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Seadrill Limited – Court Confirms Global Offshore Drilling Contractor’s Plan of Reorganization; Senior Lenders Poised to Take Ownership by Year End in Exchange for $4.9bn of Debt Forgiveness

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October 26, 2021 – The Court hearing the Seadrill Limited cases issued an order confirming the Debtors’ Second Amended Chapter 11 Plan of Reorganization [Docket No. 1158].

On February 10, 2021, Seadrill Limited and 85 affiliated Debtors (OSE: SDRL,OTCQX:SDRLF; “Seadrill” or the “Debtors”) filed for Chapter 11 protection noting estimated assets of $7.291bn and estimated liabilities of $7.193bn ($6.1bn of funded debt) . 

At filing, the global offshore drilling contractors were 27.09% owned by John Fredriksen's Hemen Holding Ltd.

In a press release announcing the Plan's confirmation, the Debtors stated: "Following the Court's approval of the Plan, Seadrill is targeting an exit of Chapter 11 proceedings in approximately 60 days. This is subject to certain customary conditions, including certain antitrust approvals. The Plan raises $350 million in new financing and reduces the Company's existing liabilities by $4.9 billion, while leaving employee, customer, and trade claims unaffected. Existing shareholders will see their holding in the post emergence entity decrease to 0.25%.

Stuart Jackson, Seadrill's Chief Executive Officer, commented: "With emergence around the end of the year, we stand alongside our offshore drilling peers focused on safe and efficient delivery to our customers in an industry that continues to need to evolve.  Seadrill's strong brand will ensure we maintain a leadership position in future developments."

Plan Overview

The Debtors' memorandum of law in support of the Plan confirmation (the "Memorandum") notes: “The Debtors have achieved what at times appeared unattainable: a consensual plan of reorganization that equitizes almost $5 billion of secured debt across 12 separate collateral silos. The Plan streamlines Seadrill’s capital structure into a single silo consisting of $300 million of new-money first lien debt and approximately $683 million of second lien takeback debt. The rest of the prepetition secured debt converts to equity, which is allocated across the silos according to relative collateral values, together with the takeback debt and new-money subscription rights.

Achieving this result was never assured, given the complexity of the capital structure and the diversity of the lender group. Seadrill’s 38 lenders include commercial banks, insurance companies, investment funds, trading desks, and government agencies from Norway, the United Kingdom, the United States, China, Korea, and beyond. The lenders have varying degrees of cross holdings across the 12 silos and disparate views about the restructuring, the company, and the industry.

On September 9, the Debtors launched solicitation of votes on the Plan, which incorporates the terms of the existing Backstop Commitment. The results of the solicitation were decisive. Over 96% by principal amount of all lenders voted, and over 88% of these voting lenders accepted the Plan. In nine of the 12 silos, 100% of voting lenders accepted the plan. Approximately half of the lenders by number voting were party to neither the PSA nor the Backstop Commitment. In the two silos in which SVP is a lender, the support from voting creditors was similarly overwhelming. In the NADL silo, 100% of the secured creditors voted and all creditors other than SVP voted to accept the Plan. General unsecured creditors and shareholders also accepted the Plan. In short, the classes have spoken.

The Debtors achieved this result through over a year of nearly constant discussions in good faith with lenders and their advisors, including the CoCom, the Ad Hoc Group, and numerous individual lenders, a number of which retained their own U.S. restructuring counsel. To be clear, the parties have had a number of disagreements over the course of the cases, but have now agreed that the best path forward is the Plan. As a part of this process, the Debtors, the NADL independent directors, the lenders, and their advisors thoroughly vetted alternative proposals, including one from a consortium of three competitors (the ‘Consortium’). The last iteration of the Consortium’s proposal (the ‘Consortium Proposal’) was structured as a chapter 11 plan sale, but it lacked financing and provided significantly less value than the Plan. The Debtors provided this feedback to the Consortium, and the Consortium failed to obtain financing or further increase the value of their proposal. The Debtors and the lenders accordingly rejected the Consortium Proposal."

The Amended Disclosure Statement [Docket No. 975] notes: “After extensive negotiations, on July 23, 2021, (i) the Debtors and the Consenting Lenders executed the Plan Support Agreement, pursuant to which the Consenting Lenders holding 58.7 percent of the aggregate Credit Agreement Claims have agreed to support the Plan, and (ii) the Backstop Parties and the Company entered into the Backstop Commitment Letter, pursuant to which the Backstop Parties will backstop a $300 million new money credit facility. The Plan provides for the reorganization of the Debtors as a going concern with a deleveraged capital structure and sufficient liquidity to fund the Debtors’ post-emergence business plan.

