LaForta – Gestao e Investimentos – Operators of La Muralla IV Drilling Rig Get Access to Further $9.5mn of New Money DIP Financing; Rig Gets New Captain, Additional Crew and an Anchor in Advance of Tow to Freeport

July 13, 2022 – The Court hearing the LaForta – Gestao e Investimentos case issued an order authorizing the Debtor to: (i) access a further $9.5mn of new money, debtor-in-possession (“DIP”) financing (the “Second Draw”) being provided by certain prepetition lenders and (ii) continue using cash collateral [Docket No. 62, which attached the draft DIP credit agreement].

The DIP financing package also includes a dollar-for-dollar roll-up of prepetition debt (ie $23.5mn with the interim DIP order and $9.5mn with this final DIP order).

At the July 13th hearing to consider the second Draw, Debtor's counsel Matthew Cavenaugh noted that he had "very positive update" as to the DIP financing, but more importantly as to the Debtor's previously untethered rig. On the financing, Cavenaugh noted that support amongst prepetition lenders providing the DIP financing had grown to 78% and that the Debtor had been able to certify its expectations as to case milestones (as of the Petition date, those milestones "no given whatsoever"). He also note that for the moment the Debtor had no immediate liquidity issues.

Tbe operational update was of particular interest to Judge Jones who queried (without getting a clear answer) how one does not know if a rig the size of the La Muralla IV still has an anchor. It turns out that there is in fact an anchor, with that anchor now actually deployed as are a new captain (with former experience on the Rig) and additional crew. The Debtor, which had very much wanted to repair the Rig at a US port has instead settled on Freeport, Bahamas where it will shortly be towed (at 5 knots per hour for 12 days). The size of the rig apparently made U.S. ports an unworkable option without about $2.5mn of expenses to prepare the Rig for slips available at those ports. Judge Jones was also interested in Cavanaugh's commentary that the U.S. ports did not really want a headache like the Rig at a time when they were otherwise extremenly busy, including handling higher LNG traffic.

Background

Previously on June 17, 2022, the Court hearing the LaForta – Gestao e Investimentos case authorized the Debtor to access the first $23.5mn of the $33.0mn DIP financing package on an interim basis [Docket No. 26].

The proceeds of the DIP financing will be used to preserve and stabilize the Rig (defined below) before the upcoming hurricane season, obtain needed insurance, fund this case, and to conduct a marketing process for the Debtor’s sole asset—the Rig.

On June 16th, the Debtor filed for Chapter 11 protection noting estimated assets between $50.0mn and $100.0mn; and estimated liabilities between $1.0bn and $10.0bn. At filing, the Debtor, owner of a a ten-year old, sixth-generation, ultra-deepwater semisubmersible drilling rig (the "La Muralla" or the "Rig") currently lying idle in the Gulf of Mexico, detailed its desperate circumstances ("La Muralla is not currently chartered. It is running low on fuel and has no liquidity with which to acquire more fuel. It does not have a functioning anchor (perhaps no anchor at all). It is under-crewed. It is currently prevented from moving by the harbormaster until a 'no dispatch' order is resolved. It is uninsured…" see "Events," below) and its aspirations as to an asset sale process. firs, howver, the Debtor needs the financing to get the Rig "moved from its current position to a port in the Bahamas where it can safely be more fully repaired and can remain while a sale process is conducted."

The DIP motion [Docket No. 12] explains, “The Debtor has determined it is in the best interest of the estate to sell its lone asset, the La Muralla IV (the ‘Rig’). The Rig is a ten-year old sixth-generation, semi-submersible drilling rig. The Debtor intends to sell the Rig through a section 363 sale. Currently, the Rig is ‘parked’ in the Gulf of Mexico. The Rig has not operated under a charter for approximately eleven (11) months and during this time the Debtor has been unable to obtain a new charter agreement or otherwise monetize the Rig. However, the Rig is not stacked (i.e., it remains in an operational state) and approximately seventeen (17) workers are on board.

The Debtor simply does not have funding (absent the DIP Facility) to maintain safe operation of the Rig. Despite recent fuel purchases using the Prepetition Advances the Rig has only a few days of fuel remaining (assuming good weather) and the Debtor does not have the resources to purchase any more fuel to keep the Rig and the workers on board safe. This is especially important as the Rig does not currently have a working anchor, so it is reliant on its own propulsion system to maintain a safe position (this is not just a theoretical risk as a similar rig, owned by a sister company to the Debtor, recently ran aground). Additionally, the Debtor’s hull, machinery, liability, and D&O insurance have lapsed and while the Debtor is binding new or renewed coverage, it needs the proceeds of the DIP Facility to pay for these policies and ensure coverage can begin as of the Petition Date. The fact that hurricane season has just begun makes the Rig’s current situation all the more precarious and highlights the need to properly secure the Rig—which can only occur if the Debtor obtains access to the DIP Financing

In addition to fuel and insurance, the Debtor intends to immediately begin to use the DIP Financing to make necessary repairs to the Rig so that it can be moved from its current position to a port in the Bahamas where it can safely be more fully repaired and can remain while a sale process is conducted. The DIP Financing will provide the Debtor the liquidity needed to preserve and stabilize the Rig, move it to an appropriate location, and conduct a value-maximizing sale process. Absent access to the DIP Financing, the Debtor will have absolutely no liquidity and no ability to protect the Rig, the workers on the Rig, or vessels, property, and natural resources near the Rig.

