Valaris lender agent objects to choice of noteholders’ DIP facility

By Caroline Salls

Pittsburgh, Sept. 15 – Valaris plc lender agent Citibank, NA objected to approval of the company’s debtor-in-possession financing, according to a Monday filing with the U.S. Bankruptcy Court for the Southern District of Texas.

Citibank said Valaris received two DIP financing proposals before it filed bankruptcy, including a revolving credit DIP facility that pre-bankruptcy revolver parties were willing to provide and a term loan DIP facility to be provided by a subset of the company’s noteholders who are also parties to its restructuring support agreement.

“Confronted with the ‘two favorable DIP proposals,’ the debtors chose the more expensive ad hoc term loan DIP facility,” the objection said.

“In doing so, the debtors immediately and improperly wasted at least $20 million in commitment fees paid to members of the ad hoc group, which fees they are expected to use as financial justification for why they cannot now right the wrong of saddling the estate with a more expensive debtor-in-possession credit facility.”

In addition, the agent said the fees were paid as the first step in a process to “chain the debtors to the ad hoc restructuring support agreement,” which Citibank said calls for a transfer of hundreds of millions of dollars to members of the noteholder group.

Citibank said the revolver lenders’ proposal was superior to the noteholders’ facility “on nearly every significant financial criterion,” including providing a lower interest rate, lower fees and lower letter-of-credit costs.

The agent said the lenders’ facility also would preserve value for creditors because it called for a smaller facility size, would avoid compounding PIK payments that only benefit the noteholders and would not be tied to any plan outcome.

Valaris is a London-based offshore drilling company. The company filed bankruptcy on Aug. 19 under Chapter 11 case number 20-34114.

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