Seadrill New Finance wins confirmation of one-day pre-packaged plan

By Sarah Lizee

Olympia, Wash., Jan. 12 – Seadrill Ltd. subsidiary Seadrill New Finance Ltd.’s one-day pre-packaged Chapter 11 plan of reorganization was confirmed Wednesday afternoon by the U.S. Bankruptcy Court for the Southern District of Texas, according to court documents.

“The plan provides the issuer with financial and strategic flexibility and stability by amending and extending the issuer's secured notes, effectuating a transfer of majority ownership of the issuer from the wider Seadrill group to the secured noteholders, and facilitating the entry into management agreements with Seadrill for the continued provision of management services and operational support to the issuer and its subsidiaries,” the companies said in a press release issued after the Wednesday hearing.

The one-day restructuring is the final component of the broader Seadrill group’s comprehensive restructuring efforts, the company had said Tuesday.

The Seadrill New Finance entities were established as part of the Seadrill Ltd. debtors’ first Chapter 11 restructuring as a set of holding companies that were wholly owned by the Seadrill Ltd. debtors.

On the effective date of Seadrill’s first restructuring in 2018, the Seadrill New Finance group issued $880 million of new secured notes in exchange for $875 million in cash. As collateral for the secured notes, the group granted security interests in various joint ventures and minority-owned companies.

Now, there is about $535 million in aggregate principal amount of secured notes outstanding externally.

U.S. trustee’s objection

Along with its order confirming the plan, the court overruled an objection that came late Tuesday from Region 7 U.S. trustee Kevin M. Epstein.

“The debtors seek to waive critical bankruptcy code requirements, approve the disclosure statement and confirm the plan within 24 hours of filing for bankruptcy,” Epstein had said in his objection.

“Due process requires that parties-in-interest, governmental agencies, and the court have a reasonable period of time to evaluate and to react to 12 Chapter 11 cases.”

The U.S. trustee said the speed of these cases effectively shifts the burden to the creditor body without protections contemplated by the bankruptcy code.

Plan terms

Seadrill said that with the consent of 99.99% of voting creditors by amount and sole shareholder, Seadrill Investment Holding Co. Ltd., the Seadrill New Finance entities filed their Chapter 11 cases to implement a restructuring of the notes.

As previously reported, the key terms of the plan include:

• The release by the holders of the issuer’s 12% senior secured notes due 2025 of all existing guarantees and security and claims, if any, with respect to Seadrill and its subsidiaries, excluding Seadrill New Finance and some of its subsidiaries;

• The noteholders receiving 65% of pro forma equity in the issuer, with Seadrill Investment Holding retaining the remaining 35% of pro forma equity in the issuer, which will effect a separation of the issuer and its subsidiaries, including the Seabras Sapura assets and the SeaMex group, from the consolidated Seadrill group;

• Noteholders will have appointment rights in respect of four out of five of the issuer’s directors on the board of the restructured issuer’s group, with the remaining director to be appointed by Seadrill;

• New notes will be issued pro rata to noteholders on amended terms, including a maturity date of July 15, 2026, interest of either 9%, consisting of 3% cash interest plus 6% PIK interest, or 10% PIK, in each case payable quarterly, and call protection of 105 on or after July 15, 2021, 102 on or after July 15, 2022, and par on or after July 15, 2023;

• Noteholders will have a first priority right to fund any additional liquidity needs of the issuer or its affiliates; and

• Seadrill will continue to provide certain management services to the issuer’s group, with resolution and commercial agreement on payment of go-forward management fees.

Only one creditor holding about $22,000 in secured notes voted to reject the plan, whereas around 79.46% by principal amount of impaired creditors submitted ballots in favor of the plan.

The company said the plan doesn’t impair any stakeholders other than those that have overwhelmingly voted in favor of the plan, including Seadrill and the secured noteholders.

The debtors aren’t aware of any general unsecured claims outstanding; however, if any general unsecured claims are outstanding, they will ride through the Chapter 11 cases and will be paid in the ordinary course of business.

Kirkland & Ellis LLP and Slaughter and May are serving as legal advisers to the issuer in connection with the restructuring. Akin Gump Strauss Hauer & Feld are serving as legal advisers to an ad hoc group of the noteholders, and Ducera Partners LLC is serving as the ad hoc group’s financial adviser.

Seadrill said the actions are not expected to impact the recoveries existing shareholders of Seadrill Ltd. will receive under the Seadrill Ltd. plan, which was confirmed on Oct. 26, as previously reported.

London-based offshore drilling company Seadrill Ltd. filed Chapter 11 bankruptcy on Feb. 7, 2021 under case number 21-30427. The Seadrill New Finance entities jointly filed bankruptcy on Jan. 11 under case number 22-90001.

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