Weatherford International plc – Oilfield Services Giant to File Prepackaged Chapter 11 on Monday in Advance of Looming Bond Defaults; Noteholder Support Reaches 79% as Debtors Look to Shed $5.85bn

June 28, 2019 − Weatherford International plc (NYSE: WFT) and two affiliated debtors (together, "Weatherford" or the "Debtors") disclosed in a June 28, 2019 SEC filing that they intend to file Chapter 11 Petitions with the Southern District of Texas on Monday, July 1^st. The SEC filing follows the Debtors' May 10, 2019 announcement of the Debtors' intention to file for Chapter 11 as required by a May 10, 2019 restructuring support agreement (the "Restructuring Support Agreement") agreed with certain prepetition noteholders (defined by the Debtors' counsel, inter alia, as the "Consenting Creditors," the "Consenting Noteholders" and the "Ad Hoc Noteholder Group"). The initial announcement was further updated on May 17th to reflect an increase in noteholder support from 62% to 74%; as at June 28th, noteholder support stood at 79%.

The Debtors, one of the largest multinational oilfield service companies, are represented by Timothy A. Davidson II of Hunton Andrews Kurth. Further engagements include: (i) Latham & Watkins, LLP as legal counsel, (ii) Lazard Frères & Co. LLC as financial advisor, (iii) Alvarez & Marsal as restructuring advisor and (iv) Prime Clerk LLP as claims agent. In addition, Evercore and Akin Gump Strauss Hauer & Feld are to act as financial advisor and legal counsel, respectively, for the Ad Hoc Noteholder Group.

The SEC filing attaches, inter alia, the Debtors' Prepackaged Plan, a related Disclosure Statement and the Restructuring Support Agreement.

The Plan in a Nutshell

The Debtors are exchanging $7.4bn of prepetition senior notes (see description of class 7 below for a list of these pari passu notes) for 99% of the emerged Debtors' new common stock and $1.25bn in newly issued "Tranche B" notes. Existing equity holders are to get the remaining 1% of the new common stock and holders of the Debtors' senior prepetition bank debt (ie $305.0mn credit facility, $297.5mn term loan and $316.8mn revolver) are to be repaid fully in cash. General unsecured claims will be treated in the ordinary course of business upon the Debtors' emergence from bankruptcy which is expected by mid-September.

Restructuring Support Agreement

On May 10, 2019, the Debtors and the Consenting Noteholders entered into the Restructuring Support Agreement whereby the Consenting Noteholders have committed to support the Plan and to provide debtor-in-possession ("DIP") and exit financing. The Restructuring Support Agreement contemplates a comprehensive deleveraging of the Company’s balance sheet and an approximately $5.85bn reduction of its prepetition funded debt (all of that coming from the extinguishment of the senior notes).  The key provisions of the Restructuring Support Agreement are as follows:

