Creditors allow Seadrill suspension of pay under leases for three rigs

While trying to restructure its debt, offshore drilling contractor Seadrill has managed to agree on the suspension of payments with creditors related to leasing arrangements for three drilling rigs and the corresponding financing agreements.

Seadrill said last Friday it had entered into forbearance agreements with certain creditors in respect of the group’s senior secured credit facility agreements, as well as the leasing agreements for the West Hercules, West Linus, and West Taurus rigs.

While the discussions with Seadrill and its stakeholders are ongoing, the harsh environment jack-up rig West Linus and the harsh environment semi-submersible rig West Hercules remain on their respective drilling-contracts from Seadrill to oil majors in the North Sea.

The semi-submersible rig West Taurus has been held in a layup by the lessee for more than five years.

Seadrill said on Friday that, under the forbearance agreements, the consenting creditors have agreed not to exercise any voting rights to, or otherwise take actions, in respect of certain events of default that may arise under the senior secured credit facility agreements and leases as a result of the group not making certain interest and charter hire payments under the group’s senior secured credit agreements and leasing arrangements, until and including the earlier of 14 December 2020 and any termination of the forbearance agreements.

SFL Corporation, the owner of the three rigs which are leased back to Seadrill, said in a separate statement on Friday that Seadrill’s failure to pay hire under the leases for three drilling rigs when due in October and November constituted an event of default under such leases and the related financing agreements.

According to SFL, unless cured or waived, an event of default under the lease agreements or the related financing agreements could result in enforcement by SFL or the applicable secured lenders.

In order to reduce the risk of such a scenario, SFL has entered into forbearance agreements with these lenders on the same terms as Seadrill’s forbearance agreements with these lenders.

SFL further explained that, during the forbearance period, Seadrill will be allowed to use certain funds received from the charterers of certain rigs to pay operating expenses for such rigs, from October until the end of the forbearance period.

In exchange, SFL will receive approximately 67 – 70 per cent of the existing contracted lease hire related to the West Hercules and the West Linus, respectively, for the same period.

SFL explained that this is essentially equivalent to the interest and amortization due on the secured bank loan facilities relating to these rigs. Any excess hire paid under the leases will remain in Seadrill’s earnings accounts pledged to SFL.

Seadrill also noted that forbearance has not yet been agreed with respect to termination events that may arise under the company’s New Secured Notes and a bilateral guarantee facility with Danske Bank.

Without a forbearance in respect of the New Secured Notes and the bilateral guarantee facility with Danske Bank, a non-payment of interest under the agreements covered by the forbearance agreements that have been agreed could result in enforcement of a cross-default under such New Secured Notes and/or the guarantee facility with Danske Bank.

The purpose of the forbearance agreements is to allow the company and its stakeholders more time to negotiate on the head terms of a comprehensive restructuring of its balance sheet.

The rig owner noted that such restructuring may involve the use of a court-supervised process.

The company continues to evaluate capital structure proposals from its financial stakeholders.

It is expected that potential solutions will lead to significant equitization of debt, which is likely to result in minimal or no recovery for current shareholders.

Meanwhile, Seadrill has recently added approximately $52 million to its contract backlog while also looking to manage its rig count by recycling some of its rigs as it prepares for a prolonged period of low offshore activity and demand.