Valaris, the world's largest offshore drilling contractor by fleet size, filed for bankruptcy on Wednesday, in a move to restructure its debt load and reduce debt by more than $6.5 billion.
The company has been hit by the combined effects of the global COVID-19 pandemic, a drop in oil prices, and a decline in the demand for its services and falling rig rates.
It said Wednesday it had entered into restructuring agreements with approximately 50% of its noteholders to undergo "a financial restructuring that is intended to reduce its debt load substantially, support continued operations during the current lower demand environment and provide a robust financial platform to take advantage of market recovery over the long term."
The agreement implies the full equitization of the company's pre-petition revolving credit facility and unsecured notes, a fully backstopped rights offering to noteholders for $500 million of new secured notes, the effective cancellation of existing equity interests in the company in exchange for, in certain circumstances, warrants for post-emergence equity and payment of trade claims in full in cash.
It also said it looks forward to working with its other creditors and stakeholders who have not signed the restructuring support agreement "to advance the Company's efforts to restructure its balance sheet."
As part of the restructuring plan, Valaris voluntarily filed for a Chapter 11 financial restructuring in the United States Bankruptcy Court for the Southern District of Texas.
"Valaris aims to pursue an efficient restructuring process and exit Chapter 11 as soon as possible and is confident that a comprehensive financial restructuring is in the best interest of the Company and its stakeholders in the long-term. Upon consummation of the contemplated restructuring transactions, Valaris will have one of the best balance sheets in the offshore drilling industry," Valaris said.
In its previous statements in which it said it was contemplating filing for Chapter 11, Valaris said that its restructuring "may result in cancellation of existing equity interests and little or no recovery to existing shareholders."
'Business as usual'
Valaris was formed last year through a merger between drilling firm Ensco and Rowan. Initially named Ensco Rowan, then renamed Valaris, the merged company became the world's largest offshore driller in terms of fleet size, operating, at the time of the merger, 16 drillships, 12 semisubmersibles, 54 jack-ups, and two deepwater managed units.
In a statement on Wednesday, Valaris said the debt restructuring efforts are not expected to affect its day to day operations.
"Our customers should experience no interruption during this process. Our contracts remain intact and we will operate as normal...The restructuring process will not affect the day rates," Valaris said.
"The company remains confident that it will be able to maintain liquidity and operate in the ordinary course of business as a result of having approximately $175 million in cash and committed Debtor-in-Possession ("DIP") financing from certain of its noteholders to provide the company with an additional $500 million of liquidity, with an option to have no cash interest, to support its operations throughout the Chapter 11 process," it added.
Tom Burke, President and Chief Executive Officer of Valaris: "The substantial downturn in the energy sector, exacerbated by the COVID-19 pandemic, requires that we take this step to create a stronger company able to adapt to the prolonged contraction in the industry, and to continue to enhance our position as overall market conditions improve."
Burke continued: "We have taken several steps to right-size and streamline our organization in line with our goal to be the offshore drilling cost leader. Now, we intend to use this restructuring to complement these measures to create a stronger financial structure for the Company. Valaris will continue to serve our customers uninterrupted through this process, delivering safe and reliable operations, through its highly-capable rig fleet."
Burke concluded: "We appreciate the continued support of all of our stakeholders throughout this process, particularly our employees who continue to provide excellent service to our customers amid challenging market conditions, while upholding the Valaris values of integrity, safety, excellence, respect, ingenuity, and stewardship."