• The Debtors Prepetition Notes will be cancelled and exchanged for (a) 99% of the New Common Stock, subject to dilution on account of equity issued pursuant to the New Management Incentive Plan, the Tranche B Equity Conversion, and the New Common Stock issuable pursuant to the New Warrants, and (b) an aggregate amount of up to $1.25 billion of New Tranche B Senior Unsecured Notes to be issued by Weatherford Delaware and Weatherford Bermuda, as applicable;
• Holders of the Prepetition Notes will have the option to convert up to $500 million of the New Tranche B Unsecured Notes to New Common Stock at the mid-point of plan equity value;
• Holders of Prepetition Notes also will receive subscription rights in a Rights Offering (as defined below) for the New Tranche A Senior Unsecured Notes to be issued by Weatherford Delaware and Weatherford Bermuda and backstopped by certain Prepetition Noteholders;
• The Prepetition Revolving Credit Claims, the Prepetition A&R Claims, and the Prepetition Term Loan Claims will be repaid in full in cash;
• All trade claims will be paid in full in the ordinary course of business;
• The Existing Common Stock will be cancelled and exchanged for (a) 1% of the New Common Stock, and (b) three-year warrants to purchase 10% of the New Common Stock (the “New Warrants”) pursuant to the terms of the Warrant Term Sheet attached to the Disclosure Statement as Exhibit K;
• There will be a DIP Facility which will consist of a $1.0 billion term loan facility (the “DIP Term Loan Facility”) and a $750 million revolving credit facility (the “DIP Revolving Credit Facility” and together with the DIP Term Loan Facility, the “DIP Facility”);
• The DIP Facility will be repaid or refinanced in full upon the Effective Date of the Plan through the Company’s (a) Exit Facility and (b) issuance of up to $1.25 billion of New Tranche A Senior Unsecured Notes, which notes issuance will be fully backstopped by the Consenting Noteholders.
• The Restructuring Support Agreement includes certain milestones for the progress of the Chapter 11 Cases, which include the dates by which the Debtors are required to, among other things, obtain certain court orders and complete the Restructuring:
  • Commencement of Chapter 11 Cases: No later than July 15, 2019
  • Commencement of Bermuda Proceedings: One calendar day after the Petition Date
  • Filing of Chapter 11 Plan, Disclosure Statement, and Solicitation Procedures Motion: One calendar day after the Petition Date
  • Entry of interim order approving DIP Motion (as defined below): No later than July 18, 2019
  • Entry of final order approving DIP Motion: Within 30 days after entry of Interim DIP Order
  • Commencement of Irish Examinership Proceeding: October 1, 2019
  • Entry of order confirming the Chapter 11 Plan: No later than September 15, 2019

Plan Overview

The Debtors' Disclosure Statement provides the following Plan overview: 

“The Plan contemplates certain transactions, including, without limitation, the following transactions (described in greater detail in Section IV herein):

•  each Holder of an Allowed Prepetition Revolving Credit Claim will receive payment in Cash equal to such Allowed Claim from the DIP Facility;
• each Holder of an Allowed Prepetition Term Loan Claim will receive payment in Cash equal to such Allowed Claim from the DIP Facility;
• each Holder of an Allowed Prepetition A&R Claim will receive payment in Cash equal to such Allowed Claim from the Exit Facility;
• each Holder of an Allowed Prepetition Notes Claim will receive its Pro Rata share of (i) 99% of the New Common Stock, subject to dilution on account of equity issued pursuant to the New Management Incentive Plan, the New Tranche B Equity Conversion, and the New Common Stock issuable pursuant to the New Warrants and (ii) the New Tranche B Senior Unsecured Notes; provided, however, that each Holder of Allowed Prepetition Notes Claims will have the option, in its sole discretion, of converting its New Tranche B Senior Unsecured Notes pursuant to the Tranche B Equity Conversion at the mid-point of the equity value range set forth in this Disclosure Statement; provided, further that the aggregate principal amount of New Tranche B Senior Unsecured Notes converted into New Common Stock will not exceed $500,000,000.  To the extent that less than $500,000,000 in principal amount of the New Tranche B Senior Unsecured Notes is converted in New Common Stock pursuant to the Tranche B Equity Conversion, any Holder of Allowed Prepetition Notes Claims that elected to convert its full Pro Rata share of New Tranche B Senior Unsecured Notes into New Common Stock in the Tranche B Equity Conversion shall also be eligible to exercise their Overallotment Rights.  Procedures for the effectuation of theTranche B Equity Conversion and the Overallotment Rights are set forth in Article V.V of the Plan.  Each Holder of Prepetition Notes issued by Weatherford International, LLC will receive New Tranche B Senior Unsecured Notes issued by Reorganized Weatherford Delaware and each Holder of Prepetition Notes issued by Weatherford International Ltd. will receive New Tranche B Senior Unsecured Notes issued by Reorganized Weatherford Bermuda;
• each Holder of an Allowed Prepetition Notes Claim will receive Subscription Rights to purchase its Pro Rata share of New Tranche A Senior Unsecured Notes pursuant to the Rights Offering (as defined below) and in accordance with the applicable Rights Offerings Procedures;
• Existing Common Stock will be cancelled and each Holder of Existing Common Stock will receive its Pro Rata share of (i) 1.0% of the New Common Stock, subject to dilution on account of the equity issued pursuant to the New Management Incentive Plan, the Tranche B Equity Conversion and the New Common Stock issuable pursuant to the New Warrants and (ii) the New Warrants;
• the Allowed DIP Facility Claims will be paid in full in Cash upon emergence;
• the Intercompany Claims will be adjusted, reinstated, compromised, or cancelled to the extent determined appropriate by the Debtors, with the consent of the Required Consenting Noteholders (and to the extent permitted by the laws of the Debtor’s jurisdiction of incorporation if non-bankruptcy law applies);
• the Intercompany Equity Interests will be reinstated for administrative convenience or cancelled as determined by the Debtors, with the reasonable consent of the Required Consenting Noteholders;
• the Unexercised Equity Interests will be cancelled, and the Holders of such Unexercised Equity Interests will not receive any distribution or retain any property on account of such Unexercised Equity Interests; and
• the legal, equitable, and contractual rights of the Holders of Allowed Other Priority Claims, Allowed Other Secured Claims, Allowed General Unsecured Claims, and Allowed Secured Tax Claims will be unaltered by the Plan.