The Plan, among other things, provides the following:

  • holders of Allowed Credit Agreement Claims will (a) receive $750 million of takeback debt, (b) be entitled to participate in a $300 million new-money raise under the New First Lien Facility, and (c) receive 83 percent of equity in Reorganized Seadrill, subject to dilution by the Management Incentive Plan and the Convertible Bond Equity (if any), on account of their Allowed Credit Agreement Claims, and 16.75 percent of equity in Reorganized Seadrill if such holders elect to participate in the Rights Offering (including, for the avoidance of doubt, the Backstop Parties), in accordance with the Backstop Commitment Letter and the New First Lien Finance Documents, subject to dilution by the Management Incentive Plan, the Convertible Bond Equity (if any);
  • where applicable, Net Scrap Proceeds from the recycled Rigs will be paid in cash to the lenders under the applicable facilities;
  • holders of the $360 million Asia Offshore Drilling credit facility will receive the option to elect (a) their pro rata share of the AOD silo’s takeback debt and equity allocation, or (b) their pro rata share of cash for the full amount of their claim in lieu of such debt and equity allocations; and
  • if Classes 4 and 6 each vote to accept the Plan, holders of Interests in Seadrill Limited will receive a Pro Rata share of 0.25 percent of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bond Equity (if any).

To capture the full benefit of the compromises embodied in the Plan and the Plan Support Agreement, and to avoid any default under the Cash Collateral Order, the Debtors must move through these chapter 11 cases at a steady pace. The Cash Collateral Order has certain key milestones, [the Debtors expect to consensually extend cash collateral order milestones to match the PSA milestones] including:

  • entry of an order confirming the Disclosure Statement and the Backstop Motion on or before September 6, 2021; and
  • entry of an order confirming the Plan on or before November 5. 

Moreover, the Plan Support Agreement contains the following milestones:

  • entry of an order of the Bankruptcy Court approving the Disclosure Statement within 45 days of the Plan Support Agreement Effective Date (i.e., by September 6, 2021);
  • entry of an order of the Bankruptcy Court confirming the Plan within 105 days of the Plan Support Agreement Effective Date (i.e., by November 5, 2021); and
  • occurrence of the Effective Date within 165 days of the Plan Support Agreement Effective Date (i.e., by January 4, 2022).”

July 24th Announcement of Plan Summary Agreement

In a July 24th press release (also 6-K here) heralding the plan support agreement (the "PSA," attached to the Disclosure Statement at Exhibit B) that has allowed the Debtors to proceed with the filing of a Plan and Disclosure Statement, the Debtors state: "…today the Company has entered into a plan support agreement (the 'PSA') with certain of the Company's senior secured lenders holding approximately 57.8% of the Company's senior secured loans (the 'Consenting Lenders') as well as a backstop commitment letter entered into with certain of the Consenting Lenders.  The agreements contemplate a plan of reorganization (the 'Plan') that will raise $350 million in new financing and reduce the Company's liabilities by over $4.9 billion.

The Plan provides a clear pathway for Seadrill to restructure its balance sheet with the support of the majority of its senior secured lenders.  Certain of the Consenting Lenders have also agreed to backstop a first lien exit facility totaling $300 million.  The lenders participating in (and backstopping) the new-money facility will collectively receive 16.75% of new equity in the newly constituted Seadrill, subject to dilution.  Under the Plan, the senior secured lenders will also exchange $5.6 billion of existing debt for $750 million of second-lien, takeback debt and 83% of the new equity, subject to dilution.  Hemen Holding Ltd., currently the Company's largest shareholder, has also committed to fund a $50 million new-money unsecured bond to be issued under the Plan, which is convertible into 5% of the new equity under specified circumstances.

Specified trade claims will be paid in full in cash and other general unsecured claims will receive their pro rata share of $250,000 in cash.  Existing shareholders will receive 0.25% of the new equity, subject to dilution, if all voting classes of creditors accept the Plan, and otherwise will not receive any recovery."

The Debtors' CEO Stuart Jackson commented: "We are pleased to announce that we have reached a consensual deal with a large element of Seadrill's secured lenders that will pave the way for a significant balance sheet deleveraging.  It has taken time to reach the right outcome but throughout the process we have maintained strong support from our creditors and we look forward to maintaining that as they become our shareholders as well as our lenders."

