Bankruptcy Court Clears Way for Vote on Seadrill’s Reorg Plan
Seadrill took a key step forward on September 3 in its efforts to complete its second bankruptcy reorganization in the past four years. The offshore drilling contractor reported that the United States Bankruptcy Court for the Southern District of Texas approved the steps put forth by the company for the proposed reorganization. The court set the timeline for voting on the plan and scheduled a hearing on October 26, 2021, for the approval of the plan.
According to the company’s announcement, the court's actions are “paving the way for our emergence from Chapter 11 in Q4 2021. The plan provides a clear pathway for Seadrill to restructure its balance sheet with the company having already secured support from the majority of its senior secured lenders.”
The company, best known for its lead investor John Fredriksen, however, still faces an uphill battle to complete the reorganization. When it filed for Chapter 11 bankruptcy in February 2021, the company reported that it had $6.1 billion in funded debts, including $5.6 billion in bank debt, plus an additional $535 million in its secured notes. Seadrill continues to report losses and, in an attempt to rebalance operations, proposed recycling 10 of its vessels from its fleet that included 7 drillships, 15 jack-up rigs, and 12 semi-submersibles. So far, two rigs have been sold and five are in the process of being recycled.
Formed in 2005. Seadrill contends to the debtors in the current case that its prior bankruptcy in 2018 was successful in restructuring the company. Describing the 2018 process, the company says, “Seadrill deleveraged its balance sheet by billions of dollars, extended the maturity of its remaining indebtedness, and positioned Seadrill to take advantage of an improving oil and gas market.”
They contend that the prior plan had broad support but failed because of the impact of COVID-19 on the global oil market as well as the OPEC-Russia oil price war. “These external forces combined to prevent Seadrill from reaping the benefits of the prior restructuring.”
The broad terms of the new plan call for the majority of the secured debt to be revalued at $750 million for which the creditors will receive 83 percent of the equity in the new company and will be entitled to participate in a new $300 million new first lien facility to finance the company. Other debtors get varying amounts of recovery while Fredriksen largely forgoes his shares with only a quarter of a percent of the new equity and participation in a small unsecured debt that would convert to shares.
The bankruptcy plan was complicated by the fact that Seadrill had 12 large tranches of debt and it was difficult to reach a consensus among the groups. As such, the company currently only has agreement from a little over half the secured creditors (58 percent) and will need to gain support from more than two-thirds of the creditors in the upcoming vote for the plan to succeed.
Separately, it is rumored that two or possibly three competitors have already submitted alternate plans to the creditors. Reuters reports that competitors Noble Corp. has made an offer to buy assets along with a competing combined bid from Transocean and Dolphin Drilling possibly with other participants in an effort to split up Seadrill.
“The Court approved our timeline for approval of the restructuring and authorized us to solicit lender votes,” commented CFO Grant Creed. “This will pave the way for a significant balance sheet deleveraging. We are pleased with these developments, which put us firmly on track for Chapter 11 emergence.”
Votes from the creditors are due by October 7 with the final report on the voting due by October 22. Under the current timeline, the court would meet to review the plan and pending the creditors’ vote, would approve the plan so that the company could complete the process.