Debtors' Prepetition and Re-organized Capital Structure

Summary of Classes, Claims, Voting Rights and Projected Recoveries (defined terms as defined in the Plan and/or Disclosure Statement)

• Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 4 (“Prepetition Revolving Credit Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate principal amount of allowed claims is $316.7mn, plus accrued and unpaid interest thereon. Recovery is 100% in cash.
• Class 5 (“Prepetition Term Loan Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate principal amount of allowed claims is $297.5mn, plus accrued and unpaid interest thereon. Recovery is 100% in cash.
• Class 6 (“Prepetition A&R Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate principal amount of allowed claims is $305.0mn, plus accrued and unpaid interest thereon, plus outstanding letters of credit in an amount of $166.0mn. Recovery is 100% in cash.
• Class 7 (“Prepetition Notes Claims”) is impaired and entitled to vote on the Plan. The aggregate principal amount of allowed claims is $7.4bn,plus accrued and unpaid interest thereon. This class is comprised of the following series of notes:
  • $365,107,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 5.125% Notes;
  • $750,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 7.750% Notes;
  • $1,265,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 5.875% Notes;
  • $646,286,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 4.500% Notes;
  • $750,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 8.250% Notes; 
  • $790,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 9.875% 2024 Notes;
  • $453,045,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 6.500% Notes;
  • $461,300,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 7.000% Notes;
  • $250,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 9.875% 2039 Notes;
  • $462,601,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 6.750% Notes;
  • $374,961,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 5.950% Notes;
  • $600,000,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 9.875% 2025 Notes; and
  • $258,767,000 in aggregate principal amount, plus accrued and unpaid interest on account of the 6.8000% Notes.

Each Holder of an Allowed Prepetition Notes Claim will receive its pro rata share of (i) 99% of the emerged Debtors’ new equity (the “New Common Stock”), subject to dilution on account of equity issued pursuant to the New Management Incentive Plan (the “MIP”), the Tranche B Equity Conversion (see above), and the New Common Stock issuable pursuant to the New Warrants and (ii) the New Tranche B Senior Unsecured Notes; provided, however, that each of such Holders will have the option, in its sole discretion, to convert its pro rata share of $500.0mn in principal amount of the New Tranche B Senior Unsecured Notes into New Common Stock (the “Tranche B Equity Conversion”) at a conversion price of $36.20 per share of New Common Stock; provided, further that the aggregate principal amount of New Tranche B Senior Unsecured Notes converted into New Common Stock will not exceed $500.0mn (this subject to overallotment rights should the full $500.0mn not otherwise be subscribed to).  

• Class 8 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. 
• Class 9 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 10 (“Existing Common Stock”) is impaired and entitled to vote on the Plan. Each Holder of Existing Common Stock will receive its pro rata share of (i) 1.0% of the New Common Stock, subject to dilution on account of the equity issued pursuant to the MIP, the Tranche B Equity Conversion and the New Common Stock issuable pursuant to the New Warrants and (ii) the New Warrants.
• Class 11 (“Intercompany Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 12 (“Unexercised Equity Interests”) is impaired, deemed to reject and not entitled to vote on the Plan.

