Seadrill Ltd. files Chapter 11 bankruptcy for second time in four years

By Sarah Lizee

Olympia, Wash., Feb. 11 – Seadrill Ltd. and its consolidated subsidiaries filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas on Wednesday, following petitions made on Sunday by a series of wholly owned Asian subsidiaries.

This is the second time Seadrill Ltd. has filed Chapter 11 bankruptcy in four years, following its Sept. 12, 2017 entry and July 2, 2018 emergence.

The company said in court documents that the oil and gas market remained in a sustained downturn after it emerged in 2018, followed by further damage caused by the dual demand and supply shock of the Covid-19 pandemic and the OPEC-Russia oil price war.

“These external forces combined to prevent Seadrill from reaping the benefits of the prior restructuring,” the company said.

As a result, Seadrill has been engaged in active negotiations with creditors across its capital structure for the better part of the last year, including with a coordinating committee of various lenders under the company’s 12 secured credit facilities, an informal group of facility lenders and an informal group of holders of 12% senior secured notes due 2025.

Seadrill said that despite its efforts to build consensus for a restructuring transaction, the parties have not agreed on the terms of a restructuring in large part because of the different debt holdings of the groups and the “disparate views” those groups hold about the right approach to the restructuring.

Most of Seadrill’s secured debt lies in 12 distinct silos, each with its own individual rigs as collateral. The coordinating committee and the informal lender group control different silos and, given the respective holdings, even if Seadrill reached a comprehensive deal with one of the groups of creditors, neither has sufficient holdings to deliver the consent of each of the 12 silos.

The company said the conflict is what led directly to the timing of the Chapter 11 filing.

Over the past several weeks, Seadrill said it was nearing an agreement with the coordinating committee on the terms of a proposed restructuring, but the informal lender group opposed the plan and refused to provide a forbearance for the facilities it controlled. As such, Seadrill was in default without a forbearance on some facilities and faced the threat of enforcement by the lender group.

To avoid the enforcement, the company filed Chapter 11 petitions to obtain the benefit of the automatic stay while it continues to operate its business and negotiate with various stakeholders.

Seadrill said wholly owned subsidiary Seadrill New Finance Ltd. has entered into a forbearance agreement with some holders of the 12% notes due 2025. The consenting creditors have agreed not to exercise any enforcement rights until and including the earlier of Feb. 24 and any termination of the forbearance agreement.

The debtors reached an agreement in principle with the coordinating committee on the terms of use of cash collateral on an interim basis, which is subject to court approval. The company said it has also had constructive dialogues with the lender group regarding the interim order.

The company said it has about $550 million in cash and is seeking relief to use it together with post-petition receipts from operations to prosecute its cases and operate its businesses on a post-petition basis. Seadrill said it will not pursue any debtor-in-possession financing.

The company filed first-day motions that will enable day-to-day operations of the group to continue as usual.

As a consequence of the Chapter 11 cases, Seadrill will submit an application to the Bermuda Supreme Court for the appointment of joint provisional liquidators under Bermuda law to oversee the Chapter 11 cases in conjunction with the board of directors of the company.

Debt details

The company listed $7.29 billion in assets and $7.19 billion in liabilities in its petition.

Its largest unsecured creditors are National Oilwell Varco LP, based in Stavanger, Norway, with a $2.38 million trade payable claim, Sodexo Mobile Units AS, based in Paris, with a $1.43 million trade payable claim and Cameron International Corp., based in Randaberg, Norway, with a $1.4 million trade payable claim.

The company has engaged Kirkland & Ellis LLP as legal counsel, Houlihan Lokey, Inc. as financial adviser and Alvarez & Marsal as restructuring adviser. Slaughter and May has been engaged as corporate counsel. Advokatfirmaet Thommessen AS is serving as Norwegian counsel. Conyers Dill & Pearman is serving as Bermuda counsel.

London-based offshore drilling company Seadrill filed Chapter 11 bankruptcy under case number 21-30427.

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