February 24, 2023 – The Debtors notified the Court that their Amended Prepackaged Chapter 11 Plan of Reorganization has become effective as of February 24, 2023 [Docket No. 214]. The Court had previously confirmed the Debtors’ prepackaged Plan on February 16, 2023 [Docket No. 204].
On January 9, 2023, privately held Nautical Solutions, L.L.C. and one affiliated Debtor (dba Edison Chouest Offshore," “ECO” or the “Debtors”) filed for Chapter 11 protection on a “prepackaged” basis (Judge Christopher M. Lopez). At filing, the Debtors, providers of vessel support services and solutions to petroleum exploration, extraction and production, oilfield service and offshore construction customers, noted estimated assets between $500.0mn and $1.0bn; and estimated liabilities between $500.0mn and $1.0bn. As is standard in respect of prepackaged Plans, the Court conditionally waived the requirements that the Debtors hold a creditors meeting; and file Schedules A/B and financial statements (SOFAs).
The publicity shy, closely-held Debtors and their advisors have done an excellent job in minimizing publicity in respect of this prepackaged Plan which will see their equity interests unimpaired and holders of first lien claims exchange notes that will now bump interest from 7.5% to 9.5% (holders in the only voting class, ie Class 3: First Lien Claims, will also get a cash interest payment of 8.5% in respect of their prepetion holdings from September 1, 2022). See further below on the history of the Debtors and ownership by the Chouest family.
The Debtors were represented by: (i) Jackson Walker LLP as bankruptcy counsel (ii) Kirkland & Ellis LLP and Kirkland & Ellis International LLP as general bankruptcy counsel, (iii) Ankura Consulting Group as financial advisor, (iv) Jefferies LLC as investment banker and (v) Kurtzman Carson Consultants LLC as claims agent.
Overview of Prepackaged Plan
The Debtors' memorandum in support of Plan confirmation [Docket No. 180] states, "The Plan is the culmination of almost two years of restructuring efforts. Over that time span, the Debtors and their advisors focused on building consensus for a restructuring transaction that would delever the Debtors’ balance sheet, extend key maturities, generate liquidity through certain vessel sales and drastically enhance the underlying collateral package for the benefit of the Debtors’ secured creditors. The proposed transaction would also leave the Debtors’ equity holders and general unsecured creditors unimpaired.
As a result of the prolonged negotiations between the Debtors and their stakeholders, which continued on a postpetition basis, the Debtors anticipate that they will obtain the support of their remaining economic stakeholders, resulting in support from 100% of such stakeholders, in advance of the confirmation hearing. Accordingly, the Plan should be confirmed.
The Disclosure Statement and the Plan are the products of extensive good-faith, arm’s-length negotiations between the Debtors and their primary stakeholders. The Debtors’ prepetition efforts bore fruit and resulted in the execution of the Restructuring Support Agreement by the Debtors, all of their equity holders, and holders of approximately 43.7% of the Term Loans and 100% of the Notes (representing 68.9% of total First Lien Claims).
The Restructuring Support Agreement, which was the result of over a year of prepetition, arms’-length, hard fought negotiations between the Debtors and the Consenting Stakeholders, culminated in the settlement embodied in the Plan, including, among other things, the compromise of the Consenting Creditors’ First Lien Claims, the issuance of New Secured Notes with an enhanced collateral package, the reinstatement of General Unsecured Claims and Interests in the Debtors, and the payment of the Consenting Creditors’ Restructuring Expenses. These efforts preserved the value of the Estates and underpin the Plan….
On February 2, 2023, the Debtors, the Consenting Stakeholders, and the Lender Ad Hoc Group reached a deal in principle (the 'Global Settlement') pursuant to which the Lender Ad Hoc Group would sign onto an amended Restructuring Support Agreement (the 'Amended Restructuring Support Agreement'), the Debtors would agree to increase the initial interest rate on the New Senior Secured Notes to 9.5%, and the Debtors would pay the reasonable and documented professional fees of the Term Lender Ad Hoc Group.
The Global Settlement, which will be documented in the Amended Restructuring Support Agreement in advance of the Confirmation Hearing, has paved the way for the Debtors to implement their value-maximizing restructuring transactions on a fully consensual basis, emerge from bankruptcy, and continue to operate their business on a go-forward basis.
The Debtors ultimately received only one formal objection from the United States Trustee for the Southern District of Texas (the 'U.S. Trustee'), which the Debtors believe will be partially resolved through the modification of certain exculpation language in the Plan.