The following is an amended and updated summary of classes, claims, voting rights and expected recoveries (defined terms are in the Plan and/or Disclosure Statement; also see (i) the Liquidation/Recovery Analysis and (ii) secured/unsecured breakdown of Credit Agreement Claims below):

  • Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
  • Class 3 (“Guarantee Facility Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $24,783,743 and expected recovery is 100%.
  • Class 4-a (“AOD Credit Agreement Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $114,783,659.95FN10 and expected recovery is 110.7%FN11. Each Holder can elect to receive, as applicable, either (i) payment in Cash in an amount equal to the Allowed Claim held by such holder (the “AOD Cash-Out”) or (ii) its Pro Rata share of: A. the Subscription Rights for $29.4mn of the New First Lien Facility; B. $73.4mn in principal amount of the New Second Lien Facility; C. 4.1% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and D. Cash equal to the Net Scrap Proceeds attributable to the Prepetition AOD Credit Agreement, if any (A-D, the “AOD Non-Cash Recovery”). Class 4 projected recoveries are based on the midpoint of the valuation range, assume that the Convertible
    Bonds are converted into equity, and have elected the AOD Non-Cash Recovery.

FN10 Notwithstanding anything to the contrary in the Plan or any Definitive Document, AOD Credit Agreement Claims shall be Allowed in the amount of $114,783,659.95 plus (A) the AOD Postpetition Interest and (B) any accrued and unpaid prepetition and postpetition fees, expenses, charges, and other amounts (including, without limitation, professional fees and expenses) payable to either GLAS or the lenders party to the Prepetition AOD Credit Agreement by the Debtors in accordance with the terms of the Prepetition AOD Credit Agreement, the Prepetition Finance Documents, and/or the Cash Collateral Order.

FN11 This figure assumes that all holders of the AOD Credit Agreement Claims have elected to receive the AOD Non-Cash Recovery. To the extent that holders of the AOD Credit Agreement Claims elect to receive the AOD Cash-Out option, such lenders will receive 100% recovery at the midpoint of the valuation. 

  • Class 4-b (“$450MM Eminence Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $269,987,498 and expected recovery is 10.9%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $3.3mn of the New First Lien Facility; (ii) $8.3mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $450MM Eminence Credit Agreement; (iv) 1.1% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-c (“NADL Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $912,429,293 and expected recovery is 57.1%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $133.2mn of the New First Lien Facility; (ii) $333.1mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition NADL Credit Agreement; (iv) 11.9% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-d (“$1.35B Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claim is $961,008,436 and expected recovery is 21.7%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $4.2mn of the New First Lien Facility; (ii) $10.5mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $1.35B Credit Agreement; (iv) 12.8% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-e (“$950MM Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $576,734,524 and expected recovery is 26.6%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $1.2mn of the New First Lien Facility; (ii) $3.0mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $950MM Credit Agreement; (iv) 10.2% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-f (“ECA Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $328,874,310 and expected recovery is 47.0%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $11.3mn of the New First Lien Facility; (ii) $28.2mn in principal amount of the New Second Lien Facility; (iii) 8.5% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); (iv) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan; and (v) Cash equal to the Net Scrap Proceeds attributable to the Prepetition ECA Credit Agreement, if any.
  • Class 4-g (“$1.5B Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,146,497,036 and expected recovery is 36.7%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $50.7mn of the New First Lien Facility; (ii) $126.8mn in principal amount of the New Second Lien Facility; (iii) 19.9% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); (iv) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan; and (v) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $1.5B Credit Agreement.
  • Class 4-h (“$1.75B Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $893,866,932 and expected recovery is 10.8%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $13.7mn of the New First Lien Facility; (ii) $34.4mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition Sevan Credit Agreement; (iv) 3.7% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-I (“$450MM Nordea Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $104,746,725 and expected recovery is 17.3%. Each Holder shall receive its Pro Rata share of: (i) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $450 MM Nordea Credit Agreement; (ii) 0.4% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bond Equity (if any); and (iii) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 4-j (“$300MM Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $147,161,199 and expected recovery is 96.0%. Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $35.3mn of the New First Lien Facility; (ii) $88.3mn in principal amount of the New Second Lien Facility; (iii) 3.6% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); (iv) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan; and (v) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $300MM Credit Agreement, if any. 
  • Class 4-k (“$440MM Credit Agreement Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $65,571,815 and expected recovery is 104.7%. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $13.1mn of the New First Lien Facility; (ii) $32.8mn in principal amount of the New Second Lien Facility; (iii) 2.4% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); (iv) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan; and (v) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $440MM Credit Agreement, if any.
  • Class 4-l (“$400MM Credit Agreement Claims”) is impaired and entitled to vote on the Plan. Each Holder shall receive its Pro Rata share of: (i) the Subscription Rights for $4.5mn of the New First Lien Facility; (ii) $11.2mn in principal amount of the New Second Lien Facility; (iii) Cash equal to the Net Scrap Proceeds attributable to the Prepetition $400MM Credit Agreement; (iv) 4.3% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); and (v) any AOD Gross-Up Recovery distributed to this Class in accordance with Article III.C of the Plan.
  • Class 5 (“Specified Trade Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $2,815,761 and expected recovery is 100%.
  • Class 6 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $1,124,035,708 and expected recovery is 0.02%. Holder shall receive its Pro Rata share of $250,000 in Cash; provided, however, that holders of Credit Agreement Claims shall be deemed to have waived their recovery (but not their right to vote) on account of their General Unsecured Claims.
  • Class 7 (“Intercompany Claims”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 8 (“Intercompany Interests”) is unimpaired/impaired, deemed to accept/reject and not entitled to vote on the Plan.
  • Class 9 (“Interests in Seadrill Limited”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is N/A and expected recovery is $16.0mn. Holder On the Effective Date: (i) if Classes 4 and 6 vote to accept the Plan, each holder of Interests in Seadrill Limited shall receive its Pro Rata share of 0.25% of the New Seadrill Common Shares, subject to dilution by the Management Incentive Plan and the Convertible Bonds Equity (if any); for the avoidance of doubt, any distribution of New Seadrill Common Shares pursuant to this section (i) shall not be dilutive of the Rights Offering Participation Equity or the Backstop Participation Equity; or (ii) if any of Classes 4 or 6 votes to reject the Plan, all Interests in Seadrill Limited shall receive no recovery and be Extinguished.
  • Class 10 (“510(b) Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

