Constellation makes Chapter 15 filing after reaching deal on notes

By Caroline Salls

Pittsburgh, Dec. 7 – Servicos de Petroleo Constellation SA made a Chapter 15 bankruptcy filing on Thursday in the U.S. Bankruptcy Court for the Southern District of New York to gain U.S. court recognition of its Brazilian judicial reorganization proceedings.

The filing follows an agreement reached by the company, also known as Constellation Oil Services Holding SA and formerly known as QGOG Constellation SA, with the holders of a majority of its 9% cash/0.5% PIK senior secured notes due 2024 on a consensual restructuring.

Foreign representative Andrew Childe said in a statement filed with the court that “the company’s current financial distress arises from the well-publicized global decline in the international oil and gas sector, as well as the financial crisis that continues to grip Brazil.”

Childe said the company’s “financial woes have recently become unsustainable, as long-term charter and service contracts for seven of its eight offshore drilling rigs either have recently expired or are scheduled to expire in the near future.”

As a result, Childe said Servicos de Petroleo Constellation’s debts must be adjusted to give it the time and liquidity needed to weather the current offshore drilling environment, secure new contracts and generate the revenue needed to service its debt.

The representative said the company had reached an agreement on a restructuring term sheet with project financing lenders, its unsecured working capital lender and the company’s shareholders.

Under the agreed terms, the noteholders will provide the company with $27 million of new money, which will be added to the existing notes on the same terms.

The 2024 notes will be amended to pay 9½% interest in kind through 2021 and 8¼% in cash after that until maturity.

Treatment of noteholders not providing new money is to be determined.

All interest rate changes will be effective as of Sept. 1.

Constellation has also entered into a plan support agreement with its A/L/B lenders, Bradesco and its shareholders.

The consenting A/L/B lenders have agreed to re-lend $39 million in principal payments that were escrowed in August and September on the same terms. They will receive a $9 million fee, paid in kind.

Bradesco has agreed to maintain the letter-of-credit facilities provided to the company and will provide a $15 million stand-by facility, available for two years if liquidity falls below $100 million.

For providing the stand-by facility, Bradesco will receive a 100 basis points up-front fee and an 80 bps maintenance fee. Borrowings will be at Libor plus 550 bps.

The company’s shareholders will provide a cash contribution of $27 million at the closing of the restructuring to ensure the company has ample liquidity to withstand a prolonged offshore drilling downturn.

Constellation expects to be able to use cash collateral.

In a cleansing presentation released as required under confidentiality agreements entered into on Oct. 18, the company said its contracted fleet has been “performing well,” its Brava Star was awarded a contract with Shell for a campaign of four firm wells plus options for up to an additional 810 days, a contract was signed for its Laguna Star with QGEP, Constellation is “is in advanced stage” of securing a short-term contract with a major oil company and its Atlantic Star is still working for Petrobras under a well-in-progress clause.

QGOG has missed coupon payments on the notes starting in June.

As of Nov. 30, Childe said Servicos de Petroleo Constellation was liable for $1.5 billion of outstanding third-party funded debt.

The company is represented in the Chapter 15 case by White & Case LLP.

Servicos de Petroleo is a Rio de Janeiro-based offshore drilling company. The Chapter 15 case number is 18-13952.

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