Paragon Offshore plc (“
Paragon” or the
“
company”) (OTC:PGNPQ) announced today that it has
reached an agreement in principle with an ad hoc committee holding
secured debt under Paragon’s Senior Secured Term Loan maturing July
2021 (the “
Term Loan,” and such lenders, the
“
Term Lenders”) and a steering committee holding a
majority of the secured debt under Paragon’s Senior Secured
Revolving Credit Agreement maturing July 2019 (the
“
Revolving Credit Agreement” and such lenders, the
“
Revolver Lenders”) on a term sheet (the
“
Term Sheet”) to support a new plan of
reorganization (the
“New Plan”) under chapter 11
of the United States Bankruptcy Code. Holders of Paragon’s 6.75%
senior unsecured notes maturing July 2022 and 7.25% senior
unsecured notes maturing August 2024 (together, the “
Senior
Unsecured Notes,” and such holders, the
“
Bondholders”) are not party to the Term Sheet.
However, the Company has been and remains in discussions with the
Bondholders regarding the terms of a new chapter 11 plan of
reorganization.
Dean E. Taylor, President and Chief Executive
Officer, said, “After confirmation of our previous plan of
reorganization was denied, the company regrouped, developing a
revised business plan which focuses our future activity on
Paragon’s core regions in the North Sea, Middle East, and
India. We incorporated feedback from the court’s ruling by
adopting more conservative dayrate and utilization projections in
our model and had these assumptions validated by outside
parties. Under our new business plan, our operations will be
focused on markets where we have an installed base, strong customer
relationships, and that we believe are ripe for a recovery.
We expect to be well positioned to capitalize on that recovery
through a strong balance sheet, sufficient liquidity, and a more
efficient cost structure.”
“Using this business plan as our basis, we
entered discussions with all of our creditor groups and, after
significant negotiation, reached agreement on this Term Sheet with
our secured lenders, which virtually eliminates all of the previous
debt from the company’s balance sheet while providing sufficient
liquidity to position us for a longer-term recovery in the offshore
drilling industry.”
“Although our New Plan is not consensual among
all of the creditor groups, we will continue to remain in
discussions with the Term Lenders, Revolver Lenders, and
Bondholders in hopes of reaching a fully consensual agreement,”
continued Mr. Taylor. “However, even if we are unable to
reach a consensual deal, we will diligently seek approval of the
New Plan as outlined in the Term Sheet. In the interim,
Paragon will continue to operate our business in the Safe,
Reliable, and Efficient manner for which we are known throughout
the industry.”
Terms of the Revised Plan
Under the New Plan, approximately $2.4 billion of previously
existing debt will be eliminated in exchange for some combination
of cash, debt and to-be-issued new equity. The current debt
consists of:
- An aggregate principal amount of approximately $642 million
related to claims by the Term Lenders;
- An aggregate principal amount of approximately $777 million
related to claims by the Revolver Lenders; and
- An aggregate principal amount of approximately $1.0 billion
related to claims by the Bondholders.
If confirmed, the Term Lenders and Revolver
Lenders (collectively, the “Secured Lenders”) are
projected to each receive their pro rata share of approximately
$421 million in cash, which amount is subject to further adjustment
on account of claims reserves to be established and working capital
and other adjustments at the time of emergence, and an estimated
58% of the new, to-be-issued common equity, subject to
dilution. The Bondholders are projected to receive
approximately $50 million in cash, which amount is subject to
further adjustment on account of claims reserves to be established,
and an estimated 42% of the new, to-be-issued common equity,
subject to dilution. Existing shareholders are not expected
to receive a recovery under the New Plan.
Mr. Taylor commented, “We are disappointed that
we were unable to develop a plan of reorganization that preserves
value for existing equity holders, especially after previous plans
did so. Unfortunately, during the course of our most recent
negotiations, it became clear that there was no viable way forward
that included a recovery component for our current
shareholders.”
