HOUSTON – Hercules Offshore Inc. has entered into a restructuring support agreement with lenders holding about 99% of the indebtedness under its first lien credit agreement.
The news comes about six months after Hercules completed financial restructuring and emerged from Chapter 11 of the US Bankruptcy Code in November 2015.
When it emerged from its first filing, Hercules had a new $450-million senior secured credit facility in place. However, the sustained low pricing environment has continued to take its toll on the industry’s embattled drilling sector.
“Since [emerging from its first restructuring in November 2015], the ongoing decline in oil prices, the consolidation of its US customer base, and the addition of new capacity have negatively impacted day rates and demand for Hercules’s services,” the company said in a statement.
As a result, Hercules has now executed an RSA; under its terms, Hercules and certain US subsidiaries will solicit acceptances and rejections of its pre-packaged Chapter 11 plan from first lien lenders and shareholders. They will also file voluntary Chapter 11 petitions to compromise the company's obligations to its first lien lenders and provide a recovery to its shareholders. All unsold assets will then be placed in a so-called “wind-down vehicle” to ensure their continued, safe operation until they can be sold.
Although Hercules’ international subsidiaries will not be included in the Chapter 11 cases, they will be part of the sale process.
The Wall Street Journal wrote today in its reporting that in “a prepackaged bankruptcy, companies line up creditor support for their debt-payment plans before seeking Chapter 11 protection, allowing them a speedier—and cheaper—trip through bankruptcy.”
Still, the news organization’s report continued, the plan “would ultimately be subject to bankruptcy-court approval.”
“The agreement seeks to maximize value for the company’s stakeholders and provide a smooth transition for employees, customers and suppliers through an orderly sale of the company’s assets,” Hercules said in a statement.
Hercules’s Chapter 11 plan provides that unsecured creditors will be paid in full. It expects to file the First Day Motions to, among other things, maintain employee wages, benefits, and insurance throughout the 11 process. It will file a separate First Day Motion to continue paying its suppliers’ pre-petition claims under normal payment terms.
If the company’s shareholders vote as a class to accept the plan, shareholders will receive cash recoveries over time. This includes $12.5-million payment upon completion of the Chapter 11 process and additional cash distributions thereafter, depending on the success of the sale of the company's assets. The secured lenders likewise are projected to receive cash payments largely dependent on the success of the sale process.
Hercules’ agreement with Maersk Drilling to transfer the right to the formerly named Hercules Highlander is part of this restructuring process.
The company said that the decision followed a review of strategic alternatives by a special committee comprising its independent board members, which was announced in February, three months after emerging from bankruptcy.
“Today’s RSA announcement is the outcome of that process and follows a thorough sale process, which did not yield results that would have been better for stakeholders than what is contemplated by the plan,” Hercules said.