Paragon Offshore to File Bankruptcy

The oil services provider is the first energy-related company to seek court protection this year as low oil prices continue to hit the industry.
Matthew HellerFebruary 15, 2016

Oil services provider Paragon Offshore said Friday it plans to file bankruptcy so it can implement an agreement with creditors to restructure its $2.7 billion of debt.

The bankruptcy would make Paragon the first U.S. energy-related company to seek court protection from creditors this year amid the plunge in oil prices. It plans to file a Chapter 11 petition by Sunday.

“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,” CEO Randall D. Stilley said in a news release.

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The restructuring, he added, “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.”

As Bloomberg reports, demand for Paragon’s services “has dried up as its customers cut back on their drilling activities amid plunging oil prices. The company was spun off from Noble Corp. in 2014 and its assets include a fleet of 40 rigs, mostly in shallow waters from Mexico to the North Sea.

Under the agreement with creditors, holders of 77% of Paragon’s $984 million senior unsecured notes maturing 2022 and 2024 will receive $345 million in cash and 35% in equity in the reorganized business, the company said. Existing shareholders will retain the remaining 65% of the equity.

Bondholders are eligible to receive up to $50 million in additional cash if the company meets certain earnings targets in 2016 and 2017.

The agreement was a result of discussions between Paragon and its creditors that started in December. On Jan. 15, Paragon said it would not make a $15.4 million interest payment on its 2022 bonds as it continued talks.

“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,” Stilley said.