Seadrill Ltd on Wednesday reached a tentative deal that will allow it to continue using lender cash to fund operations while it works with creditors on a path out of bankruptcy.
During a virtual hearing, U.S. Bankruptcy Judge David Jones, sitting in his Laredo, Texas courtroom, said he would extend Seadrill’s access to cash until Aug. 31. The offshore drilling rig contractor, represented by Kirkland & Ellis, filed for bankruptcy in February with $5.6 billion in secured debt, marking its second trip through Chapter 11 since 2018.
Seadrill, which blamed the sustained downturn in the oil and gas market and economic impact of the COVID-19 pandemic for its trouble, had the consent of one group of lenders represented by White & Case for its continued access to their cash collateral.
That lender group, which includes Citibank Europe plc and DNB Bank ASA and is known as the coordinating committee of secured lenders, holds $2 billion of the company’s debt. But a separate, Weil Gotshal & Manges-represented lender group holding $1.3 billion of the company's debt, known as the RigCo lenders, argued that, because it’s not clear what the company’s spending will look like past July 9, its access to cash should be cut off in late June and revisited at that time.
Sunny Singh of Weil noted during Wednesday’s hearing that Seadrill is already planning to spend $120 million through July 9 and expressed concern about potentially depleting certain cash pools.
“We’re not talking about a little bit of money,” he said.
The two lender groups have been at odds since the outset of the bankruptcy, with the coordinating committee advocating for a standalone reorganization of Seadrill and the RigCo lenders pushing for a sale.
Ross Kwasteniet of Kirkland told the judge during a March hearing that the company is concerned some lenders in the RigCo group have interests in certain Seadrill competitors and "may have ulterior motives for wanting to see a sale of our assets, which may benefit them individually" but not in their role as creditors of Seadrill.
However, lawyers for all parties agreed during the hearing that they have been having productive discussions about the company’s restructuring options.
At the conclusion of the hearing, Singh agreed to the cash extension through August after Jones assured him that his lender group would be able to raise any issues they come across with Seadrill’s use of the money with him at any time, promising to even make himself available on a weekend if necessary.
Affiliates of Strategic Value Partners Bybrook Capital, which are also RigCo lenders and are represented by Quinn Emanuel Urquhart & Sullivan, also objected to the cash collateral extension, saying they would only agree to it if Seadrill commits to consider third party sale options instead of a standalone reorganization. Eric Winston of Quinn, however, agreed to the extension following the judge’s assurance.
Seadrill emerged from its prior bankruptcy with billions of dollars shed from its debt stack and $1 billion in new investments. The company controls 54 drilling rigs and employs around 3,000 people. It follows several competitors into bankruptcy since the pandemic hit, including Pacific Drilling SA, Noble Corp and Valaris Plc.
The case is In re Seadrill Ltd, U.S. Bankruptcy Court, Southern District of Texas, No. 21-30427.
For Seadrill: Anup Sathy, Ross Kwasteniet, Brad Weiland, Spencer Winters and Christopher Marcus of Kirkland & Ellis; and Matthew Cavenaugh, Jennifer Wertz, Vienna Anaya and Victoria Argeroplos of Jackson Walker
For the coordinating committee of secured lenders: Scott Greissman, Jason Zakia and Phil Abelson of White & Case; and Jason Brookner of Gray Reed
For SVP and Bybrook: Eric Winston, Benjamin Finestone and Devin van der Hahn of Quinn Emanuel
For the RigCo lenders: Alfredo Perez, Matt Barr, Sunny Singh, David Cohen and Paul Genender of Weil Gotshal & Manges