Paragon Offshore plc (OTC: PGNPF) has entered into a plan support agreement (PSA) with an ad hoc committee representing 77% in the aggregate of holders of Paragon's 6.75% senior unsecured notes maturing July 2022 and 7.25% senior unsecured notes maturing August 2024 (together, the bondholders) to support a restructuring of Paragon's balance sheet.
Furthermore, a group comprising approximately 89% of the amounts outstanding ("revolver lenders”) under Paragon's senior secured revolving credit agreement has also signed the PSA in support of the company's restructuring efforts. Under the terms of the PSA, the company will reduce its debt and receive certain covenant relief. Approval of the transaction by the revolver lenders and the bondholders will require that 2/3 in principal amount and 1/2 in number of those voting in each class to approve the transaction.
Under the terms of the PSA, the revolving credit agreement will be modified in exchange for a cash paydown of the loan of $165 million. The balance of the revolving credit agreement following the payment, $631 million, including $87 million of outstanding letters of credit, will be extended in maturity and converted to a term loan due in 2021 at an interest rate of LIBOR plus 4.50% with a 1.00% percent LIBOR floor. The company will be subject to a minimum liquidity covenant of $110 million throughout the term of the amended revolving credit agreement. The net leverage ratio and interest coverage covenants are suspended for 2016 and 2017, but will be reintroduced beginning in the first quarter of 2018. Paragon and the revolver lenders have also agreed to certain other amendments to the revolving credit agreement relating to mandatory prepayments, collateral and security, and other covenants and payment baskets.
In addition, holders of $457 million of the company's 6.75% senior unsecured notes maturing July 2022 and holders of $527 million of the company's 7.25% senior unsecured notes maturing August 2024 will collectively receive $345 million of cash. Bondholders will also be entitled to receive additional cash payments if Paragon's consolidated EBITDA, as defined in the PSA, meets certain targets in 2016 and 2017. If consolidated EBITDA equals or exceeds $209 million in 2016, the bondholders will receive a cash payment of $20 million at the end of 2016. For 2017, if consolidated EBITDA equals or exceeds $248 million but is less than $276 million, the bondholders will receive a cash payment at the end of 2017 of $15 million; however, if EBITDA equals or exceeds $276 million, the bondholders will receive a cash payment at the end of 2017 of $30 million. Paragon will also issue equity to bondholders such that bondholders will own 35% of the company's common equity upon the consummation of the restructuring. Existing shareholders will retain ownership of 65% of the company's common equity. The bondholder group will be entitled to appoint one additional member to the company's board of directors following the financial restructuring.
The PSA contemplates that Paragon will implement the restructuring through a plan of reorganization that will be implemented by filing for voluntary relief under Chapter 11 of the US Bankruptcy Code in the US Bankruptcy Court in the District of Delaware on or before Feb. 14. Paragon expects to maintain sufficient liquidity throughout the restructuring process to maintain its business operations. The company will continue to provide customers with safe, reliable, and efficient operations, and does not expect any impact on customers. Vendors, as well as employees, will be paid in the normal course of business.
The PSA anticipates that the company's term loan will not be impacted by the Chapter 11 process and that the term loan will remain in place under its original terms.
Paragon does not expect the terms and conditions of its previously announced sale-leaseback agreement related to the two heavy-duty, harsh-environment jackup units, Prospector 1 and Prospector 5, to be affected by the restructuring.
Randall D. Stilley, president and CEO of Paragon, stated that the agreement, once completed, will allow Paragon to eliminate more than $1.1 billion of debt and reduce annual cash interest payments by nearly $60 million, thus strengthening the company’s balance sheet. He noted that Paragon will continue to operate as usual, paying its employees and vendors in the normal course while providing the same level of service to its customers.
Paragon also announced Feb. 12 that it has entered into a binding term sheet with respect to a definitive settlement agreement with Noble Corp. (NYSE: NE). Under this agreement, Noble will provide direct bonding in fulfillment of the requirements necessary to challenge tax assessments in Mexico relating to the Paragon business for the tax years 2005 through 2010.