Indebted offshore driller Seadrill Limited has entered into a restructuring agreement with the majority of its lenders which will see over $1 billion of new capital injected into the company.
The driller informed on Wednesday the agreement was backed by more than 97 percent of its secured bank lenders, approximately 40 percent of its bondholders and a consortium of investors led by its largest shareholder, Hemen Holding Ltd.
The agreement delivers $1.06 billion of new capital comprised of $860 million of secured notes and $200 million of equity. The company’s secured lending banks have agreed to defer maturities of all secured credit facilities, totaling $5.7 billion, by approximately five years with no amortization payments until 2020 and significant covenant relief.
Additionally, assuming unsecured creditors support the plan, the company’s $2.3 billion of unsecured bonds and other unsecured claims will be converted into approximately 15% of the post-restructured equity with participation rights in both the new secured notes and equity, and holders of Seadrill common stock will receive approximately 2% of the post-restructured equity. The agreed plan comprehensively addresses Seadrill’s liabilities, including funded debt and other obligations.
The agreed restructuring plan was developed over the course of more than a year of detailed discussions, and the plan will ensure that Seadrill can continue to operate its large, modern fleet of drilling units. Seadrill emphasized that by extending and re-profiling the secured bank debt, reducing leverage and delivering a significant amount of new capital, this agreement provides the company with a five-year runway. Post-restructuring, Seadrill will have a strong cash position and good liquidity to take advantage when the market recovers.
To implement the restructuring agreement, Seadrill on Wednesday filed prearranged chapter 11 cases in the Southern District of Texas together with the agreed restructuring plan. As part of the chapter 11 cases, the company filed “first day” motions that, when granted, will enable day-to-day operations to continue as usual. Specifically, the company requested authority to pay its key trade creditors and employee wages and benefits without change or interruption.
Additionally, the company expects it will pay all suppliers and vendors in full under normal terms for goods and services provided during the chapter 11 cases. At the point of filing, Seadrill has over $1 billion in cash and does not require debtor-in-possession financing. The restructuring agreement contemplates a balance sheet restructuring that is not intended to affect the company’s operations.
As part of the restructuring process, Seadrill has ring-fenced its non-consolidated affiliates from the company’s restructuring, including Seadrill Partners LLC, SeaMex Ltd., Archer Limited and their respective subsidiaries. These non-consolidated affiliates did not file chapter 11 cases, and their business operations are expected to continue uninterrupted.
Commenting today, Anton Dibowitz, CEO and President of Seadrill Management Ltd., said: “The restructuring agreement we signed today is a comprehensive plan that raises over $1 billion of new capital, is underpinned by Hemen Holding Ltd., our largest shareholder, and is overwhelmingly supported by our banks and approximately 40 percent of our bondholders. This is a testament to our position in the sector, having a large, modern fleet, a top-quality customer base and a proven operating track record. With our improved capital structure, we will be in a strong position to capitalize when the market recovers.”
Ship Finance International Limited (SFL) and three of its subsidiaries, who own and lease the drilling rigs West Linus, West Hercules and West Taurus to Seadrill, have also entered into the restructuring agreement. Namely, Ship Finance and its subsidiaries have agreed to reduce the contractual charter hire by approximately 30% for a five-year period starting in 2018, with the reduced amounts added back in the period thereafter. The leases for West Hercules and West Taurus will also be extended for a period of 13 months until December 2024.
Concurrently, the banks who finance the three rigs have agreed to extend the loan period by approximately four years, with reduced amortization in the extension period compared to today’s level. The net cash flow from the three rigs in the extension period is estimated to approximately $29 million per year, or approximately $0.08 per share per quarter, net of loan interest and amortization.