Hercules Offshore said last Friday that it will file for Chapter 11 bankruptcy protection, just months after it emerged from its first filing.
The company said it has entered into a restructuring support agreement (RSA) with lenders holding about 99 percent of the indebtedness under its first lien credit agreement.
“The agreement seeks to maximize value for the company’s stakeholders and provide a smooth transition for employees, customers and suppliers through an orderly sale of the company’s assets,” Hercules Offshore said.
Under the terms of the RSA, Hercules and certain of its U.S. subsidiaries will solicit acceptances and rejections of its pre-packaged Chapter 11 plan from first lien lenders and shareholders, file voluntary Chapter 11 petitions to compromise the company’s obligations to its first lien lenders and provide a recovery to its shareholders.
Hercules will then place all of the company’s unsold assets into a wind-down vehicle to ensure their continued, safe operation until they can be sold.
The company’s international subsidiaries will not be included as part of the Chapter 11 cases but will be part of the sale process.
The new Chapter 11 Plan provides that unsecured creditors will be paid in full.
The company expects to file the typical first day motions to, among other things, maintain employee wages and benefits and insurance throughout the Chapter 11 process.
A separate first day motion will be filed to continue paying its suppliers’ pre-petition claims under normal payment terms.
If the company’s shareholders vote as a class to accept the plan, shareholders will receive cash recoveries over time including a payment of $12.5 million upon the completion of the Chapter 11 process.
Additional cash distributions could be made afterwards, depending on the success of the sale of the company’s assets through interests in the post-Chapter 11 wind-down vehicle.
The secured lenders are projected to receive cash payments that will be largely dependent on the success of the sale process.
As part of the process, Hercules also said that it has entered into a definitive agreement to transfer the right to acquire the newbuild harsh environment jack-up rig, formerly named Hercules Highlander, to a subsidiary of Maersk Drilling.
The rig is ready for immediate delivery from Jurong Shipyard Pte in Singapore.
According to the agreement, Maersk Highlander UK succeeds to the right to take delivery of the rig and will settle the final payment of about $196 million with Jurong.
Houston-based Hercules completed its initial Chapter 11 financial restructuring last November with a new $450 million senior secured credit facility in place.
The company said the ongoing decline in oil prices, the consolidation of its U.S. customer base and the addition of new capacity have negatively impacted dayrates and demand for its services.
In February, the company announced a Special Committee comprised of all the independent members of its Board of Directors to explore strategic alternatives.
Hercules said the latest Chapter 11 filing is the outcome of that process and follows a thorough sale process, that “did not yield results that would have been better for stakeholders than what is contemplated by the plan.”
The company has engaged Akin Gump Strauss Hauer & Feld LLP as its legal counsel, PJT Partners as its financial adviser and FTI Consulting as its restructuring adviser.