Additional elements of the New Plan include:
- The Secured Lenders shall be allocated new senior secured first
lien debt in the original aggregate principal amount of $85 million
maturing in 2022 (the “New Debt”). Interest
on the New Debt will be LIBOR + 6%, payable quarterly in-kind or in
cash at the company’s discretion with a minimum of 1% of interest
to be paid in cash. The New Debt will contain customary
affirmative covenants, restrictions on dividends or equity
repurchases, and restrictions on additional incurrence of secured
indebtedness, notwithstanding the ability to refinance the
Prospector sale leaseback arrangement. There will be no
prepayment restrictions or penalties.
- The New Debt will permit the company to obtain up to an
aggregate face amount of $35 million in letters of credit senior to
the New Debt. Existing letters of credit will remain in
place.
- The sale-leaseback arrangement for the Prospector rigs remains
unchanged.
- The Term Sheet contemplates adopting the previously disclosed
settlement agreement between Paragon and Noble Corporation
(“Noble”) (NYSE:NE), subject to agreement by
Noble.
- The company expects to emerge from the Chapter 11 process with
approximately $190 million of cash on hand, providing adequate
liquidity for the company’s revised, more focused business
plan.
- The Secured Lenders will be entitled to appoint a majority of
the reorganized company’s new board of directors upon
emergence.
Anticipated Process and
Schedule
Paragon, with the support of its Secured
Lenders, is currently developing and expects to file the New Plan
and a new disclosure statement with respect to the New Plan in the
next few weeks. Upon approval of the disclosure statement,
the company expects to enter a solicitation period during which
certain impaired creditor classes will have the opportunity to vote
on the New Plan. The New Plan will be subject to usual and
customary conditions to plan confirmation, including obtaining the
requisite vote of creditors and approval of the United States
Bankruptcy Court for the District of Delaware. The company
will seek to obtain court approval of the New Plan and emerge from
chapter 11 as soon as possible in the first half of 2017. Any
objections to the New Plan could result in a delay in the date of
emergence.
Additional Information
Details of the agreements described herein and
copies of the Term Sheet relating to the New Plan can be found in
the Current Report on Form 8-K that the company expects to
file today. Additional information will be available on
Paragon’s website at www.paragonoffshore.com or by calling
Paragon’s Restructuring Hotline at 1-888-369-8935.
Weil, Gotshal & Manges LLP is serving as
legal counsel to Paragon, Lazard is serving as financial advisor,
and AlixPartners is serving as restructuring advisor.
Forward-Looking Disclosure
Statement
This document contains forward-looking
statements. Statements regarding any agreements reached with
debtholders, including the Term Sheet and its description,
Paragon’s new business plan, Paragon’s ability to obtain approval
of the New Plan, its ability to implement the proposed transaction
set forth under the New Plan, Paragon’s capital structure and
competitive position following emergence from bankruptcy, the
bankruptcy process including timing and steps, the ability to adopt
the previously disclosed settlement agreement with Noble, and
implications for shareholders, as well as any other statements that
are not historical facts in this release, are forward-looking
statements that involve certain risks, uncertainties and
assumptions. These include but are not limited to risks associated
with the general nature of the oil and gas industry, actions by
regulatory authorities, customers and other third parties, and
other factors detailed in the “Risk Factors” section of Paragon’s
annual report on Form 10-K for the fiscal year ended December 31,
2015, Paragon’s most recently filed report on Form 10-Q, and in
Paragon’s other filings with the SEC, which are available free of
charge on the SEC's website at www.sec.gov. Should one or more of
these risks or uncertainties materialize, or should underlying
assumptions prove incorrect, actual results may vary materially
from those indicated.
About Paragon Offshore
Paragon is a global provider of offshore
drilling rigs. Paragon’s operated fleet includes 34 jackups,
including two high specification heavy duty/harsh environment
jackups, four drillships, and two semisubmersibles. Paragon’s
primary business is contracting its rigs, related equipment and
work crews to conduct oil and gas drilling and workover operations
for its exploration and production customers on a dayrate basis
around the world. Paragon’s principal executive offices are located
in Houston, Texas. Paragon is a public limited company registered
in England and Wales with company number 08814042 and registered
office at 20-22 Bedford Row, London, WC1R 4JS, England. Additional
information is available at www.paragonoffshore.com.
For additional information, contact:
For Investors & Media:
Lee M. Ahlstrom
Senior Vice President & Interim Chief Financial Officer
+1.832.783.4040
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