Island Drilling makes restructuring move to survive downturn

After finding itself in dire straits, the Norwegian offshore drilling contractor Island Drilling ASA has made a decision to take on financial restructuring, which will involve a change from a public to a private company.

Island Drilling was formed in 2006 by industry veterans and the well intervention player, Island Offshore, which owns the biggest chunk of the driller’s shares that totals 31.9 percent. The driller has one, 2012-built, semi-submersible drilling rig, the Island Innovator, which was constructed at China’s Cosco Zhoushan Shipyard.

The semi-sub rig had been working for Lundin since September 2013 but after that contract ended last March the rig was temporarily laid up at Semco Maritime’s yard in Norway. Almost a year later, after Semco spruced it up, the rig left the yard in late February 2017 for a one-well assignment for Lundin on the Edvard Grieg field offshore Norway. According to the latest AIS data, the rig is now at the Edvard Grieg field.

Island Drilling also has a first lien bank loan of approx. $247 million and a second lien bond loan of $140 million. Since the beginning of April 2016, the company decided to halt all payments of interest and amortization to all its finance providers.

Despite the rig’s recent reactivation, Island Drilling said on Thursday that the contract will not remedy its financial challenges. Namely, Island Drilling’s financial position remains highly challenging and the company will not be able to repay its financial indebtedness in full without a restructuring of its capital structure.

After continued negotiations with its senior lenders under the senior bank facility with the aim to agree on a financial restructuring that will enable it to survive the current market downturn, the driller has now agreed the main terms of restructuring with the lenders.

The steps

Key elements to restructuring include reduction of the company’s share capital to zero through the cancellation of all outstanding shares; the conversion of all the outstanding bonds into new ordinary shares of the company; and the transfer of the rig, the company’s rights and obligations under the senior bank facility and substantially all other assets, rights and obligations of the company to a new wholly owned subsidiary of the company.

The proposed restructuring also includes extension of the maturity of the senior bank facility to October 31, 2019, and new funding being raised by the new company in the amount of $25 million from the participating guarantors.

The restructuring needs to be approved at an extraordinary general meeting and the bondholders’ meeting, after which Island Drilling will be converted from a public limited company (ASA) to an ordinary, private limited company (AS) which will not have any Norwegian tax consequences.

The board of directors of the new company will initially consist of Morten Ulstein, Gary Chouest and Trond Mohn.

Insolvency threat

In case any condition of the restructuring is not satisfied, Island Drilling expects senior lenders to take action to recover amounts due under the senior bank facility, which would result in an insolvency of the company and/or enforcement actions against the driller.

The enforcement action would mean that the rig and other assets would be sold to realize value for the senior lenders. After that, Island Drilling would remain with very few or no assets and likely enter into bankruptcy proceedings.

The company believes that, if the rig gets sold in the current weak market, the proceeds obtained would be substantially lower than the outstanding amount under the senior facilities, therefore the restructuring proposal represents the best alternative in order to preserve some value.

Offshore Energy Today Staff