Seadrill files for bankruptcy in effort to shrink debt burden

By Steven Church, Mikael Holter and Angelina Rascouet on 9/13/2017

WILMINGTON, Delaware, OSLO and LONDON (Bloomberg) -- Seadrill Ltd., the offshore driller controlled by billionaire John Fredriksen, filed for bankruptcy protection after working out a deal with almost all its senior lenders to inject $1 billion of new money into the company.

Under the proposal, lenders will extend the maturity on $5.7 billion in debt, with no amortization payments due until 2020. Should lower-ranking creditors join the proposal, $2.3 billion in unsecured bonds would be converted into a 15% stake in the company, Seadrill said in a statement.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” CEO Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40% of bondholders support the plan along with 97% of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Fredriksen spent more than 18 months trying to strike an agreement with creditors to restructure the industry’s biggest debt-load after crude’s collapse curbed demand for Seadrill’s services. Earlier this year the company gave itself a deadline of Sept. 12 to file a Chapter 11 reorganization case in U.S. Bankruptcy Court, just three days before $843 million of bonds mature.

Deal Structure

The new $1 billion investment will comprise $860 million in secured notes and $200 million in equity, and shareholders will receive about 2% of the post-restructured equity, according to the statement. Seadrill expects to emerge from Chapter 11 in six to nine months, Dibowitz said.

The shares whipsawed in Oslo on Wednesday, swinging between a 14% gain and a 20% loss before trading down 0.6%. More stock traded in the first 15 minutes than on an entire average day during the previous three months.

The company said hedge fund Centerbridge Partners is investing in the restructuring deal, confirming a Bloomberg News report last week that Fredriksen and Centerbridge were in talks. Aristeia Capital and Man Group Plc’s GLG unit as well as Saba Capital LP, Whitebox Advisors, ARCM and Fintech are also investing in the new secured notes and equity, Dibowitz said.

Current shareholders may end up with as little as $0.03 to $0.04 a share, while unsecured bondholders may see a direct recovery for unsecured claims of about 6% percent if they don’t participate in new secured debt, analysts at Clarksons Platou Securities AS wrote in a note.

“We see significant risk of the final words not being said yet and the Chapter 11 process might be a long and painful process,” the analysts said.

The company’s Chapter 11 petition Tuesday said that Seadrill had struck two deals to help it reorganize under court protection: a restructuring support agreement and an investment agreement. The initial court filing didn’t include details about either deal. Seadrill doesn’t envision asset sales as part of the restructuring plan, Dibowitz said.

The company must get court permission to sign the lender proposal, which will then be incorporated into a reorganization plan that will go to creditors for a vote. The judge will take that vote into consideration before deciding whether to approve the plan.

Court Petition

The company listed a range of $10 billion to $50 billion in debt and assets in its petition, which was filed in federal court in Victoria, Texas. Deutsche Bank Trust Co. was listed as the company’s biggest unsecured creditor with bond debt totaling $1.74 billion.

Samsung Heavy Industries said Wednesday it has been in discussions with Seadrill on delaying deliveries of two vessels. Daewoo Shipbuilding & Marine Engineering said it already set aside provisions for possible losses on its order of two drillships and isn’t concerned about additional losses arising from the latest development. Hyundai Heavy Industries Co. said it doesn’t have any outstanding orders with Seadrill.

“Should the plan be implemented successfully, we consider it to be good for Seadrill as an operating company,” analysts at DNB ASA wrote in a note. “The plan seems to give Seadrill a solid liquidity runway and improved visibility, which we believe could help it win more contracts going forward.”

Seadrill has hired Kirkland & Ellis as its bankruptcy law firm, Houlihan Lokey as financial adviser, and Alvarez & Marsal as restructuring adviser.

The case is in re: Seadrill Americas, Inc., 17-60077, U.S. Bankruptcy Court, Southern District of Texas (Victoria).

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