation of the Plan, given that the Debtors have nearly $6 billion of secured debt that is subject to interest rate fluctuations.”
In addition, “After evaluating which type of interest rate hedge was appropriate, the Debtors determined that the Interest Rate Caps would provide the most protection and value to the Debtors’ estates. Interest rate caps are a type of interest rate hedge, where the purchaser receives payment from the hedge provider at the end of each period that interest rates exceed the agreed upon threshold. As interest rates continue to rise, obtaining the Interest Rate Caps will protect the Debtors’ estates from potentially material swings in interest rates in the future, which could have a significant negative impact on the Debtors’ liquidity position both prior to, and following, the proposed effective date of the Debtors’ chapter 11 plan. Importantly, Interest Rate Caps, by their nature do not require any collateral and do not generally create any liabilities for the purchaser, unlike traditional swaps.”
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