The Debtor believes the DIP Financing is its only viable path forward and given the risks inherent in its asset and business plan, the terms and conditions of the DIP Financing are clearly fair and reasonable, and entering into the DIP Financing is a sound exercise of its business judgment.”

Key Terms of the DIP Financing:

• Borrower: LaForta­Gestão e Investimentos, Sociedade Unipessoal Lda. (Zona Franca da Madeira) a sole shareholder limited liability company (sociedade unipessoal por quotas) organized and existing under the laws of the Portuguese Republic (the “Borrower” or “Debtor”), as debtor and debtor in possession in a voluntary case (the “Chapter 11 Case”) to be filed under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The date on which the Chapter 11 Case commences is referred to herein as the “Petition Date”.
• Administrative and Collateral Agent: GLAS USA LLC as administrative agent and GLAS Americas LLC as collateral agent (collectively, the “DIP Agent”)
• DIP Lenders: The Backstop Lenders, any Electing Lenders, and the permitted transferees of the same.
• Backstop Lenders and Participation Election: The DIP Lenders signatory to this Term Sheet shall, based on their pro rata holdings (on a several, but not joint, basis), backstop (the “Backstop”) the full aggregate amount of the DIP Facility. The DIP Lenders who participate in the Backstop are referred to herein as the “Backstop Lenders.”

Any Noteholder that is not a Backstop Lender shall have the right (solely during the fourteen (14) calendar days following entry of the Interim DIP Order) to elect to participate in the DIP Facility for its ratable portion of the DIP Facility. Elections must be made by contacting the Backstop Lenders’ counsel at mtehrani@milbank.com on or before 11:59 p.m. eastern time on the 14th day following entry of the Interim DIP Order. Any Noteholder that timely elects to participate and timely funds its portion of the DIP Facility shall be an “Electing Lender”

• Required DIP Lenders: Any action to modify or waive any rights under this Term Sheet shall require the express consent of Backstop Lenders (and any other DIP Lenders specified by the Backstop Lenders) holding greater than 66.6% in amount of the aggregate DIP Facility claims held by such DIP Lenders (the “Required DIP Lenders”). Notwithstanding the foregoing, unanimous approval of the DIP Lenders shall be required to extend the DIP Facility beyond the Scheduled Maturity Date provided, however, that no approval to extend the DIP Facility shall be required of any DIP Lender whose claim under the DIP Facility has been paid in full.
• DIP Draws: The DIP Facility shall consist of two draws:

1. On the date of entry of an interim order, in form and substance acceptable to the Backstop Lenders, by the Bankruptcy Court approving the DIP Facility (the “Interim DIP Order”) an initial draw of $47 million (the “Interim Draw”), consisting of $23.5 million of “new money” and $23.5 million of Roll Up.
2. On the date of entry of a final order, in form and substance acceptable to the Backstop Lenders, by the Bankruptcy Court approving the DIP Facility (the “Final DIP Order” and together with the Interim DIP Order, the “DIP Orders”) a second draw of $19 million (the “Second Draw”), consisting of $9.5 million of “new money” and $9.5 million of Roll Up.

• Roll-up: On the date of each draw under the DIP Facility, a principal amount of the Senior Secured Notes held by the DIP Lenders (or their applicable designees) equal to the amount of “new money” contained in such draw shall be rolled up into the DIP Facility (the “Roll Up”) on a 1:1 basis in accordance with each such DIP Lender’s (or its applicable designee’s) share of such new money draw. The Backstop Premium and Exit Premium set forth below shall only be payable with respect to the “new money” portion of the DIP Facility and shall not be payable with respect to any rolled up Senior Secured Notes.
• Maturity: The DIP Facility will mature on the earliest of (such earliest date, the “Maturity Date”):

1. the date that is six (6) months after the Petition Date (the “Scheduled Maturity Date”);
2. the date that is twenty (20) calendar days after the Petition Date, if the Interim DIP Order has not been entered by the Bankruptcy Court prior to the expiration of such twenty-day period;
3. the date that is forty-five (45) calendar days after the Petition Date, if (i) definitive DIP documentation (the “Definitive Documentation”) consistent with the Term Sheet and otherwise in form and substance acceptable to the DIP Agent and the Backstop Lenders has not been entered into, and (ii) the Final DIP Order has not been entered by the Bankruptcy Court, in each case prior to the expiration of such forty­-five ­day period;
4. any breach by the Borrower which has not been cured or waived within five (5) business days of Borrower’s receipt of notice of breach;
5. dismissal of the Chapter 11 Case, the appointment of a chapter 11 trustee or an examiner, conversion of the Chapter 11 Case into a case under chapter 7 of the Bankruptcy Code, or the effective date of a plan in the Chapter 11 Case; and
6. other customary circumstances to be mutually agreed.

