Debt-laden oil services company Paragon Offshore Plc has reached an agreement with creditors to restructure its $2.7 billion of debt in bankruptcy court, according to a statement released Friday.
Under the plan, the oil services provider will be able to reduce more than $1.1 billion of debt and loosen some covenants, the company said. It plans to file for Chapter 11 in Delaware by Sunday.
Demand for Paragon’s services has dried up as its customers cut back on their drilling activities amid plunging oil prices. The company, which was spun off from Noble Corp. in 2014, owns a fleet of 40 rigs, mostly in shallow waters from Mexico to the North Sea.
Holders of 77 percent of Paragon’s $984 million senior unsecured notes maturing 2022 and 2024 agreed to receive $345 million in cash and 35 percent in equity in the reorganized business, the statement said. Existing shareholders will retain the remaining 65 percent of the equity. Bondholders are eligible to receive up to $50 million in addition if the company meets certain earnings targets in 2016 and 2017.
Paragon’s $800 million revolving loan maturing in 2019 will be paid down by $165 million, and creditors who own the loan agreed to convert about $631 million of the facility to a term loan. The maturity will be extended to 2021. The net leverage ratio and interest coverage covenants on the loans will be suspended until 2018.
The agreement was a result of discussions between the company and its creditors that started in December. On Jan. 15, Paragon said it wouldn’t make a $15.4 million interest payment on its 2022 bonds as it continued talks.
The restructuring will position the company “for long-term growth,” Paragon Chief Executive Officer Randall Stilley said. “Paragon will continue to operate as usual, paying our employees and vendors in the normal course while providing the same high level of service to our customers.”
The company’s former parent, Noble, said Friday it reached an agreement with Paragon that would release the larger company from all claims related to the spinoff. The settlement calls for Noble to assume certain pre-spinoff obligations related to Paragon’s Mexican tax matters.
Paragon shares jumped on the news of the agreement but are still down about 90 percent in the past 12 months. They were trading at 31 cents at 9:52 a.m. in New York Friday. Noble climbed the most in more than seven years on the agreement, and the stock was trading at $7.66 at 9:54 a.m. in New York.
Paragon is the latest oil service provider to head to bankruptcy court after oil prices fell more than 70 percent since June 2014. Many drillers have suspended activity because it’s no longer profitable. Offshore rig owners like Paragon face the dual problem of a glut of new drilling vessels entering the market just as customers are slashing spending. Hercules Offshore Inc., owner of the largest fleet of shallow-water drilling rigs in the Gulf of Mexico, said Thursday that it is exploring strategic alternatives just three months after emerging from bankruptcy.