Hercules Offshore to enter Chapter 11, divest assets

On May May 27, 2016, Hercules Offshore Inc. (Nasdaq: HERO) announced intentions to enter a Chapter 11 and divest assets following a review of its strategic alternatives. The company has entered into a Restructuring Support Agreement (RSA) with lenders holding approximately 99% of the indebtedness under its first lien credit agreement.

Under the terms of the RSA, Hercules and certain of its US subsidiaries will solicit acceptances and rejections of its pre-packaged Chapter 11 plan from first lien lenders and shareholders, file voluntary Chapter 11 petitions to compromise the company's obligations to its first lien lenders and provide a recovery to its shareholders, and then place all of the company's unsold assets into a wind-down vehicle to ensure their continued, safe operation until they can be sold. The company's international subsidiaries will not be included as part of the Chapter 11 cases but will be part of the sale process.

Hercules's Chapter 11 plan provides that unsecured creditors will be paid in full. The company expects to file the typical First Day Motions to, among other things, maintain employee wages and benefits and insurance throughout the Chapter 11 process and 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 including a payment of $12.5 million upon the completion of the Chapter 11 process and additional cash distributions thereafter depending on the success of the sale of the Company's assets through interests in the post-Chapter 11 wind-down vehicle. The secured lenders likewise are projected to receive cash payments largely dependent on the success of the sale process.

As part of the process, Hercules also announced today that it has entered into a definitive agreement to transfer the right to acquire the newbuild harsh environment jack-up rig, formerly named Hercules Highlander, to a subsidiary of Maersk Drilling (CPH: MAERSK). The rig is ready for immediate delivery from Jurong Shipyard Pte Ltd ("Jurong") in Singapore. According to the agreement, Maersk Highlander UK Ltd. succeeds to the right to take delivery of the rig and will settle the final payment of approximately $196 million with Jurong.

On November 6, 2015, Hercules completed its initial financial restructuring under Chapter 11 of the US Bankruptcy Code with a new $450 million senior secured credit facility in place. On February 11, 2016, the company announced a Special Committee comprised of all the independent members of its Board of Directors to explore strategic alternatives. The RSA announcement is the outcome of that process.

The company has engaged Akin Gump Strauss Hauer & Feld LLP as its legal counsel, PJT Partners as its financial advisor and FTI Consulting as its restructuring advisor.

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