Breakdown of Secured and Unsecured Portions of Credit Agreement Claims

Except with respect to the AOD Credit Agreement Claims, Each of the Credit Agreement Claims shall be Allowed in the amounts provided in the below table. The secured portion of such Credit Agreement Claims shall receive the treatment provided in Article III.B of the Plan for the respective class of Credit Agreement Claims. The deficiency amount, if any, of such Credit Agreement Claims shall be classified in, and receive the treatment provided for, Class 6 (General Unsecured Creditors) of the Plan.  

FN11 Notwithstanding anything to the contrary in the Plan or any Definitive Document, AOD Credit Agreement Claims shall be Allowed in the amount of $114,783,659.95 plus (A) the AOD Postpetition Interest and (B) any accrued and unpaid prepetition and postpetition fees, expenses, charges, and other amounts (including, without limitation, professional fees and expenses) payable to either GLAS or the lenders party to the Prepetition AOD Credit Agreement by the Debtors in accordance with the terms of the Prepetition AOD Credit Agreement, the Prepetition Finance Documents, and/or the Cash Collateral Order.

Key Documents

The Disclosure Statement attached the following documents:

  • Exhibit A: Plan of Reorganization
  • Exhibit B: Plan Support and Lock-Up Agreement
  • Exhibit C: Corporate Organization Chart
  • Exhibit D: Liquidation Analysis
  • Exhibit E: Financial Projections
  • Exhibit F: Valuation Analysis

The Debtors' Plan Supplement [Docket No. 1048] attached the following:

  • Exhibit A: Form of New Organizational Documents
    Exhibit B: Description of Transaction Steps
    Exhibit C: Schedule of Assumed Executory Contracts and Unexpired Leases
    Exhibit D: Schedule of Rejected Executory Contracts and Unexpired Leases
    Exhibit E: Schedule of Retained Causes of Action
    Exhibit F: Form of Registration Rights Agreement
    Exhibit G: Form of New First Lien Facility Agreement
    Exhibit H: Form of New Second Lien Facility Agreement
    Exhibit I: Schedule of Net Scrap Proceeds
    Exhibit J: Form of Convertible Bond Indenture
    Exhibit K: Form of Intercreditor Agreement

Petition Date Perspective

In a press release announcing the filing, the Debtors advised that: “The Chapter 11 cases are opened to facilitate a balance sheet restructuring which will enable Seadrill to continue to operate its modern fleet of drilling units. It is expected that this will lead to significant equitization of debt which is likely to result in minimal or no recovery for current shareholders. As a consequence of the Chapter 11 cases, Seadrill will submit an application to the Bermuda Supreme Court for the appointment of Joint Provisional Liquidators under Bermuda law to oversee the Chapter 11 cases in conjunction with the Board of Directors of the Company.

