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Bankruptcy: Hercules Offshore files prepackaged Ch.11 in Delaware

Hercules Offshore has filed its prepackaged Chapter 11 today in Wilmington, Delaware, implementing a $1.2 billion debt-for-equity swap restructuring plan previously announced in June.

In a prepackaged bankruptcy, a company conducts the vote solicitation on its proposed reorganization plan prior to filing for Chapter 11. Once the company gains sufficient creditor support and does file its Chapter 11 petition, the bankruptcy court is asked to confirm that the vote solicitation process, as well as the terms of the proposed reorganization plan and the information contained in the disclosure statement, all meet legal requirements.

Hercules said its plan gained “overwhelming” support from the existing senior noteholders with, more than 300 holders of the notes totaling in excess of $1.2 billion voting to accept the plan. Only two holders with approximately $320,000 of the senior notes voted against, according to a company press release. The said notes are Hercules 10.25% notes due 2019, 8.75% notes due 2021, 7.5% notes due 2021, and 6.75% notes due 2022, which in sum total roughly $1.2 billion outstanding.

As previously reported, the investors agreed to a deleveraging transaction by which all senior notes convert to new common equity, as well as backstop a new $450 million loan (L+950, 1% floor, 4.5 years). The new money will be used to fully fund the remaining construction cost of the Hercules Highlander jackup rig and provide additional liquidity to fund operations.

More specifically, the $1.2 billion of senior notes convert to equity representing 96.9% of new common shares, and existing shareholders will get the 3.1% balance, plus warrants.

According to the company’s disclosure statement, the recovery rate for senior noteholders would be 41%, while the range of reorganized equity value implies a recovery rate of 32-47.8%. The debt is quoted in the low 30s, implying a value at the low end of the range.

Chief executive officer John T. Rynd said in a company press release that the new capital structure will provide a better foundation for Hercules to meet the challenges in the global offshore-drilling market due to the downcycle in crude-oil prices and expected influx of newbuild jackup rigs over the coming years.

Hercules estimated its reorganized enterprise value at $535-725 million, implying a reorganized equity value of $402-592 million, according to the disclosure statement accompanying the company’s proposed prepackaged reorganization plan.

The Chapter 11 reorganization is expected to conclude in approximately 45-60 days. More information about the case can be found at – Staff reports