Hercules Offshore returns to bankruptcy to sell all assets, wind down

By Caroline Salls

Pittsburgh, June 6 – Hercules Offshore, Inc. filed Chapter 11 bankruptcy Monday in the U.S. Bankruptcy Court for the District of Delaware after receiving accepting votes from lenders holding 99.7% of its first-lien debt on a pre-packaged plan of reorganization, according to a news release.

Under the plan, all of the company’s assets will be marketed for sale, and those left unsold at the completion of the Chapter 11 process will be placed into a wind-down vehicle to ensure their continued operation until sales are finalized.

Unsecured creditors will be paid in full in the ordinary course of business or at the completion of the Chapter 11 process.

Shareholders will receive cash recoveries and interests in the wind-down vehicle if they vote as a class to accept the plan or just interests in the wind-down vehicle if the class votes against the plan.

Specifically, the company said shareholders will have to wait until the lenders are paid in full before receiving any recovery on their interests if the class votes to reject the plan as opposed to receiving their share of $12.5 million on the effective date of the plan and incremental cash distributions thereafter based on the success of the sale process if the class votes to accept the plan.

The lenders also will receive cash payments largely dependent on the success of the sale process but have agreed to compromise their own recoveries to pay unsecured claims in full and provide a recovery to the shareholders before being paid in full if the shareholder class votes to accept the plan.

Hercules said it plans to operate its rigs and vessels as usual throughout the sale process and to meet its commitments to employees, customers and suppliers worldwide.

To this end, the company said it filed the typical first-day motions as part of its Chapter 11 case to continue its existing employee wage and benefit programs and to maintain its insurance. The company also has filed a motion to continue paying suppliers’ claims for goods and services delivered before the bankruptcy filings under normal payment terms and fully expects to pay suppliers as usual for deliveries made from Monday forward.

In addition, the company requested court approval to use the cash collateral of its pre-bankruptcy secured parties to fund its operations while in bankruptcy.

The access to cash collateral will terminate on Sept. 1.

Hercules continues to solicit votes from its shareholders, the release said.

The company said its international subsidiaries are not included as part of the Chapter 11 cases but will be part of the sale process.

As previously reported, Hercules entered into a restructuring support agreement with lenders holding about 99% of its first-lien credit agreement debt.

According to court documents, Hercules had $1,062,807,000 of total assets and $521.38 million of total debt as of March 31.

Forbearance amendment

Hercules announced last month that it 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 were terminated and the outstanding loans under the credit agreement were 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

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 the decision to re-enter bankruptcy 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. The Chapter 11 case number is 16-11385.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.