The U.S. Bankruptcy Court issued an order denying confirmation of Paragon Offshore’s Amended Joint Chapter 11 Plan.
The Court asserts, “As set forth in the Court’s oral ruling on October 28, 2016, the question before the Court is simple is the Debtors’ plan feasible? It is not. Based upon the evidence before the Court, the Debtors’ business plan, even under its Downside Sensitivity analysis, is based upon unrealistic assumptions as to rig utilization and day rates and, thus, is not reasonable. Under the Debtors’ proposed Modified Plan, the Debtors will either run out of cash altogether or, at best, breach their financial covenants under the reorganized debt – even though those covenants are lower than under the Original Plan.”
In addition, “In addition, the Debtors have failed to establish that they will be able to refinance their debt when they meet their maturity wall in 2021.That is not to say the Debtor s cannot reorganize. Indeed, the Debtors can and should be able to do so. It is also not to say that the Term Lenders’ debt cannot be reinstated. It may, provided the Debtors can establish that the debt can be paid or refinanced at maturity, which is less than clear even if the Modified Plan is otherwise feasible. The main problem is that the Modified Plan, which is an improvement over the initial plan, still siphons $450 million in cash out of the estate, which is at least $150 to $200 million too much.”
Court-filed documents continue, “That cash is needed for the Reorganized Debtors to be able to survive the challenging business environment of off-shore oil and gas production over the next several years and to be reasonably able to refinance their debt in 2021….At the end of the day, these cases are all about liquidity. The Debtors’ Modified Plan robs the businesses of too much cash and does not preserve sufficient liquidity to meet the challenges of the next several years. These businesses can and should reorganize and recover but not under the Modified Plan.”
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