…[The Plan satisfies each of t]he Bankruptcy Code’s confirmation requirements. The Plan and the transactions contemplated thereunder will strengthen the Debtors’ balance sheet, provide liquidity for the Reorganized Debtors and create a sustainable capital structure to ensure the long-term viability of the Debtors’ business. Accordingly, and for the reasons set forth more fully below, the Court should enter an order confirming the Plan."
Restructuring Support Agreement
According to the Disclosure Statement, "The key terms of the Restructuring Support Agreement, which are reflected in the Plan, include:
- treatment for holders of First Lien Claims, who shall receive: (a) the New Senior Secured Notes; (b) any excess Cash distribution owed and payable in accordance with section 4.9(a) of the New Senior Secured Notes Exchange Agreement; and (c) additional Cash in an amount calculated at a rate of 8.50% per annum on $587,500,000 for the period from September 1, 2022 through the Effective Date, in accordance with section 8.1(b) of the New Senior Secured Notes Exchange Agreement;
- an Enhanced Collateral Package for the benefit of the New Senior Secured Noteholders, including, among other things, new Master Services Agreements documenting material shared services and other intercompany arrangements between the Debtors and ECO Affiliates, new IP licensing arrangements, and various undertakings and support agreements;
- assumption of the Asset Sale Documents;
- repayment in full or reinstatement of all unsecured trade claims; and
- reinstatement of all equity interests in the Nautical Solutions.
The Restructuring Support Agreement contains certain milestones (the 'Milestones'), including emergence from chapter 11 within 60 days following the Petition Date. The Debtors believe they can confirm a plan of reorganization and emerge from chapter 11 within this timeframe, thereby preserving the value inherent in the Restructuring Support Agreement, without prejudicing the ability of any party to assert its rights in these Chapter 11 Cases….
Given the core strengths of the Debtors’ business and go-forward commitments for continuing support from the ECO Affiliates, the Debtors are confident that they can implement the Restructuring Support Agreement’s deleveraging transaction and emerge from chapter 11 with long-term viability."
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement, see also Liquidation Analysis 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 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $740,951,479 and estimated recovery is 85.6%. Each Holder will receive its Pro Rata share of: (a) the New Senior Secured Notes; (b) any excess Cash distribution owed and payable in accordance with section 4.9(a) of the New Senior Secured Notes Exchange Agreement; and (c) additional Cash in an amount calculated at a rate of 8.50% per annum on $587,500,000 for the period from September 1, 2022 through the Effective Date.
- Class 4 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 5 ("Intercompany Claims") is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 6 ("Intercompany Interests") is impaired/unimpaired, deemed to accept/reject and not entitled to vote on the Plan.
- Class 7 ("Existing Nautical Interests") is unimpaired, deemed to accept and not entitled to vote on the Plan.
Voting Results
On January 9, 2023, the Debtors' claims agent notified the Court of the Plan voting results [Docket No. 24], which were as follows:
- Class 3 (“First Lien Claims”) 20 claim holders, representing $487,379,990.53 in amount (or 73.56%) and 66.67% in number, accepted the Plan. 10 claim holder, representing $175,194,829.95 (26.44%) in amount and 33.33% in number, rejected the Plan.
Key Documents
The Disclosure Statement attaches the following exhibits:
- Exhibit A: Plan of Reorganization
- Exhibit B: Restructuring Support Agreement
- Exhibit C: New Senior Secured Notes Exchange Agreement
- Exhibit D: Liquidation Analysis
- Exhibit E: Financial Projections
- Exhibit F: Assumed Executory Contract and Unexpired Lease List
- Exhibit G: Rejected Executory Contract and Unexpired Lease List
- Exhibit H: Restructuring Steps Memorandum
The Debtors filed a Plan Supplement on January 9, 2023 [Docket No. 9], which attaches the following:
- Exhibit A: New Organizational Documents
- Exhibit A-1: Articles of Organization of Nautical Solutions, L.L.C.
- Exhibit A-2: Form of Fifth Amended and Restated Operating Agreement of Nautical Solutions, L.L.C.
- Exhibit A-3: Articles of Organization of Nautical Solutions Holdings, LLC
- Exhibit A-4: Form of Operating Agreement of Nautical Solutions Holdings, LLC
- Exhibit A-5: Amendment to Fifth Amended and Restated Operating Agreement of Nautical Solutions, L.L.C.
