In a move that was long expected, Seadrill Ltd (NYSE:SDRL) announced it filed for Chapter 11 after it secured an agreement from nearly all of its secured bank lenders to support a plant to inject $1.0 billion of new capital into the company. The bad news, it essentially wipes out existing shareholders.
Seadrill is controlled by billionaire ship owner John Fredriksen. The company has been struggling since oil prices crashed in 2014 and has been working with its creditors for the past 18 months to restructure its nearly $10.0 billion in debt.
The proposal will see the company get $1.06 billion in new capital, consisting of $860.0 million in secured notes and $200.0 million in equity. The company’s lenders have agreed to extend $5.7 billion in debt by about five years ,with no amortisation payments due until 2020. Holders of $2.3 billion in bonds will be offered 15% of post-restructuring equity.
The agreement is not quite so generous for shareholders. Existing shareholders receive two percent of post-restructured equity.
The plan received support from more than 97% of secured bank lenders and approximately 40% of bondholders.
“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,” said Anton Dibowitz, chief executive officer of Seadrill Ltd.
“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,” he added. “With our improved capital structure, we will be in a strong position to capitalise when the market recovers.”
Seadrill, one of the world’s largest offshore drilling companies, has seen its share price crumple since 2014, losing more than 99% of its value. While the company traded near $40.00 per share in 2014, it is currently trading hands at $0.26 per share.
Seadrill’s bankruptcy is just the latest casualty in the offshore drilling market.
Hercules Offshore, Inc. and Paragon Offshore, Inc. have both filed for bankruptcy and Transocean Ltd (NYSE:RIG) is paying $1.1 billion for Norway’s Songa Offshore. Meanwhile, U.S. rival Ensco PLC (NYSE:ESV) is buying Atwood Oceanics, Inc. (NYSE:ATW), and Maersk Drilling, the offshore rig unit of A.P. Moller–Maersk Group, will either be sold or spun off in the next year.
“Seadrill Announces Comprehensive Restructuring Plan to Be Implemented with Prearranged Chapter 11 Cases,” Seadrill Ltd, September 12, 2017.