January 25, 2021 – The Debtors announced that they have reached a plan support agreement (the "PSA") with holders of over 70% of each of their senior unsecured notes and revolving credit facility loans. Further to the agreement, the senior unsecured notes would be equitized and over $2.1bn of debt eliminated. Both groups of stakeholders have also agreed to provide exit financing.
On April 26, 2020, Diamond Offshore Drilling, Inc. and 14 affiliated Debtors (NYSE: DO, “Diamond Offshore” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, noting estimated assets of $5.8b (the Debtors 2019 10-K notes that almost $5.2bn of that amount is comprised of property and equipment, although the lead Petition notes that the Debtors have $434.9mn of unrestricted cash….pending of course Court approval as to the ability to access it) and estimated liabilities of $2.6bn.
In a press release (also 8-K here, which attaches the PSA) announcing the development, the Debtors noted: "that it has entered into a plan support agreement with holders of over 70% of each of its senior unsecured notes and revolving credit facility loans regarding a financial restructuring transaction that will significantly deleverage the Company's balance sheet and position the Company for future growth.
The plan support agreement outlines a comprehensive plan for deleveraging the Company's balance sheet through the equitization of its senior unsecured notes, resulting in a reduction of over $2.1 billion of funded indebtedness. In addition, certain holders of senior unsecured notes have agreed to invest up to $110 million of new capital in the form of first lien, last out exit notes, while certain holders of revolving credit facility loans have agreed to provide exit financing facilities in the form of (a) a $300 million to $400 million first lien, first out revolving credit facility and (b) a $100 million to $200 million first lien, last out term loan facility.
Proceeds of the new exit financing facilities will fund plan distributions and provide sufficient liquidity for Diamond to operate successfully post-emergence. To that end, the Company is seeking to emerge from the Chapter 11 Cases as quickly as the Court's schedule and the requisite notice periods will permit.
The agreed plan was developed over the course of several months of detailed discussions with the Company's key stakeholders, and the plan is designed to ensure that Diamond can continue to operate its differentiated fleet of offshore drilling rigs in a safe, reliable, and efficient manner in what continues to be a challenged market. After the restructuring, Diamond will have a strong cash position with sufficient liquidity to benefit from an eventual market recovery."
Key Prepetition Shareholders
The Debtors' Chapter 11 Petition lists each of Loews Corporation, Contrarius Investment ManagementLLtd., Fidelity Management & Research Company and BlackRock Institutional Trust Company, N.A. as having greater than 5% shareholdings. The Debtors' most recent Schedule 14A provides the following further details: Loews Corporation (53.1%), Contrarius Investment ManagementLLtd.(9.6%), Fidelity Management & Research Company (5.4%) and BlackRock Institutional Trust Company, N.A. (7.4%).
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Edwards Declaration”), Marc Edwards, the Debtors President and CEO, detailed the events leading to the Debtors's Chapter 11 filing. The Edwards Declaration provides: "The Company operates in a highly competitive and cyclical industry that has experienced a sustained period of declining day rates and overall demand for contract drilling services. The general industry downturn began in 2014 but has worsened in recent months due to two unprecedented developments: an oil ‘price war’ between OPEC and Russia and the COVID-19 pandemic. Between January 1, 2020 and the Petition Date, Brent Crude prices fell by over two-thirds. On April 20, 2020, U.S. West Texas Intermediate crude oil prices traded with negative prices for the first time in history. The COVID-19 pandemic has further affected oil markets and created significant operational challenges, including international and domestic travel restrictions, social distancing requirements, business restrictions, local “stay at home” orders, and other logistical hurdles. These developments significantly impacted global economies and placed substantial strain on the Company’s operations and the global offshore drilling industry.
These developments have also impacted the Company’s customers and almost all have requested some form of concessions from the Company under their existing contracts."
On April 15th (see 8-K), the Debtors elected not to make a semiannual interest payment due in respect of their 5.70% Senior Notes due 2039 and availed itself of a 30-day grace period to make the payment. Failure to make the payment within the grace period would have resulted in a cross default in respect of
the Debtors' senior 5-Year Revolving Credit Agreement and the Debtors' 3.45% Senior Notes due 2023, 7.875% Senior Notes due 2025 and 4.875% Senior Notes due 2043.
The Debtors and COVID-19
The Edwards Declaration states: "Given the need to preserve liquidity and protect contract backlog, management and the Advisors began analyzing the potential benefits of filing voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. In addition, the Company, in consultation with Paul, Weiss, also considered whether Diamond Offshore and any of its subsidiaries are eligible for relief under the Coronavirus Aid, Relief, and Economic Security Act (the 'CARES Act') and whether that eligibility counseled in favor of delaying the filing of the Chapter 11 Cases to pursue such relief. Among other programs, the Company considered its eligibility for a loan under the Paycheck Protection Program ('PPP') of the Keeping American Workers Paid and Employed Act or under section 4003(b) of the Coronavirus Economic Stabilization Act of 2020. The Company concluded that its size renders it ineligible for a PPP loan, and it remains unclear whether the Company is eligible for a section 4003(b) loan. Moreover, even if the Company was eligible, loan proceeds likely would not be available until June 2020, and would not enable the Company to improve its balance sheet.
After careful consideration, the Company concluded that waiting for potential benefits the receipt of which are uncertain at best, while continuing to pay existing debt service and risking the Company’s contract backlog, was not in the best interests of the Company or its stakeholders."
About the Debtors
Diamond Offshore Drilling, Inc. provides contract drilling services to the energy industry around the globe with a fleet of 15 offshore drilling rigs, consisting of four drillships and 11 semisubmersible rigs, including two rigs that are currently cold stacked.
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The post Diamond Offshore Drilling, Inc. – Announces Plan Support Agreement with Noteholders and Senior Lenders; $2.1bn of Debt to be Equitized; Exit Financing Lined Up as Debtors Look to Proceed Quickly to Emergence appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.