Corporate Finance

Oil Rig Operator Seadrill Files Chapter 11

The company believes its restructuring plan will put it in a strong position to capitalize when oil prices rebound.
Matthew HellerSeptember 13, 2017

Offshore oil firm Seadrill has filed bankruptcy to clean up its balance sheet in hopes of capitalizing on a recovery in oil prices.

In a Chapter 11 petition, the company said it would seek to exit bankruptcy in less than a year through a restructuring agreement it has reached with 97% percent of its secured bank lenders, about 40% of its bondholders, and a consortium of investors led by its largest shareholder, Norwegian billionaire John Fredriksen.

Under the deal, the banks would defer maturities of secured credit facilities, totaling $5.7 billion, by approximately five years with no amortization payments until 2020. Seadrill would also receive $1.6 billion in new capital and convert $2.3 billion of unsecured bonds and other unsecured claims into approximately 15% of the post-restructuring equity.

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“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,” CEO Anton Dibowitz said in a news release. “With our improved capital structure, we will be in a strong position to capitalize when the market recovers.”

Seadrill owns or leases about 51 drilling rigs, representing more than 6% of the global fleet. It has been one of many casualties of the downturn in oil prices, cutting several thousand jobs since 2014 as oil companies curtailed demand for rigs.

“Offshore oil drillers are particularly susceptible to sharp drops in oil prices … because they have invested for the long term and can’t pull back quickly like nimble shale oil companies,” USA Today noted.

Fredriksen, who, with Centerbridge Partners, is providing much of the new financing, would remain a major shareholder if a court approves the company’s restructuring plan. But holders of Seadrill common stock will receive only about 2% of the restructured company.

Shareholders have seen the price of their stock fall more than 90% in the year leading up to the bankruptcy filing. “With Mr. Fredriksen and Centerbridge having already carved themselves generous slices of the new company, avoiding a court quarrel might not be easy,” Fox Business said.