Looking to Shrink Debt Seadrill Opts for Bankruptcy

Seadrill Ltd, an offshore driller that John Fredriksen controls, filed for bankruptcy after it reached a deal with nearly all its lenders to inject over $1 billion of new capital into the business.

Under the agreed to proposal, senior lenders will extend maturity on debt of $5.7 billion, with no amortization payments coming due until 2020. If lower ranking creditors agree to the proposal, unsecured bonds of $2.3 billion would then convert into a stake of 15% in the business, said Seadrill.

This deal gives us a much better liquidity cushion that allows for Seadrill to withstand the big downturns said Anton Dibowitz the CEO.

The new capital injection will be underpinned by Hemen Holding Ltd, the top shareholder and over 40% of bondholders support the agreement as well as 97% of the secured bank lenders of Seadrill, he added. Dibowitz is expecting more bondholders to sign the deal.

Billionaire Fredriksen has spent over 18 months attempting to reach an agreement with company creditors to restructure the largest debt-load in the industry after the collapse of crude reduced the demand for the services of Seadrill.

Earlier in 2017, the company placed its own deadline of September 12 for filing Chapter 11, just three days prior to the bonds worth $843 million maturing.

This new investment of $1 billion will be made up of over $800 million worth of secured notes as well as $200 million of equity, and shareholders are to receive approximately 2% of the equity following the restructuring, read the company’s prepared statement.

Seadrill is expecting to emerge from its bankruptcy between six and nine months, said Dibowitz.

Shares in Oslo seesawed on Wednesday morning moving from a gain of as much as 14% to a loss of 20%, prior to trading lower by 0.6% at midday.

More shares traded during the first 15 minutes than for an average day over the past three months.

Centerbridge Partners was confirmed as investing in this new restructuring deal, which confirms a report from last week that the hedge fund was in negotiations with Fredriksen to invest.

Current Seadrill shareholders might end up with just 3 or 4 cents per share, while bondholders that are unsecured might see a direct recovery of their claims of 6% if they opt not to participate in a new deal with secured debt.

The petition for Chapter 11 on Tuesday said Seadrill entered into two deals helping to reorganize under the protection of bankruptcy: an investment deal and restructuring agreement.