By Steven Church, Mikael Holter, Angelina Rascouet and Luca Casiraghi

September 13, 2017, 7:45 AM

(Bloomberg) -- Seadrill Ltd., the offshore driller controlled by billionaire John Fredriksen, filed for bankruptcy protection after working out a deal with almost all its senior lenders to inject $1 billion of new money into the company.
Under the proposal, lenders will extend the maturity on $5.7 billion in debt, with no amortization payments due until 2020. Should lower-ranking creditors join the proposal, $2.3 billion in unsecured bonds would be converted into a 15 percent stake in the company, Seadrill said in a statement.

“The deal gives us a great liquidity cushion,” allowing Seadrill to survive the “mother of all downturns,” Chief Executive Officer Anton Dibowitz said by phone. The new capital is “underpinned” by top shareholder Hemen Holding Ltd. and more than 40 percent of bondholders support the plan along with 97 percent of Seadrill’s secured bank lenders, he said. Dibowitz expects more bondholders to sign up to the deal.

Fredriksen spent more than 18 months seeking an agreement with creditors to restructure $12.8 billion of liabilities -- including the offshore-drilling industry’s biggest debt-load -- after crude’s collapse curbed demand for oil services. Earlier this year the company gave itself a deadline of Sept. 12 to file a Chapter 11 reorganization case in U.S. Bankruptcy Court, just three days before $843 million of bonds mature.

Deal Structure

The new $1 billion investment will comprise $860 million in secured notes and $200 million in equity, and shareholders will receive about 2 percent of the post-restructured equity, according to the statement. Seadrill expects to emerge from Chapter 11 in six to nine months, Dibowitz said.

The shares whipsawed in Oslo on Wednesday, swinging between a 14 percent gain and a 20 percent loss before trading up 8.9 percent at 2:14 p.m. local time. More stock traded in the first 15 minutes than on an entire average day during the previous three months. Seadrill’s 1.8 billion-kroner ($229 million) bonds due March 2018 dropped 14 ore on the krone to a record-low 9 ore.

The company said hedge fund Centerbridge Partners is investing in the restructuring deal, confirming a Bloomberg News report last week that Fredriksen and Centerbridge were in talks. Aristeia Capital and Man Group Plc’s GLG unit as well as Saba Capital LP, Whitebox Advisors, ARCM and Fintech are also investing in the new secured notes and equity, Dibowitz said.

Under the plan, Fredriksen’s Hemen Holding and Centerbridge will provide the majority of the new secured notes and equity, allowing them to take the largest stakes. Hemen, currently holding a 23 percent interest, will remain the “anchor” investor and have “the same or slightly greater position” in the restructured company, Dibowitz said.

“We are excited to invest alongside Hemen,” Jed Hart, senior managing director of Centerbridge Partners Europe, said by email. “We view Seadrill as a high-quality, global business with a top-tier employee base that will be well positioned when the industry recovers.”

Current shareholders may end up with as little as 3 to 4 cents a share, while unsecured bondholders may see a direct recovery for unsecured claims of about 6 percent if they don’t participate in new secured debt, analysts at Clarksons Platou Securities AS wrote in a note.

“We see significant risk of the final words not being said yet and the Chapter 11 process might be a long and painful process,” the analysts said.

Two Deals

The company’s Chapter 11 petition Tuesday said that Seadrill had struck two deals to help it reorganize under court protection: a restructuring support agreement and an investment agreement. The initial court filing didn’t include details about either deal. Seadrill doesn’t envision asset sales as part of the restructuring plan, Dibowitz said.

The company must get court permission to sign the lender proposal, which will then be incorporated into a reorganization plan that will go to creditors for a vote. The judge will take that vote into consideration before deciding whether to approve the plan.

The company listed a range of $10 billion to $50 billion in debt and assets in its petition, which was filed in federal court in Victoria, Texas. Deutsche Bank Trust Co. was listed as the company’s biggest unsecured creditor with bond debt totaling $1.74 billion.

Samsung Heavy Industries Co. said Wednesday it has been in discussions with Seadrill on delaying deliveries of two vessels. Daewoo Shipbuilding & Marine Engineering Co. said it already set aside provisions for possible losses on its order of two drillships and isn’t concerned about additional losses arising from the latest development. Hyundai Heavy Industries Co. said it doesn’t have any outstanding orders with Seadrill.

“Should the plan be implemented successfully, we consider it to be good for Seadrill as an operating company,” analysts at DNB ASA wrote in a note. “The plan seems to give Seadrill a solid liquidity runway and improved visibility, which we believe could help it win more contracts going forward.”

Seadrill has hired Kirkland & Ellis LLP as its bankruptcy law firm, Houlihan Lokey Inc. as financial adviser, and Alvarez & Marsal as restructuring adviser.

The case is In re: Seadrill Americas, Inc., 17-60077, U.S. Bankruptcy Court, Southern District of Texas (Victoria).