Noble Corp. plc (NYSE: NE) has reached a settlement agreement in principle with Paragon Offshore plc, the company spun-off by Noble in 2014, following the public announcement by Paragon that it has reached agreement with certain of its creditors in connection with its previously announced restructuring efforts and intends to seek court approval of a prenegotiated bankruptcy plan.
Pursuant to the terms of the settlement between Noble and Paragon, once the settlement agreement becomes effective, Paragon would release Noble from all claims relating to the spin-off of Paragon by Noble in 2014, including any fraudulent conveyance claim that could be brought on behalf of Paragon's creditors, and Noble would assume certain pre-spin-off obligations relating to Paragon's Mexican tax matters.
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 the pertinent 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 Noble and Paragon 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 expects the tax liability payments related to the settlement to be spread over a number of years. Based on its understanding of these matters and its experience to date in Mexico, 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.
David W. Williams, chairman, president, and CEO of Noble Corp., stated, "Like many companies, Paragon has been hard hit by the unanticipated deterioration in oil prices that has persisted into 2016. Noble established Paragon in a manner it believed would allow Paragon to fully succeed and believes this proposed restructuring will assist Paragon in its efforts to manage this unforeseen, severe downturn. We are pleased to have found a way to constructively engage with Paragon in a manner that can assist them in their restructuring efforts, while at the same time reaching an arrangement that avoids the distraction and expense of the litigation, regardless of merit, that would otherwise inevitably follow a bankruptcy filing by Paragon. Noble is familiar with the tax positions and history, and we believe Noble is well-positioned to manage these matters in a way that should result in limited actual liability and without any material impact to our liquidity. Our ability to defend and administer these tax matters allowed us to find a mutually agreeable solution that is in Noble's best interests."
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.