Seadrill Ltd and most of its subsidiaries have filed for Chapter 11 proceedings in the Southern District of Texas as part of a balance sheet restructuring which will involve a debt/equity swap.
The company said the restructuring is likely to result in minimal or no recovery for current shareholders, but will enable Seadrill to continue to operate.
“This announcement marks the start of the court supervised process that will create a company that is financially sustainable for the long term,” said Stuart Jackson, CEO of Seadrill. “We are working closely with our stakeholders to ensure we achieve an outcome that gives us the flexibility to weather the low points in our industry cycles, whilst positioning us well for market recovery.”
The proceedings mark the second time since 2017 that Seadrill has entered into Chapter 11. The Oslo-listed group controlled by John Fredriksen listed debts and liabilities amounting to $7.3 billion at the end of the third quarter of 2020. Last week, Seadrill’s wholly-owned subsidiaries in Asia also filed for Chapter 11 in Texas.
“I would like to thank all our stakeholders for their continued support as we move through this legal process, in particular, our customers, vendors and employees, all of whom demonstrate continued support of our safe and efficient operational delivery,” said Jackson.
SFL Corporation Ltd owns maritime vessels and three offshore drilling rigs, the latter of which it charters out to Seadrill under long-term charters. SFL said it would take a $187 million hit in the deal.
In connection with the proceedings, SFL has entered into agreements relating to two of its drilling rigs that are chartered to subsidiaries of Seadrill to ensure uninterrupted performance on the sub-charters to oil majors. The agreements are subject to approval by the bankruptcy court.
Seadrill will be allowed to use funds received from the respective sub-charterers of the rigs West Linus and West Hercules to pay a fixed level of operating and maintenance expenses. In exchange, SFL will receive approximately 75% of the lease hire under the existing charter agreements for West Linus and West Hercules, for the same period. The agreed amounts are sufficient to cover the full debt service relating to these rigs.
“With regards to the rig West Taurus, the lease is expected to be rejected as part of Seadrill’s Chapter 11 Proceedings, and redelivered to SFL. This rig is debt free and has been held in layup by Seadrill for more than five years, and SFL is currently evaluating strategic alternatives for it, including potential recycling at an EU approved green recycling facility. Consequently, SFL expects to record a net negative book adjustment of approximately $187 million in the fourth quarter of 2020, inclusive of a gain on the redemption of the bank debt,” SFL said in an update.
“As previously announced, Seadrill’s failure to pay hire under the leases for the [SFL’s] drilling rigs when due, along with certain other events, including the commencement of its Chapter 11 Proceedings, constitute events of default under such leases and the related financing agreements,” the update said.