• Interest Rate: Loans under the DIP Facility will bear interest at a rate equal to 10% per annum payable in cash on a monthly basis; provided that Borrower may elect to instead pay the interest in kind at a rate equal to 12% per annum.
• Default Rate: Applicable rate plus 2.00% 
• Use of Proceeds: The DIP Facility will be used in accordance with the 13­ week budget attached hereto as Exhibit A (the “Budget”), which shall be updated on a rolling, four­ week basis, and which shall require the payment of the following items: the actual costs of operating/ protecting/ preparing to move/ moving LMIV; payment of post­petition retainers to the estate’s advisors; payment of insurance premiums; payment of the fees and costs of the advisors to the Backstop Lenders and the DIP Agent.4 In addition, the DIP Facility shall be used to reimburse funds advanced or incurred prepetition to protect and preserve the Noteholders’ collateral, including funds paid to OOS Energy, funds advanced to buy fuel, funds advanced on behalf of the Borrower to engage advisors to commence the bankruptcy case, and fees and costs owed to the advisors of the ad hoc group of Noteholders, each as set forth more fully in Schedule 1 hereto, which shall each be paid upon the Interim or Second Draw, as indicated on Schedule 1.
• Milestones:The Borrower shall comply with the following chapter 11 milestones which milestones may be extended in writing by the Required DIP Lenders in their sole and absolute discretion (the “Milestones”):
  • Deadline to file a voluntary chapter 11 petition in the Bankruptcy Court; no later than June 16, 2022
  • Deadline to a motion seeking approval of the DIP Facility; on the Petition Date
  • Deadline to obtain the Interim DIP Order in form and substance satisfactory to the Required DIP Lenders; no later than three (3) calendar days after the Petition Date
  • Deadline to certify that the Debtor believes in good faith that it will be able to meet the remaining future Milestones; no later than fourteen (14) calendar days after the Petition Date
  • Deadline the Issuer shall have executed a Memorandum of Understanding, in form and substance satisfactory to the Required DIP Lenders, providing for the sale of Centenario; no later than twenty-one (21) days after the Petition Date
  • Deadline to obtain the final DIP Order; no later than thirty (30) calendar days after the Petition
  • Deadline the Debtor will have filed: (w) a motion seeking establishment of bidding procedures (the “Bidding Procedures Motion”); (x) a chapter 11 liquidating plan (the “Plan”), (y) disclosure statement with respect to the Plan (the “Disclosure Statement”) and (z) a motion seeking approval of the Disclosure Statement, each in form and substance satisfactory to the Backstop Lenders; no later than thirty (30) calendar days after the Petition Date
  • Deadline the Issuer shall have resolved outstanding crew liabilities; the thirtieth (30th) calendar day after the Petition Date; and
  • LMIV shall be moved out of Mexican territorial waters into international waters; no later than the forty-fifth (45th) day after the Petition Date.

Prepetition Capital Structure

As of the Petition Date, the Debtor has the following indebtedness:

• Approximately $947.0mn principal outstanding with respect to the Prepetition Bonds, plus accrued and unpaid interest and other charges and fees, which is secured by substantially all of the Debtor’s assets.

Events Leading to Filing of Chapter 11

In a declaration in support of the Chapter 11 filing (the “Weinhoffer Declaration”), David Weinhoffer, the Debtor's chief restructuring officer, detailed the events leading to LaForta’s Chapter 11 filing. The Weinhoffer Declaration provides: “The Debtor filed its chapter 11 case because it has no money, no revenue stream, likely over $1 billion in secured debt and an uncertain path to realizing value from a sole asset. The asset requires material investment and attention to maintain and return to an active operating state. The asset is La Muralla IV [which currently sits about four miles off the coast of Tampico, Mexico], a ten-year old, sixth-generation, ultra-deepwater semisubmersible drilling rig (the 'La Muralla').

La Muralla is not currently chartered. It is running low on fuel and has no liquidity with which to acquire more fuel. It does not have a functioning anchor (perhaps no anchor at all). It is under-crewed. It is currently prevented from moving by the harbormaster until a 'no dispatch' order is resolved. It is uninsured. The Debtor, its parent, and certain of its noteholders have been working to find a solution for quite some time. At this point, there is no alternative to chapter 11."

DIP Budget [Unchanged. For clear image see Exhibit A Docket Nos. 12, 26 or 62]

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