Pacific Drilling evaluating options after bondholder rejection

Debt-laden offshore driller Pacific Drilling is evaluating its options, including Chapter 11 bankruptcy, after bondholders of a $439 million bond rejected the company’s request to extend the maturity date beyond December 1, 2017.

The company which this week lost long-serving CEO who left “to pursue other opportunities”, had on July 5 launched a private consent solicitation seeking the note holders consent to extend the maturity date of the notes to June 1, 2018 in order to give the driller more time to negotiate a refinancing transaction or undertake a holistic restructuring with all of its creditors.

The solicitation deadline expired on August 2, 2017 without receiving sufficient consents to approve the maturity extension.

“In light of the results of the solicitation and to ensure the company has sufficient liquidity in light of current market conditions and its debt obligations, the company is considering various means to increase its available liquidity, including potentially seeking to raise additional debt financing. The company is also reviewing various ways to further reduce costs,” Pacific Drilling said.

The driller, who owns a fleet of ultra-deepwater drillships, said it might not be able to to repay the notes at maturity in December 2017, which would trigger cross-default provisions in the company’s other debt instruments.

In addition, Pacific Drilling expects that it will be in violation of the maximum leverage ratio covenant in its 2013 revolving credit facility and its senior secured credit facility for the fiscal quarter ending on September 30, 2017.

“If the company is unable to obtain waivers of such covenants or amendments to the debt agreements, such covenant default would entitle the lenders under such facilities to declare all outstanding amounts under such debt agreements to be immediately due and payable,” the driller said.

Such acceleration would also trigger the cross-default provisions in the company’s other debt instruments.

“The Company is evaluating various alternatives to address its liquidity and capital structure, which may include a private restructuring or a negotiated restructuring of its debt under the protection of Chapter 11 of the U.S. Bankruptcy Code,” the company said.

John Boots, appointed CFO earlier this week, said: “We continue to engage in discussions with our shareholders, the bank lenders and the ad hoc group of holders of our public debt on the terms of a restructuring, although there is currently no consensus as to the form or structure of any restructuring.”

Second quarter loss

Presenting its quarterly results on Thursday, the company said contract drilling revenue for second-quarter 2017 was $67.1 million compared to first-quarter 2017 contract drilling revenue of $105.5 million. For comparison, the contract drilling revenues in the second quarter of 2016 was $203 million.

The decrease in revenues resulted primarily from the Pacific Santa Ana drillship completing its contract in January 2017 compared to being off hire throughout the second-quarter 2017, partially offset by the Pacific Scirocco starting its contract with Hyperdynamics in second-quarter 2017 compared to being off hire throughout the first-quarter 2017.

In its report dated July 5, maritime market intelligence group Clarksons pointed out that out of the seven rigs in Pacific’s fleet, there was only one high-margin contract left -the Sharav drillship working with Chevron.

“The Sharav is operating with Chevron in the US GoM at USD 551k per day through Q3-19. Other than this, PACD has the Bora and Scirocco on short-term contracts at tight margins while the four remaining drillships are warm stacked. PACD is therefore more or less dependent on only one rig’s cash flow to service its debt,” Clarksons said in the report last month.

Pacific Drilling posted a net loss of $133 million in the quarter, versus a net profit of $8 million in 2Q 2016. For second-quarter 2017, total outstanding debt was $3 billion.

Offshore Energy Today Staff