Seadrill Sets a Fast Pace for Bankruptcy Turnaround
14 September 2017 - 10:11AM
Dow Jones News
By Peg Brickley
Seadrill Ltd. is looking for a swift pass through a bankruptcy
that will reduce the holdings of outside shareholders to make way
for new money to save one of the world's largest offshore
oil-drilling fleets.
A casualty of the prolonged downturn in oil prices, Seadrill
filed for chapter 11 protection Tuesday with more than $8 billion
in funded debt, and another $3 billion in contingent debt.
The company is looking to exit bankruptcy in less than a year,
with its finances revamped. Seadrill has bargained for more time to
pay off $5.7 billion in bank loans, and lined up more than $1
billion in new financing to keep it going until the market for
offshore oil-drilling services comes out of the slump.
With about $1 billion in cash already in its coffers, Seadrill
won't need chapter 11 financing to continue business as usual,
Seadrill lawyer Anup Sathy said Wednesday at the London-based
company's debut in the U.S. Bankruptcy Court for the Southern
District of Texas.
The restructuring strategy grew out of nearly two years of
sometimes contentious talks that left shareholders under no
illusions about Seadrill's prospects in an industry that has been
swept by distress and isn't due for a recovery anytime soon.
Seadrill's bankruptcy "was a surprise to no one," Judge David
Jones commented at Wednesday's bankruptcy court hearing. Offshore
oil-drilling service companies have been competing for business in
a shrinking market, and many have landed in bankruptcy.
Judge Jones urged federal bankruptcy watchdogs to consider
whether it is appropriate to appoint an official committee to
represent Seadrill shareholders, who watched the price of their
stock sink more than 90% in the year leading up to the bankruptcy
filing.
Seadrill's bankruptcy plan allots about 2% of the reorganized
company to shareholders, but leaves founder and major shareholder
John Fredriksen with a significant stake.
Mr. Fredriksen and Centerbridge Partners have committed to
provide much of the $1 billion in new debt and equity that will
preserve Seadrill. They led talks that brought a coalition of banks
over to support the chapter 11 exit plan, a critical factor given
looming debt maturities. Banks insisted on keeping Mr. Fredriksen
involved as "anchor investor," due to the Norwegian shipping
magnate's long-term relationships with many of them, court papers
said.
To be sure it hits its timing target, Seadrill needs to pick up
friends among its unsecured bondholders, a group owed $2.3 billion
in the aggregate. Centerbridge and other plan supporters own 40% of
the unsecured bond debt, but that isn't enough to get Seadrill's
chapter 11 plan through court without the possibility of a
fight.
With Mr. Fredriksen and Centerbridge having already carved
themselves generous slices of the new company, avoiding a court
quarrel might not be easy. Unsecured creditors are being offered
15% of the reorganized Seadrill Ltd., along with a chance to
participate in the new financing, which would entitle them to more
equity. However, the unsecured bondholders would get into the deal
on less favorable terms than Centerbridge and Mr. Fredriksen are
getting.
Mr. Fredriksen's Hemen Holding Ltd. gets 5% of the
postbankruptcy company off the top, as part of his reward for
agreeing to put up some of the new financing. Centerbridge and Mr.
Fredriksen have committed to provide more than half the $860
million in new secured notes, as well as more than half of the $200
million equity investment, entitling them to sizable stakes in the
reorganized Seadrill.
A handful of investment firms have joined in to support the
plan, providing $335 million of the secured notes deal and $50
million of new equity. For those investments, they will also get
slices of the revamped Seadrill.
That leaves relatively little room for participation by
bondholders that want to put in new money and get additional equity
in the postbankruptcy company.
Seadrill is offering unhappy creditors another option, however.
The company has invited offers to beat the $1 billion new financing
commitment coming from Centerbridge, Mr. Fredriksen and the other
investors. Tuesday marked the start of a "go shop" period to allow
investors to improve the terms and provide the money Seadrill needs
to last out a bad market, court papers say.
Much of the sprawling Seadrill enterprise, including Seadrill
Partners LLC, was immunized from the chapter 11 bankruptcy by
ringfencing provisions. With their balance sheets shored up and
separated from Seadrill Ltd., parts of the Seadrill enterprise are
operating free and clear of the bankruptcy. All in, the Seadrill
entities are carrying about $20 billion in debt, including the
Seadrill Ltd. debt that is being addressed in chapter 11.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
September 13, 2017 19:56 ET (23:56 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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