Houston-based Hercules Offshore entered into a restructuring support agreement with a group of its debt holders that will shakeup the company’s finances and position Hercules to benefit during the expected rebound in the offshore drilling industry.
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The Hercules 260 that Eni will use in West Africa. Image from Hercules. |
In the restructuring, debt holders will convert US$1.2 billion into new common equity, and will backstop $450 million of new debt financing. The $450 million will fully fund the remaining costs needed to finish the construction of the newbuild Hercules Highlander jackup, and provide additional cash to fund the company's operations.
The debt holders collectively own or control more than 67% of the aggregate outstanding principal amount of the company’s 10.25% senior notes due 2019; 8.75% senior notes due 2021; 7.5% senior notes due 2021; and 6.75% senior notes due 2022.
According to Hercules, the debt holders will seek to implement this balance sheet restructuring through either a prepackaged or pre-negotiated plan of reorganization. As set forth in the agreement, implementation of the prepackaged plan of reorganization or commencement of a Chapter 11 case with a pre-negotiated plan of reorganization will occur within the next few weeks.
"We have reached a restructuring agreement with an overwhelming majority of our senior noteholders that will allow Hercules to substantially reduce its debt burden and secure additional liquidity to help us navigate the current downcycle. The agreement we reached contemplates a value maximizing transaction for the company, which we expect will impact our balance sheet only, while our operations will continue as usual. Once our financial restructuring is completed, the new capital structure will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the downcycle in crude oil prices and expected influx of newbuild jackup rigs over the coming years," John T. Rynd, Hercules president and CEO said.
The agreement will see all trade creditors, suppliers, contractors, and employees to be paid in the ordinary course of business.
Hercules has seen its ups and downs this past year, from five-year deals to contract cancellations to workforce reductions, and more.
The Good
Earlier this month, Saudi Aramco rescinded its termination notice on Hercules 261. The two companies reinstated the five-year contract for the jackup that will run through November 2019. The Saudi company originally sent its cancellation notice to Hercules in late February.
In May, Hercules sold four of its jackups that had previously been cold stacked since 2009. The rigs included: the Hercules 85, Hercules 153, Hercules 203, and Hercules 206.
In April, Hercules signed a five-year contract with Italian giant Eni to use the Hercules 260 jackup in West Africa. The dayrate will range from a minimum of $75,000/day to a maximum of $125,000/day, depending on the Brent crude oil price.
The Bad
In May, although the company sold four of its previously cold stacked jackups, Hercules still has a total of 11 rigs that remain on the cold stacked list, of which five were added in 2015 alone.
In the company’s 1Q 2015 conference call, it announced a 40% reduction in its workforce, in addition to a net loss of $57.1 million, or $0.35 per diluted share, on revenue of $122.6 million for 1Q, compared to net income of $19.9 million, or $0.12 per diluted share, on revenue of $256.7 million for the same period in 2014.
In February, Hercules reported a loss from continuing operations of $154.1 million on its 4Q 2014 results, and for the 12-month period ending on 31 December 2014, the company reported a loss from continuing operations of more than $216 million.
Read more:
Aramco withdraws Hercules contract termination
Hercules sells rigs, cuts workforce
Saudi Aramco cancels Hercules contract
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