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.
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