- Exhibit B: Identities of the Members of the New HoldCo Board
- Exhibit C: Schedule of Retained Causes of Action
- Exhibit C-1: Causes of Action Related to Taxing Authorities
- Exhibit C-2: Causes of Action Related to Insurance Policies
- Exhibit C-3: Causes of Action Related to Claims, Defenses, Cross-Claims and Counter-Claims Related to Litigation and Possible Litigation
- Exhibit D: New Senior Secured Notes Documents
Events Leading to the Chapter 11 Filing
The Disclosure Statement detailed the events leading to Nautical Solutions' Chapter 11 filing. The Disclosure Statement provides: “Despite the Debtors’ strengths in their core markets, recent industry trends have had a material and adverse impact on the offshore energy industry. Over the course of the last eight years, the offshore industry sector has experienced a significant decline that has resulted in a decreased demand for maritime support services. This decrease in demand was fueled primarily by declining oil prices beginning in 2014 that led to a reduction in planned drilling and production projects, and was further depressed by the unprecedented downturn that resulted from the coronavirus ('COVID-19') outbreak.
Meanwhile, an oversupply of maritime support services created a supply-demand imbalance in the market that placed downward pressure on dayrates and profitability. Because of a worsening industry-wide downturn and oversupply of services that spanned nearly eight years, the Debtors were left with an over-levered balance sheet and insufficient liquidity to meet their near-term maturities under certain debt obligations. While the offshore drilling market has partially recovered over the course of the last year — with oil prices returning to pre-COVID-19 prices — remaining oversupply in the maritime support service market and lingering effects of the industry downturn have left the Debtors unable to meet their debt obligations.
Beginning in late spring 2021, the Debtors began working in earnest with their key stakeholders to facilitate a consensual restructuring transaction. The Debtors retained restructuring advisors in summer and fall 2021 and, on August 20, 2021, entered into separate forbearance agreements (each a 'Forbearance Agreement' and, collectively, the 'Forbearance Agreements') with certain of their lenders under each of the Credit Agreement and the Note Purchase Agreements with respect to the Debtors’ then-current payments due to its Term Loan Lenders and Noteholders. Pursuant to the Forbearance Agreements, the Term Loan Lenders and Noteholders agreed to forbear from exercising certain of their rights and remedies with respect to certain defaults by the Debtors.
Around this time, the Debtors also established a Special Committee with a full delegation of authority to consider and approve potential restructuring transactions. In the fall and winter of 2021, the Debtors, their Special Committee and their advisors began considering strategies related to upcoming interest payments and discussed alternatives with the Prepetition Secured Parties. With the Forbearance Agreements in place, the Debtors and their advisors continued to discuss potential strategic alternatives with the Prepetition Secured Parties.
The Debtors and their advisors explored several out-of-court mechanisms for implementation, including a potential recapitalization or sale of the Debtors’ assets. In parallel with the negotiations, the Debtors also continued to operate their business, maintaining their relationships with their vendors and customers, securing new dayrate contracts, and continuing to operate the Debtors’ fleet. Although the Forbearance Agreements expired in January 2022, the Debtors and their key stakeholders continued to work collaboratively. The Debtors and their advisors explored the feasibility and attractiveness of a variety of potential alternatives, including M&A transactions, financing and refinancing solutions and restructuring alternatives with existing lenders.
Ultimately, given the Debtors’ financial and commercial profile, capital market conditions, various interests among the lenders and difficulty and expense to transfer ownership or operatorship of the assets to a third-party, among other factors, it was determined that the optimal alternative was an in- or out-of-court restructuring transaction supported by the Noteholder Ad Hoc Group and certain of the Term Loan Lenders with an in-court backstop should the Out-of-Court Restructuring Consent Threshold not be reached.
In connection therewith, the Debtors and the Consenting Creditors (as defined in the Restructuring Support Agreement) instead focused their efforts on negotiating the terms of such a transaction, including additional collateral protections as part of an enhanced collateral package, as detailed further in the Restructuring Term Sheet (the 'Enhanced Collateral Package'), which contemplates a series of documentation necessary to consummate the issuance of the New Senior Secured Notes.