Events Leading to the Chapter 11 Filings

The Debtors' Disclosure Statement for the most part provides what is a now familiar and unremarkable tale of woe for those service businesses whose health is dependent on that of the oil and gas sector generally; and the Debtors spend some time looking for cover in a crowded field of failure: "Oil and natural gas prices are dependent on factors beyond the Company’s control…dozens of oilfield services companies, whose business is dependent on spending by oil and gas companies, have filed for bankruptcy in the last several years…,"etc, etc. If the causes may be unremarkable at this point, the end result is most certainly not; with the scale of the Debtors' shortcomings really insisting upon being noticed: $5.85bn in debt to be extinguished by a company that had more than $900.0mn in negative cash flow over the last three fiscal years. 

The Disclosure Statement provides provides the following summary: "The sustained drop in oil and gas prices has impacted companies throughout the oil and gas industry including Weatherford and the majority of its customers.  As spending on exploration, development, and production of oil and natural gas has decreased so has demand for Weatherford’s services and products. The decline in spending by oil and gas companies has had a significant effect on the Debtors’ financial health. To illustrate, on a consolidated basis, the Company’s cash flows from operating activities have been negative $304 million, negative $388 million, and negative $242 million in fiscal years 2016, 2017, and 2018, respectively.

In addition to the issues facing the oil and gas industry generally, Weatherford operates in a highly competitive market. The oilfield services and equipment industry is saturated with competition from various companies that operate in the same sector and the same regions of the world as Weatherford.  The primary competitive factors include safety, performance, price, quality, and breadth of products and services.  Weatherford also faces competition from regional suppliers in some of the sectors in which it operates as these suppliers offer limited equipment and services that are specifically tailored to the relevant local market.  Some of the Company’s competitors have better financial and technical resources, which allows them to pursue more vigorous marketing and expansion activities.  This heavily competitive market has impacted the Company’s ability to maintain its market share and defend or maintain the pricing for its products and services.  Heavy competition has also impacted the Company’s ability to negotiate contract terms with its customers and suppliers, which has resulted in the Company accepting suboptimal terms.

The Company’s operations are also subject to extensive federal, international, state and local laws and regulations relating to environmental production, waste management and cleanup of hazardous materials, and other matters.  Compliance with the various requirements imposed by these laws and regulations has also resulted in increased capital expenditures as companies in these sectors have had to make significant investments to ensure compliance.

The decline in the price of oil and gas and the resulting adverse market conditions have severely impacted Weatherford affecting, among other things, the Company’s cash flow, borrowing capacity, and ability to service its outstanding indebtedness.  As with many of their peers, this drastic and prolonged drop in oil and gas prices has strained the Company’s liquidity for an extended period of time."

The June 28, 2019 8-K provides the following detail as to the impending default that triggered the immediate need to file for bankruptcy protection: "The Company’s 7.75% Senior Notes due 2021, 8.25% Senior Notes due 2023 and 6.80% Senior Notes due 2037 (together, the 'Defaulting Notes') provide for an aggregate $68.8 million interest payment that became due on June 15, 2019. The applicable indenture governing the Defaulting Notes provides a 30-day grace period that extends the latest date for making this interest payment to July 16, 2019, before an event of default will occur under the applicable indenture….If the Company does not make its interest payment by July 16, 2019 or has not filed the Cases, an event of default would occur under the applicable indenture governing the Defaulting Notes…An event of default under the Defaulting Notes may result in defaults and acceleration of maturities under the Company’s other debt instruments."

Documents attached to the Disclosure Statement

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections
• Exhibit E: Valuation Analysis
• Exhibit F: Organizational Structure Chart 
• Exhibit G: Prepetition Indebtedness Borrowers, Guarantors, and Obligors 
• Exhibit H: Backstop Commitment Agreement
• Exhibit I: Reorganization Steps Overview
• Exhibit J: Description of Reorganization Steps
• Exhibit K: Warrant Term Sheet

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