Seadrill Limited — Form 6-K Summary
Business context and reporting period
Seadrill filed this Form 6-K on July 2, 2021, reporting developments in the restructuring of Seadrill New Finance Limited and certain subsidiaries. Seadrill is an offshore drilling contractor operating 43 rigs, including drillships, jack-ups and semi-submersibles. The filing is an event disclosure and does not provide quarterly or annual operating results.
Key financial and capital structure information
| Item | Reported information |
|---|---|
| Issuer cash balance | Approximately $50.5 million as of June 28, 2021. |
| Existing notes | 12.0% senior secured notes due 2025; the notes remained outstanding pending restructuring. |
| Proposed note maturity | July 15, 2026. |
| Proposed interest | Either 9.0%, comprising 3.0% cash interest and 6.0% PIK interest, or 10.0% PIK interest, payable quarterly. |
| Proposed equity ownership | Noteholders would receive 65% of the restructured Issuer’s pro forma equity; Seadrill Investment Holding Company would retain 35%. |
| Board representation | Noteholders would appoint four of five directors; Seadrill would appoint the remaining director. |
| Potential new liquidity | Noteholders would have a first-priority right to fund additional liquidity needs, including up to $15 million of new super senior debt for SeaMex if required. |
| SeaMex unpaid invoices | Approximately $245 million of invoices to Pemex had been issued but remained unpaid. |
The filing does not provide revenue, net income, operating cash flow, free cash flow, margins, total debt, or consolidated liquidity figures.
Material changes versus the prior comparable disclosure
- Since the June 18, 2021 announcement, the Issuer and certain subsidiaries agreed key commercial restructuring terms and entered into a restructuring support agreement with holders representing approximately 79% in value of the notes.
- The proposed restructuring would separate the Issuer and its subsidiaries, including the Seabras Sapura and SeaMex assets, from the consolidated Seadrill group.
- Noteholders would release existing guarantees, security and claims against Seadrill and its subsidiaries, excluding the Issuer and its subsidiaries.
- SeaMex’s joint venture agreement was terminated on June 18, 2021, and joint provisional liquidators were appointed. A market-testing process is underway for the SeaMex assets.
- Certain noteholders became holders of all senior secured bank debt borrowed by certain SeaMex subsidiaries and agreed to support the proposed SeaMex restructuring.
Restructuring, outlook, risks and unusual items
- The restructuring may occur out of court or through a pre-packaged Chapter 11 process. The RSA contemplated launching the restructuring by August 6, 2021, with a long-stop date of September 30, 2021, subject to permitted extensions.
- Consenting noteholders agreed to forbear from enforcement actions relating to certain defaults, including missed semi-annual cash interest payments due January 15 and July 15, 2021, until the earlier of restructuring completion or RSA termination.
- The proposed consent solicitation would permit use of available Net Realization Proceeds for reorganization expenses and loans to SeaMex and successors for operating, administrative, tax, debt service and other costs.
- SeaMex’s proposal includes refinancing senior secured bank debt with new senior secured notes and purchasing SeaMex assets out of provisional liquidation in exchange for releases of substantially all subordinated debt owed to the Issuer and related subsidiaries, together with a novation of SeaMex’s senior debt guarantee.
- The SeaMex proposal is not binding on the joint provisional liquidators. An independent valuation and accelerated market-testing process are intended to assess alternatives and maximize creditor recoveries.
- SeaMex’s Pemex drilling contracts were stated to run, assuming full term, between October 2024 and November 2026. The Issuer is seeking recovery of unpaid Pemex invoices and possible contract amendments.
- Seadrill stated that it would continue providing management services to the Issuer’s group and operating the SeaMex assets, subject to agreement regarding historic and future management fees.
- Major risks include failure to obtain sufficient noteholder support, RSA termination, inability to meet restructuring milestones, court or liquidation outcomes, SeaMex funding needs, Pemex collections and contract amendments, and dilution or loss of control for existing Seadrill stakeholders.
Investor verification points
- Verify the final restructuring documentation, implementation route and whether the August 6 and September 30, 2021 milestones were met or extended.
- Confirm the final treatment, maturity, interest structure, security and ownership allocation of the notes and restructured Issuer.
- Assess the Issuer’s cash position and continuing funding requirements, including any use of Net Realization Proceeds or new super senior debt.
- Review the outcome of SeaMex’s provisional liquidation, market testing, refinancing and Pemex collection efforts.
- Review subsequent filings for the status of the consent solicitation, RSA accessions, Seabras Sapura information and any court-supervised proceedings.