In early June 2022, principals of the Noteholders and Term Loan Lenders, certain of the Debtors’ equity holders, and key members of the Debtors’ management team (as well as all parties’ respective advisors) held an all-day series of in-person meetings to negotiate the terms of a potential path forward. The negotiations were hard-fought, occasionally contentious and exhaustive. But these efforts bore fruit, and an agreement in principle was reached regarding a deleveraging transaction whereby the Debtors would issue one series of new senior secured notes with the Enhanced Collateral Package in favor of all of the Debtors’ secured creditors….
On September 6, 2022, the Debtors, all of the Debtors’ equity holders, the Noteholders, and certain of the Term Loan Lenders executed the Restructuring Support Agreement, which was substantially on the terms discussed at the in-person meetings in June. Today, the Restructuring Support Agreement continues to have the support of 100% of the Debtors’ equity holders and holders of approximately 68% of the First Lien Claims (including 100% of the Noteholders).”
Prepetition Indebtedness
As of December 19, 2022, the Debtors had a total cash balance of approximately $59.5 million. There is approximately $338 million of aggregate principal outstanding under the Credit Agreement and approximately $312 million in aggregate principal outstanding under the Notes Purchase Agreements, which amount to approximately $650 million in aggregate principal amount of funded debt obligations. In addition, pursuant to the Plan, the Notes Claims include the Noteholder Non-Acceleration Settlement Amount, totaling $11,696,000.
Significant Shareholders
Nautical Solutions, L.L.C. is owned by trusts and individual members of the Chouest family for the benefit of the Chouest family members.
Liquidation Analysis (see Exhibit D of the Disclosure Statement for Notes)
About the Debtors
According to the Debtors: “The Debtors are a leading provider of vessel support services and solutions to petroleum exploration, extraction and production, oilfield service and offshore construction customers. Headquartered in Cut Off, Louisiana, the Debtors service customers through a fleet of 29 state-of-the-art offshore service vessels (the 'OSVs' or the 'Vessels'). The Vessels primarily operate in the United States portion of the Gulf of Mexico, Guyana and Brazil. Today, the Vessels provide vital support to customers undertaking the complex challenges in offshore drilling and production projects."
The Disclosure Statment adds: "In 1960, Edison Chouest, Sr., a commercial shrimp fisherman, left his shrimping career to buy a 65-foot utility boat and founded Edison Chouest Boat Rentals, Inc. ('Edison Chouest') in Galliano, Louisiana. Edison Chouest was primarily focused on servicing and supplying the Humble Oil Company’s offshore petroleum rig in the Gulf of Mexico. Shortly thereafter, in 1964, Edison Chouest constructed its first newbuild 103-foot utility vessel. In 1974, Gary Chouest opened North American Shipbuilding, beginning ECO’s expansion as a staple within the marine and offshore solutions industry.
From its humble start, Edison Chouest transformed into one of the most diverse and dynamic marine transportation solutions providers in the world (now ECO) while maintaining an homage to its roots and namesake. On August 16, 2007, to facilitate the growth of its geographic footprint and expansion of its service and operational offerings for its global customer base, Dionne Chouest Austin, Damon Chouest, and Ross Chouest together formed Nautical Solutions; predominately, providing dynamic maritime solutions to complex, global challenges in the Gulf of Mexico, Guyana, Brazil, Suriname, Trinidad, Tobago, and other regions of both Central and South America. Nautical Solutions now owns and operates a fleet of technologically advanced OSVs focused on providing customer-driven, mission-specific solutions for Nautical Solutions’ offshore, platform, and construction customers. Today, the Debtors maintain an industry-leading fleet of 29 OSVs that offers a wide array of services and capabilities designed to meet the unique needs of deepwater drilling and production projects. The Debtors, while headquartered in Cut Off, Louisiana, operate primarily out of facilities based in Port Fourchon, Louisiana. From Port Fourchon, the Debtors charter their Vessels and provide marine
transportation services to a variety of customers in the Gulf of Mexico and other regions throughout Central and South America. The Debtors have expanded their market presence and now operate in three core geographic markets: the Gulf of Mexico, Guyana, and Brazil. The Debtors’ primary customers are the major, multinational oil companies and large, independent international oil and gas producers."
Corporate Structure
As of the Petition Date, Nautical owned, either in whole or in part, directly or indirectly, one subsidiary and operates two foreign “branches” around the world: (1) Nautical Solutions (Texas), L.L.C.; (2) Nautical Solutions, LLC (Trinidad Branch); and (3) Nautical Solutions, LLC (Guyana Branch). Although the Debtors’ business is primarily U.S.-based, Nautical has a significant presence in Guyana and Brazil.
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