Thursday, April 27, 2017

Seadrill Warnings $SDRL

From the new Form 20-F:

We are in ongoing comprehensive restructuring negotiations, which create significant uncertainty, which may result in impairment, losses or substantial dilution for stakeholders and which will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of Title 11 of the United States Code.

Over the past year we have been engaged in extensive discussions with our secured lenders and potential new money investors regarding the terms of a comprehensive restructuring. These discussions have also included an ad hoc committee of bondholders.

The key goals of our restructuring continue to be building a bridge to a recovery and achieving a sustainable capital structure. We currently believe that material additional amendments to the terms of our credit facilities will be necessary to effectuate a comprehensive restructuring. Feedback from certain stakeholders and potential new money providers also indicates that a comprehensive and consensual agreement will likely require a substantial impairment or conversion of our bonds to equity, as well as impairment, losses or substantial dilution for other stakeholders. As a result, we currently expect that shareholders are likely to receive minimal recovery for their existing shares.

We have agreed to amendments to our secured credit facilities as one component of the broader effort to effectuate a comprehensive restructuring of our indebtedness. On April 28, 2016, we entered into agreements with our banking group to amend the financial covenants on all of our secured credit facilities. The amendments also included a milestone to implement a comprehensive restructuring, which was originally April 30, 2017. On April 4, 2017, we reached an agreement to further extend the covenant amendments and waivers to our secured credit facilities and extend the milestone to implement a comprehensive restructuring plan from April 30, 2017 to July 31, 2017. Failure to meet or extend this milestone may result in events of default under our credit facilities and other funded debt. These amendments also involved corresponding extensions of the maturities on certain secured credit facilities.

We expect the implementation of a comprehensive restructuring plan will likely involve schemes of arrangement in the United Kingdom or Bermuda or proceedings under Chapter 11 of Title 11 of the United States Code. We are preparing accordingly and have retained financial advisers and legal counsel. There is inherent uncertainty in the completion of this comprehensive restructuring process, and therefore we are also preparing various contingency plans in the event a consensual agreement is not reached. Commencement of schemes of arrangement or proceedings under Chapter 11 of Title 11 of the United States Code could result in defaults on the funded debt of entities in which we hold noncontrolling interests, including Seadrill Partners, Archer, Seabras Sapura, and SeaMex, which could impair the value of our investments in those entities.

The outcome of these comprehensive restructuring negotiations and contingency planning efforts is uncertain and could adversely effect our business and result in impairment, losses or substantial dilution for stakeholders, and may impair our ability to continue as a going concern.

We may not have sufficient liquidity to meet our obligations as they fall due or have the ability to raise new capital or refinance existing facilities on acceptable terms.

As at December 31, 2016, we had $9.9 billion in principal amount of interest-bearing debt (including related party debt of $0.3 billion), representing approximately 576% of our total market capitalization, of which $7.3 billion was secured by, among other things, liens on our drilling units. Our current indebtedness and future indebtedness that we may incur could affect our future operations, since a portion of our cash flow from operations will be dedicated to the payment of interest and principal on such debt and will not be available for other purposes. Covenants contained in our debt agreements require us to meet certain financial tests and non-financial tests, which may affect our flexibility in planning for, and reacting to, changes in our business or economic conditions, may limit our ability to dispose of assets or place restrictions on the use of proceeds from such dispositions, withstand current or future economic or industry downturns, and compete with others in our industry for strategic opportunities, and may limit our ability to obtain additional financing for working capital, capital expenditures, acquisitions, general corporate and other purposes.

No comments: