Paragon sues Noble over ‘fraudulent corporate spin-off’
Offshore driller Noble Corporation has expressed disappointment over a lawsuit by its spin-off Paragon Offshore, which claims that Noble jettisoned a fleet of old offshore drilling rigs via a fraudulent corporate spin-off.
The complaint was filed last week against Noble Corporation by the Paragon Litigation Trust in connection with the August 2014 spin-off by Noble of Paragon Offshore.
The trust was set up earlier this year in order to pursue the prosecution and liquidation of the Noble claims and distribution of the proceeds.
In the complaint, the plaintiff claimed that Noble Corporation jettisoned a fleet of old offshore drilling rigs via a fraudulent corporate “spin-off.” The complaint stated that Noble isolated the rigs in a group of subsidiaries it called Paragon Offshore, loaded up Paragon with $1.73 billion in debt, transferred the proceeds to itself, and distributed equity in Paragon to Noble shareholders.
The plaintiff further claimed: “Creditors who had been duped into financing the spin-off were left holding an empty bag, ultimately receiving cents on the dollar in the bankruptcy case. This action is brought on behalf of the Paragon bankruptcy estate, for the benefit of those creditors and their successors, to recover the payments Paragon made to Noble and damages resulting from the misconduct of Noble and various individuals who enriched Noble at Paragon’s expense.”
To remind, Paragon Offshore completed its corporate and financial reorganization and emerged from Chapter 11 in July 2017, eliminating approximately $2.3 billion of secured and unsecured debt.
The plaintiff emphasized that the evidence would show that Paragon was insolvent from the outset and worth far less than the debt Noble heaped on it.
In the complaint, the plaintiff also said: “Noble obtained that financing only by lying to the lenders about Paragon and its future prospects. Noble promised the lenders that the two largest existing customers for the Paragon rigs — Petrobras and Pemex — would continue to contract for Paragon’s fleet after the spin-off, claiming that it expected each to “roll over” their rig contracts at current rates for the foreseeable future.
“This was critical because those two customers were a huge part of Paragon’s projected business, alone accounting for more than fifty-five percent (55%) of Paragon’s contract backlog (future revenue under contract) at the time of the spin-off. But Noble knew or should have known that its representations were not true.”
Commenting on the complaint, Noble said in a statement on Monday that the claims were without merit. The company intends to vigorously contest the lawsuit. Further, the company reiterated its position that the spin-off was a thoughtfully executed strategy, accomplished with the assistance of capable outside advisors and designed to support the success of Paragon by virtue of several important operational and financial factors at the time of the spin-off.
According to Noble, these factors include a well-maintained fleet of rigs with a diversified global presence, a strong client base, a contract backlog of approximately $2 billion, working capital of $200 million, and an undrawn $800 million revolving credit facility.
At the time of the spin-off, the Noble board of directors received an independent solvency opinion confirming that Paragon was solvent, properly capitalized and possessed an appropriate level of liquidity. Furthermore, crude oil markets continued to be strong, with Brent crude trading near $100 a barrel up to and beyond the date of the spin-off.
Noble noted that it was disappointed by the decision of the Paragon Litigation Trust to start a suit. The company observed that the arduous business conditions in the oil and gas sector that arose following the spin-off and that have persisted to present, have had a significant negative influence on all participants in the offshore drilling business.
Noble concluded it continues to believe that the severity of the business downturn, as well as actions taken by Paragon after the spin-off, resulted in Paragon’s bankruptcy despite the strong operational and financial condition of Paragon at the time of the spin-off. The company will take all appropriate action to vigorously defend itself.
Offshore Energy Today Staff