Paragon Offshore, a jack-up rig operator that came into existence after spinning off from Noble Corporation, has reached an agreement with its creditors to restructure its balance sheet.
The company, recently delisted from the New York Stock Exchange, said on Friday the restructuring is expected to eliminate more than $1.1 billion of debt and approximately $60 million of annual cash interest expense, positioning Paragon for long-term growth and success.
Under the agreement, existing equity holders will retain 65% of equity; bondholders will exchange $984 million in senior unsecured notes for $345 million in cash plus 35% of equity, and they may receive deferred cash payments of up to $50 million based upon 2016 and 2017 consolidated EBITDA results.
Furthermore, revolver banks will receive a $165 million paydown on their loan in exchange for providing covenant and other relief.
Also, the agreement entails, Paragon will implement the restructuring through a plan of reorganization that will be implemented by filing for voluntary relief under Chapter 11 of the United States Bankruptcy Code (Chapter 11) in the U.S. Bankruptcy Court in the District of Delaware on or before February 14, 2016.
Paragon says it expects to maintain sufficient liquidity throughout the restructuring process to maintain its business operations. The company says it does not expect any impact on customers. Vendors, as well as employees, will be paid in the normal course of business, the company added.
Randall D. Stilley, President and Chief Executive Officer of Paragon, said, “We are extremely pleased to have reached agreements that will allow Paragon to significantly reduce its debt while preserving majority ownership for existing equity holders. With the help of our advisors and under the direction of an independent committee of our board of directors, the transaction, once implemented, will allow Paragon to eliminate more than $1.1 billion of debt and reduce annual cash interest payments by nearly $60 million, substantially increasing the strength of the company’s balance sheet.
Stilley added: “We believe that successful completion of our financial restructuring will lead to an improved competitive stance, maintaining our status as the High-Quality, Low-Cost drilling contractor and positioning Paragon for long-term growth and success. Importantly, Paragon will continue to operate as usual, paying our employees and vendors in the normal course while providing the same high level of service to our customers.”
Separately, the company reached a settlement with Noble Corporation. Under the settlement, Noble will provide direct bonding in fulfillment of the requirements necessary to challenge tax assessments in Mexico relating to the Paragon Business for the tax years 2005 through 2010.
As previously disclosed, Paragon has contested or intends to contest these claims and may be required to post bonds while it defends these claims. As of December 31, 2015, tax audit claims in Mexico relating to these periods totaled approximately $200 million, with audit claims for 2009 and 2010 yet to be received.
The Noble Agreement ensures that Noble will provide direct bonding support required to post any potential bonds. Additionally, for any liability due following the defense of these Mexican tax claims, Noble has agreed to accept all of the ultimate tax liability for Noble legal entities and 50% of the ultimate tax liability for Paragon legal entities. Paragon also has agreed to release Noble, fully and unconditionally, from any and all claims in relation to the separation of Paragon and Noble.
“We believe the Noble Agreement is a positive outcome for all parties,” Stilley said. “For Paragon, the agreement eliminates a potentially significant capital requirement as we defend against these tax claims in Mexico and reduces our ultimate exposure to such claims.”
In a separate statement, Noble Corp. said that it expects the tax liability payments related to the settlement to be spread over a number of years.
“Based on its understanding of these matters and its experience to date in Mexico, the Company currently expects the net amount that it will actually pay over the period of the settlement for its portion of the taxes to be in the range of $8 to $12 million, although the final amount and the timing of such payments will depend on a number of factors,” the company said.