Seadrill Ltd moved swiftly through the agenda at its first day hearing today, securing interim access to cash collateral. But the conflicting desires of its two major creditor groups could spell trouble for the future of the case.
Judge David Jones of the US Bankruptcy Court for the Southern District of Texas signed off on the company’s requests to pay employees, pay taxes, and maintain its insurance programs, among other standard operational motions, at an uncontested first-day hearing. The company does not plan to use debtor-in-possession financing, as it has USD 550m in cash on hand.
Those groups are CoCom, which holds approximately USD 2bn of the debt under six of Seadrill’s 12 secured credit facility silos, and the ad hoc group, which holds USD 1.2bn of the debt in the other six silos.
The conflict, as laid out during today’s first-day hearing before, is that CoCom wants more debt in the company’s capital structure upon emergence from bankruptcy and the ad hoc group to deleverage. CoCom lawyers also said today that it wants to keep the company together as one enterprise while alleging that the ad hoc group wants to break up the company. Ad hoc group counsel said the group wants the company to pursue a dual track process to consider selling off some of its assets.
Judge Jones half-joked that the parties are going to give his fellow Southern District of Texas Judge Marvin Isgur his “2021 project” as mediator of those issues.
Though Seadrill comes into Chapter 11 without a set plan of reorganization, until shortly before filing for bankruptcy protection on Wednesday (10 February) it had a restructuring support agreement (RSA) that was “basically final.” But in the weekend before the case, the company dropped it, citing opposition from the ad hoc group to the approximately USD 1.7bn debt load that the reorganized company would have.
“We do not call this a freefall case,” debtor counsel Anup Sathy, of Kirkland & Ellis said today, even without the “safety blanket” of an RSA. “We think there’s a lot of work that can be salvaged from the progress that had been made by the parties.”
Still, the parties expect that this case will be more contentious than the company’s prior Chapter 11 restructuring in 2018, where it extended much of its debt by an average of five years.
“We expect this will be a more contentious case than the first. I expect we will need more of your time, your honor, and more of your help,” Sathy said today.
While the path forward is still to be determined, the company did report that it received a third-party restructuring proposal early this morning focused on the NADL and AOD silos but said it is too early to comment.
Though it went largely unmentioned today, Seadrill Ltd Chapter 11 filing comes two months after the bankruptcy petition of Seadrill Partners, in which Seadrill Limited holds 46% of the equity. Seadrill Partners sought bankruptcy protection partially to protect itself after the parent – improperly, Seadrill Partners claims — transferred USD 24m away from it as part of a management services agreement.