(Bloomberg) — Seadrill Ltd.’s billionaire chairman and largest shareholder, John Fredriksen, is willing to lend the rig company as much as $1.2 billion as part of a potential deal with banks and bondholders to restructure the biggest debt load in the offshore-drilling industry, two people familiar with the matter said. The company’s shares surged.

The loan of $800 million to $1.2 billion features in a proposal by a working group of fewer than 10 banks, said the people, who asked not to be identified because the talks were private. The plan would imply a postponement of all bank maturities to at least 2020, helping the lenders avoid outright losses, the people said.

Seadrill rose as much as 46%, the most in seven months, erasing earlier losses.

Seadrill CEO Per Wullf. Seadrill photo.

Seadrill CEO Per Wullf. Seadrill photo.

The proposal will be assessed by the wider group of 42 Seadrill lenders and the company’s bondholders, the people said. Seadrill CEO Per Wullf said on Sept. 14 that he aims to have a solution for restructuring the company’s net debt of more than $9 billion by the beginning of December.

Seadrill’s refinancing plans remain on track, while the company declines to comment on the details of the proposal, according to a spokesman who asked not to be named in line with company policy. A senior adviser to Fredriksen didn’t immediately reply to an e-mail and a phone call seeking comment.


Seadrill Pressure

Seadrill and other offshore rig operators have been hit hard by the collapse in crude prices over the past two years as oil companies slashed spending on services such as drilling. The pain has been compounded by a wave of new rigs, creating massive oversupply in the industry and decimating rental rates. Drillers have cut costs, suspended dividends, renegotiated contracts and idled or scrapped rigs to weather the market rout.

The pressure is particularly high on Seadrill, whose net interest-bearing debt of $9.1 billion at the end of the second quarter is the highest among its peers. The company will need at least $1 billion in new capital, analysts from banks including Nordea AB and DNB ASA have said.

The company “might have found a way to begin untangling the mess,” Janne Kvernland, an analyst at Nordea AB, said in an e-mailed note to clients Tuesday following the news that Fredriksen could provide capital through a loan. “It is hard to assess the valuation impact as the structure and terms of the capital injection is unknown, but we would see it as a positive if Seadrill is able to start to build a credible runway into 2020.”

Crown Jewel

All eyes have been on Fredriksen, who founded Seadrill in 2005 and built it up to become at one point the biggest offshore driller by market value. The company was the crown jewel of his shipping and oil empire until the market collapsed at the end of 2014. The stock has dropped more than 90 percent since July 2014. Fredriksen’s net worth is currently estimated at about $10.2 billion, with more than half in cash and other assets, according to the Bloomberg Billionaires Index.

Under the proposal being discussed for Seadrill’s restructuring, Fredriksen’s contribution would come as a loan and not new equity because he views debt as a less risky investment than stock given the industry’s outlook, the people said.

Seadrill will still need at least $1 billion in equity by the end of 2018, even if bond and bank maturities are extended, said Kvernland of Nordea, which has a sell recommendation on the company’s stock.

“Even if the initial outcome eventually proves to be additional debt, it is undoubtedly not a sustainable solution,” she said. “The huge dilution risk obviously remains.”

Seadrill’s $843 million bonds due September 2017 rose to 46.5 cents on the dollar on Tuesday, the highest in more than two months and 5 cents higher than the last transaction recorded on Friday, according to Trace, the bond price reporting system of the Financial Industry Regulatory Authority.

While rental rates for floating rigs may have bottomed out, it’s impossible to say when they will finally recover, Wullf said on Sept. 14. The CEO said at the time that he was “carefully optimistic” about Seadrill’s restructuring process. “It’s a big puzzle,” he said.

Bloomberg News by Mikael Holter and Luca Casiraghi