At the point of filing, Seadrill has approximately $650m in cash and does not require debtor-in-possession financing.”

The Debtors’ CEO Stuart Jackson commented further: “We are working closely with our stakeholders to ensure we achieve an outcome that gives us the flexibility to weather the low points in our industry cycles, whilst positioning us well for market recovery.”

Prior Bankruptcy

On September 12, 2017, the Debtor’s affiliate, Seadrill Limited and 85 affiliated entities (collectively, the “Seadrill Limited Debtors”) filed petitions in the United States Bankruptcy Court for the Southern District of Texas and the then debtors emerged on July 2, 2018. Except with respect to the case of Seadrill Limited, Case No. 17-60079 (DRJ), each of the Seadrill Limited Debtors’ cases are now closed.

In a press release announcing emergence from that earlier bankruptcy, Seadrill stated: "The Plan has equitized approximately $2.4 billion in unsecured bond obligations, more than $1 billion in contingent newbuild obligations, substantial unliquidated guaranty obligations, and c. $250 million in unsecured interest rate and currency swap claims, while extending near term debt maturities, providing the Company with over $1 billion in fresh capital and leaving employee, customer, and ordinary trade claims largely unimpaired.

On the Effective Date, the Company will have approximately 100 million New Common Shares outstanding.  The New Common Shares will be allocated as set forth below, in accordance with provisions of the Plan and issued on the Effective Date:

  • 14.25% of the New Common Shares issued to holders of unsecured claims against the Company and certain of its chapter 11 debtor affiliates;
  • 23.75% of the New Common Shares issued to participants in the $200 million equity investment under the Plan;
  • 54.625% of the New Common Shares issued to participants in the $880 million new secured notes investment under the Plan;
  • 1.9% of the New Common Shares issued to holders of existing common equity interest in the Company as of the Effective Date, an effective exchange ratio of approximately 0.0037345 New Common Shares per each Existing Share, and
  • 5.475% of the New Common Shares issued as a structuring fee to certain of the new money investors."

The Slide Back into Chapter 11

The Debtors had been limping along under a series of short forbearance agreements since the middle of September 2020; also the point at which they engaged their team of legal and financial advisors. Negotiations with lenders as to shifting interest to PIK and renegotiating covenants (ie, net leverage and debt service coverage) had been going on for more than a year before that, with those negotiations ultimately shifting to an unsuccessful effort to develop a consensus around a full-blown restructuring.

On December 16, 2020 the lenders in their "AOD facility" (under which Asia Offshore Rig 1 Limited, Asia Offshore Rig 2 Limited and Asia Offshore Rig 3 Limited are borrowers) "utilised" (ie grabbed) $97.2mn of AOD’s cash contained in restricted accounts to repay a corresponding amount of the $210.0mn outstanding under that facility. These lenders are also amongst those who comprise the "Ad Hoc Lender Group;" whose apparent unwillingness to support a proposed restructuring and refusal to extend their own forbearance agreement is apparently what ultimately pushed the Debtors into Chapter 11 (with AOD facility borrowers seeking shelter first, see further below).

On January 15th, the Debtors announced that they would not make the semi-annual 4% cash interest payment (there was also a 2% PIK element to the interest which was nominally made) due on that date in respect of their 12.0% senior secured notes due 2025 (the “Notes,” issued in connection with the earlier bankruptcy).

On February 7th, the Debtors announced that those Asian affiliates that were AOD facility borrowers had filed for Chapter 11 (in the same bankruptcy Court as the present filing), noting that: "As a consequence of the Chapter 11 filings, the forbearance agreement announced by the Company on 3 February 2021 in respect of nine out of the group's twelve senior secured credit facility agreements has terminated [these are the forbearance agreements first arranged on September 15, 2020]." These February 7th cases are to be administered with those filed on February 10th.

Not included with the Debtors are those 29 affiliates (collectively, "Seadrill Partners") which filed (again, same Court) on December 1, 2020; these cases are to be administered separately The  Debtors do not intend to seek joint administration of these chapter 11 cases with the Seadrill Partners Cases.

The Debtors have struggled, however, to build the requisite consensus amongst their senior secured lenders who have provided financing to the Debtors across 12 silo-ed credit facilities and hold "disparate views…about the proper approach to this restructuring."

The Debtors provide [Docket No. 25]: “Seadrill has been engaged in active negotiations with creditors across its capital structure for the better part of the last year, including with a coordinating committee of various lenders under the Company’s 12 secured credit facilities (the ‘CoCom,’ and such lenders, the ‘SCF Lenders’), an ad hoc group of SCF Lenders (the ‘AdHoc Lender Group’), and an ad hoc group of holders of 12.00% senior secured notes due 2025 (the ‘NSN Group,’ and together with the CoCom and the Ad Hoc Lender Group, the ‘Secured Lenders’). 

Despite Seadrill’s prepetition efforts to build consensus for a restructuring transaction, as of the date hereof, the parties have not agreed on the terms of a comprehensive, consensual restructuring in large part because of the different debt holdings of the CoCom and the Ad Hoc Lender Group and the disparate views those groups hold about the proper approach to this restructuring. Most of Seadrill’s secured debt lays in 12 distinct silos, each with its own individual rigs as collateral (and an interest in certain common collateral made up primarily of cash). The CoCom and the Ad Hoc Lender Group control different silos and, given the respective holdings, even if Seadrill reached a comprehensive deal with one of the CoCom or the Ad Hoc Lender Group, neither group of creditors has sufficient holdings to deliver the consent of each of the 12 silos. This inherent conflict between the CoCom and the Ad Hoc Lender Group led directly to the timing of Seadrill’s filing. 

Over the past several weeks, Seadrill was nearing an agreement with the CoCom on the terms of a proposed restructuring. But the Ad Hoc Lender Group opposed the plan and refused to provide a forbearance for the facilities it controlled, including the AOD Facility. Thus, despite Seadrill’s continuous efforts, the Company was left in a default without a forbearance on certain facilities, and faced the threat of enforcement by the Ad Hoc Lender Group. To avoid such enforcement and the accompanying destruction of value, the Debtors have filed chapter 11 petitions to obtain the benefit of the automatic stay while they continue to operate their business and negotiate with their various stakeholders in an effort to maximize the value of the estates."

Significant Prepetition Shareholders

  • Hemen Holding Ltd: 27.09%
  • King Street Capital Management LP: 6.7% (at the end of 2019 and now apparently below the 5% reporting threshold)

Prepetition Indebtedness

At filing the Debtors had the following indebtedness:

Collateral

The following table shows just how silo-ed the Debtors 12 credit facilities were and why the Debtors struggled to build consensus across their senior lender group:

Liquidation Analysis (see exhibit D of Disclosure Statement for notes)

About the Prepetition Debtors

According to the Debtors: “From shallow to ultra-deep water, in both harsh and benign environments, the Debtors set the standard in offshore drilling. The Debtors safely unlock oil and gas resources, helping their customers to deliver energy around the world. The Debtors’ customers include super-major and major oil & gas companies, state-owned national oil companies, and local independent offshore exploration and production companies."

The Debtors latest 20-F adds: "We are an offshore drilling contractor providing worldwide offshore drilling services to the oil and gas industry. Our primary business is the ownership and operation of drillships, semi-submersible rigs and jack-up rigs for operations in shallow to ultra-deepwater in both benign and harsh environments. We contract our drilling units to drill wells for our customers on a dayrate basis. Typically, our customers are oil super-majors, state-owned national oil companies and independent oil and gas companies. 

Through a number of acquisitions of companies, second-hand units and newbuildings, we have developed into one of the world's largest international offshore drilling contractors. We own 35 drilling rigs and we manage and operate 20 rigs on behalf of Seadrill Partners, SeaMex, Sonangol, Sonadrill and Northern Drilling.

We are recognized for providing high quality operations, in some of the most challenging sectors of offshore drilling. We employee 4,538 employees across the globe. We are incorporated in Bermuda, and have worldwide operations based on where activities are conducted in the global oil and gas industry."

Seadrill Limited is an exempted company limited by shares and is listed under the Symbol "SDRL" on the New York Stock Exchange ("NYSE") and the Oslo Stock Exchange ("OSE"). Its registered offices are located at Par-la-Ville Place, 4th Floor, 14 Par-la-Ville Road, Hamilton HM 08, Bermuda.

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The post Seadrill Limited – Court Confirms Global Offshore Drilling Contractor’s Plan of Reorganization; Senior Lenders Poised to Take Ownership by Year End in Exchange for $4.9bn of Debt Forgiveness appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.


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