Updates on Seadrill’s Restructuring Plan

Last week, Seadrill (SDRL) received another restructuring proposal. This time, the proposal was from Barclays, which holds Seadrill’s bonds. In the previous week, Seadrill’s bondholders (ad hoc group) had submitted a restructuring plan.

Compared to the original restructuring plan, the proposal by ad hoc group is an improvement for bondholders but not for shareholders. The company hasn’t provided any details about Barclay’s plan.

The ad hoc group and Barclays will have to post 10% of the proposed committed amount via cash deposit by January 8, 2017. According to Seadrill, the original plan is the best restructuring proposal. Let’s take a look at the original plan.

According to the original plan, $1 billion will be injected into Seadrill. This will consist of $200 million in equity and $860 million in secured notes. The company’s bank debt of $5.7 billion will be extended by about five years, and there won’t be amortization payments due until 2020. The company’s debt covenants have also been relaxed.

Seadrill’s bonds of $2.3 billion will be converted into 15% equity in the restructured company. The best part of this plan for equity holders is that existing shareholders won’t be totally wiped out; they’ll get 2% in the restructured company.

Seadrill has been struggling to survive since the brutal industry downturn started in late 2014. On the other hand, its peers Transocean (RIG), Diamond Offshore Drilling (DO), Ensco (ESV), and Rowan Companies (RDC) have been strong during the downturn.