Diamond Offshore Drilling receives confirmation of Chapter 11 plan

By Sarah Lizee

Olympia, Wash., April 8 – Diamond Offshore Drilling, Inc.’s Chapter 11 plan was confirmed by the U.S. Bankruptcy Court for the Southern District of Texas, according to an order filed Thursday.

The company had entered into a plan support agreement with holders of over 70% of each of its senior unsecured notes and revolving credit facility loans regarding a financial restructuring transaction, as previously reported.

The plan support agreement was entered into on Jan. 22 with some holders of the company’s 5.7% senior notes due 2039, 3.45% senior notes due 2023, 4 7/8% senior notes due 2043 and 7 7/8% senior notes due 2025 and some holders of claims under the company’s revolving credit agreement, according to an 8-K filing with the Securities and Exchange Commission.

Upon the debtors’ emergence from Chapter 11, the reorganized company will enter into new exit financing facilities consisting of a $300 million to $400 million first-lien, first-out exit revolver, a $100 million to $200 million first-lien, last-out exit term loan facility and $110 million in first-lien, last-out exit notes, plus any exit notes issued on account of a 9% commitment premium.

The exit revolver will be fully committed, with up to $100 million drawn as of the effective date.

Also, $75 million of the exit notes will be issued and outstanding as of the effective date, excluding any exit notes issued on account of the commitment premium, while $35 million of the exit notes will remain fully committed but undrawn as of the effective date and will be available through a delayed-draw mechanism.

The reorganized company will pay a ticking fee of 3% per annum on the aggregate principal amount of any undrawn delayed-draw exit notes, payable in cash semiannually in arrears starting six months from the debtors’ emergence from Chapter 11, until the earlier of the date of the issuance of the delayed-draw exit notes, 24 months prior to the scheduled maturity of the exit notes, and the date that the delayed-draw subscription agreement is terminated.

The exit revolver will mature in 2026 and bear interest at Libor plus 425 basis points, payable in cash.

The exit term loan will mature in 2027. At the reorganized company’s option, interest will accrue at a cash pay rate of Libor plus 600 bps, a payment-in-kind rate of Libor plus 1,000 bps, or a 50/50 combined cash and PIK rate of Libor plus 800 bps. The exit term loan facility will rank pari passu with the exit notes.

The exit notes will mature in 2027. At the reorganized company’s option, interest on the exit notes will accrue at a cash pay rate of 9%, a PIK rate of 13%, or a 50/50 combined cash and PIK rate of 11%. The company may redeem the exit notes, in whole or in part, at its option at any time on at least 15 days but not more than 60 days prior written notice at the applicable redemption prices.

In connection with the exit revolver, the debtors have secured commitments from some holders of revolving claims that ensures at least $300 million of the exit revolver is fully committed to upon the debtors’ emergence from Chapter 11.

There is a $3.5 million commitment fee on the revolver.

As a component of the restructuring, the company will conduct rights offerings, and eligible holders of senior notes will receive the opportunity to subscribe for their pro rata share of up to $68.75 million of the exit notes.

Upon the company’s emergence, each eligible holder of subscription rights that participates in the rights offerings will also receive its pro rata share of 18.75% of the reorganized company’s newly issued common equity, subject to dilution by the new warrants and the management incentive plan equity shares.

At emergence, the company’s existing revolver will be refinanced by the exit revolver and exit term loan, and holders of revolver claims will receive either (a) if a holder elects to participate in the exit revolver, a combination of its pro rata share of about $275 million to $280 million in cash, its pro rata share of up to $100 million of funded loans under the exit revolver, and, to the extent its claims are not satisfied in full by the cash payment and funded loans under the exit revolver, a pro rata share of the funded loans under the exit term loan, or (b) if a holder does not elect to participate in the exit revolver, a combination of its pro rata share of the funded loans under the exit term loan and/or cash to the extent the revolver cash paydown has not been fully allocated to holders of revolver claims that elect to participate in the exit revolver.

The exact amount of the revolver cash paydown is subject to finalizing the amount of post-petition interest due to holders of revolver claims on the effective date.

At emergence, holders of senior notes will receive their pro rata share of 70% of the reorganized company’s newly issued equity, subject to dilution by the management incentive plan equity shares and the new warrants.

The remaining 30% of the reorganized company’s newly issued equity will be issued to holders of senior notes purchasing the exit notes under private placements and rights offerings, subject to dilution by the management incentive plan equity shares and the new warrants.

At emergence, the debtors’ general unsecured creditors, including trade creditors, will be paid in full in the ordinary course of business, have their claims reinstated, or otherwise be unimpaired.

The company’s existing common equity will be canceled. Holders will receive their pro rata share of the new warrants, which are exercisable into 7% of the reorganized company’s newly issued common equity, subject to dilution by the management incentive plan equity shares. The new warrants have an exercise period of five years and will include ride-through protection for the duration of their term in the event of a stock-for-stock merger involving the reorganized company.

Holders of other secured claims and other priority claims will receive payment in full in cash.

The offshore oil and gas drilling contractor is based in Houston. The company filed bankruptcy on April 26, 2020 under Chapter 11 case number 20-32307.

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