LONDON – Noble Corp. plc has reached a settlement agreement in principle with Paragon Offshore plc, a company that was spun off by Noble in 2014. The settlement followed Paragon’s announced plan support agreement with an ad hoc committee representing 77% (in aggregate) of its unsecured senior noteholders in connection with its previously announced restructuring efforts.
Once the settlement agreement is effective, Paragon will release Noble from all claims relating to its spin-off, including any fraudulent conveyance claim that could be brought on behalf of Paragon’s creditors. Noble would then assume certain pre-spin-off obligations relating to Paragon’s Mexican tax matters.
Paragon said that these noteholders will exchange $984 million in senior unsecured notes for $345 million in cash up-front plus 35% of equity, and its revolver banks will receive $165 million in exchange for providing covenant relief.
Paragon intends to facilitate this restructuring through a voluntary filing of bankruptcy on or before Feb. 14. The restructuring is expected to eliminate more than $1.1 billion of debt and reduce annual cash interest payments by nearly $60 million. Under its Chapter 11 filing, the company will continue to operate in the ordinary course, and said it was “confident that the process will allow us to significantly reduce our debt, positioning Paragon for long-term growth and success.”
In exchange for the release, Noble would take control of the administration and defense of Paragon’s Mexican income, value-added and customs tax audit, and assessment matters, for specified years up to and including 2010. For these years, Noble would assume the Mexican income and value added tax liabilities relating to the Paragon business arising out of the audit and assessment process to the extent incurred in Noble’s own legal entities.
Paragon and Noble would equally share the other income, value-added and customs tax liabilities arising out of such audit and assessment process. Noble would post any required tax appeal bond, and the two companies would share the other costs of administering and defending these tax matters. Paragon would retain liability for all years not covered by the agreement. Noble is not making any cash settlement payment or assuming any other obligations in exchange for the release.
Noble said it expects the tax liability payments related to the settlement to be spread over a number of years. The company currently expects the net amount that it will actually pay over the period of the settlement for its portion of the taxes to be in the range of $8 to $12 million, although the final amount and the timing of such payments will depend on a number of factors. Once the settlement with Paragon is approved by the bankruptcy court, Noble would take a charge related to such payments as well as its share of the expenses expected to be incurred in connection with those tax liabilities.
The settlement agreement is subject to finalization of definitive agreements and bankruptcy court approval, which will be sought as part of the bankruptcy plan to be filed by Paragon. Noble plans to assume control of the audit and assessment matters under an interim agreement so that it can immediately begin its efforts to mitigate the tax liability and any bonding requirements.
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