Hercules plans return to bankruptcy; lender deal calls for asset sale

By Caroline Salls

Pittsburgh, May 27 – Hercules Offshore, Inc. entered into a restructuring support agreement with lenders holding about 99% of its first-lien credit agreement debt, which will be implemented through a Chapter 11 bankruptcy filing, according to a company news release.

Hercules said the agreement seeks to maximize value for its stakeholders and provide a smooth transition for employees, customers and suppliers through an orderly sale of the company’s assets.

Under the terms of the restructuring support agreement, Hercules and some of its U.S. subsidiaries will solicit acceptances and rejections of its pre-packaged Chapter 11 plan from first-lien lenders and shareholders and file voluntary Chapter 11 petitions to compromise its obligations to the first-lien lenders and provide a recovery to its shareholders.

After that, the company said it will place all of its unsold assets into a wind-down vehicle to ensure their continued, safe operation until they can be sold.

The company’s international subsidiaries will not be included as part of the Chapter 11 cases but will be part of the sale process, the release said.

Under the proposed Chapter 11 plan, unsecured creditors will be paid in full.

If the company’s shareholders vote as a class to accept the plan, they will receive cash recoveries over time including a payment of $12.5 million upon the completion of the Chapter 11 process and additional cash distributions thereafter depending on the success of the sale through interests in the post-Chapter 11 wind-down vehicle.

Hercules said the secured lenders likewise are projected to receive cash payments largely dependent on the success of the sale process.

Rig right transfer

As part of the process, the company said it also entered into a definitive agreement to transfer the right to acquire the newbuild harsh environment jack-up rig, formerly named Hercules Highlander, to a subsidiary of Maersk Drilling.

Hercules said the rig is ready for immediate delivery from Jurong Shipyard Pte. Ltd. in Singapore.

According to the agreement, Maersk Highlander UK Ltd. will be the successor to the right to take delivery of the rig and will settle the final payment of roughly $196 million with Jurong.

Forbearance amendment

According to an 8-K filed with the Securities and Exchange Commission, Hercules entered into an amended forbearance agreement with lender agent Jefferies Finance, LLC and the members of an informal lender group.

Under that agreement, the agent and lenders will not enforce specified default-related rights, will consent to the release of all liens and security interests in any assets or property subject to the heavy lift transaction and will consent to the release of loan parties who are not filing bankruptcy from their guarantees under the credit agreement.

As part of the forbearance agreement, the company said it received written notice that the commitments under the first-lien credit agreement are terminated and the outstanding loans under the credit agreement are due and payable.

The forbearance agreement lender parties also directed the agent to distribute all $200 million in the escrow account to prepay the first-lien loans.

Previous bankruptcy

As previously reported, Hercules completed its initial Chapter 11 financial restructuring in November 2015 with a new $450 million senior secured credit facility in place.

Since this time, the company said the ongoing decline in oil prices, the consolidation of its U.S. customer base and the addition of new capacity have negatively impacted dayrates and demand for Hercules’ services.

On Feb. 11, the company announced a special committee comprised of all the independent members of its board of directors to explore strategic alternatives. Hercules said Friday’s announcement is the outcome of that process and follows a thorough sale process, which did not yield results that would have been better for stakeholders than the proposed plan terms.

The company has engaged Akin Gump Strauss Hauer & Feld LLP as its legal counsel, PJT Partners as its financial adviser and FTI Consulting as its restructuring adviser.

Hercules is a Houston-based provider of offshore drilling equipment and services.

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