Seadrill left vulnerable due to lack of new agreement with lenders

Forbearance agreements between offshore drilling contractor Seadrill Limited and its creditors related to the company’s senior secured credit facility agreements and leasing arrangements have expired.

As a result, Seadrill is exposed to legal actions if it fails to make necessary payments on time.

Seadrill entered into forbearance agreements with certain creditors in respect of its senior secured credit facility agreements, as well as the leasing agreements for the West Hercules, West Linus and West Taurus, in November 2020.

Under the agreements, the consenting creditors 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.

The term of the forbearance agreements expired on Monday, 14 December 2020.

Seadrill said on Monday that, as a result of the expiry of these agreements, the creditors are no longer prevented from taking actions in respect of events of default that may arise under the senior secured credit facility agreements and leasing arrangements as a result of the group not making interest and charter hire payments under the group’s senior secured credit agreements and leasing arrangements.

Seadrill noted it continues to maintain its readiness to carry out a comprehensive restructuring of its balance sheet. Such restructuring may involve the use of a court-supervised process.

The company also added it continues to engage in constructive discussions with its financial stakeholders in relation to potential further forbearances and the heads of terms of a comprehensive restructuring of its balance sheet.

Whilst no agreement has been reached at this point, 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.

It is worth reminding that Seadrill Partners, which is 35 per cent owned by Seadrill Limited, has already filed for voluntary petitions under Chapter 11 of the Bankruptcy Code to preserve value and to continue the operation and marketing its assets.

Seadrill Limited has in recent years already gone through the Chapter 11 process. The drilling contractor emerged from Chapter 11 after successfully completing its reorganization in July 2018.