Photo: Noble’s last marketed semi-submersible rig “Clyde Boudreaux” – Source: Company Website
The key terms of the restructuring support agreement look as follows:
- Equitizing all of the company’s approximately $3.4 billion in legacy bond debt.
- $545 million outstanding under the company’s revolving credit facility will be paid in full in exchange for existing lenders providing a new $675 million secured exit facility at an interest rate of LIBOR plus 4.75% (initial funding limited to $300 million upon emergence)
- The company will conduct a fully-backstopped rights offering for $200 million in 11% new second lien notes in combination with 30% of the new equity. Noble will have the option to issue additional notes in partial or full lieu of cash interest payments in exchange for an increase in the interest rate up to 15%.
- The restructured company expects to emerge with less than $450 million in debt.
- Holders of the company’s 2026 priority guaranteed notes will initially own up to 82.3% of the new equity with the remainder being allocated to legacy noteholders and the Paragon Offshore Litigation Trust.
- Existing equity interests will be cancelled, but shareholders will likely receive a tiny amount of wildly out-of-the-money warrants which in combination with warrants issued to legacy noteholders and the Paragon Litigation Trust would provide for 4% of the reorganized company.
- All of the above stated ownership percentages are still subject to dilution by the new management incentive plan (“MIP”) which reserves 10% of the new equity for the company’s existing management.
According to court documents (docket 28), the company entered bankruptcy with $306 million in unrestricted cash. After accounting for the proposed $200 million new second lien notes offering, the $545 million credit facility repayment and assuming a $245 million initial draw under the new $675 million exit facility, Noble’s pro forma cash on hand upon emergence calculates to $206 million while total liquidity would amount to $636 million.
In a debtholder slide presentation filed with the SEC, the company projects $85 million of negative unlevered free cash flow next year with the metric improving to positive $20 million in 2022 and $143 million in 2023:
Source: Company Presentation, Slide 10
Unfortunately, the restructured company will be levered with close to $450 million in new debt at an average interest rate of approximately 7.75%, resulting in roughly $34.5 million of annual cash interest payments.
Moreover, the credit facility is subject to a number of financial covenants which require the company to achieve certain minimum EBITDA levels as well as complying with minimum cash interest and asset coverage ratios:
Source: Restructuring Support Agreement, Exhibit A
Particularly the terms of the minimum asset coverage covenant are interesting as there won’t be any value assigned to rigs that have been idle for at least 12 months.
According to management’s projections, the restructured company’s available liquidity would be more than sufficient to manage through an anticipated 2021 cash flow trough but this would require dayrates and utilization to recover quite meaningfully going forward:
Source: Company Presentation, Slide 4
Particularly the company’s assumption for active fleet utilization to return to almost 100% already in 2022 looks aggressive. On the flipside, Noble apparently does not plan for reactivating any of its currently cold-stacked floaters until at least 2025 but after more than half a decade in cold-stack, costs for reviving the rigs would be prohibitive. Given this issue, I would expect the company’s cold-stacked floater fleet to be scrapped entirely over the next couple of quarters.
Source: Company Presentation, Slide 5
Moreover, with demand for benign-environment semi-submersible rigs having been weak for several years already, the survival of the company’s last remaining warm-stacked semi-submersible rig “Clyde Boudreaux” appears questionable at this point.
Noble Corporation will restructure approximately $4 billion in debt obligations in bankruptcy and emerge with less than $450 million in new debt and pro forma liquidity of $636 million. Holders of the company’s priority guaranteed notes will own the lion’s share in the restructured company while current equityholders will at best receive a small amount of out-of-the-money warrants.
Management’s projections of a near-term industry recovery with active fleet utilization approaching 100% already in 2022 appear aggressive, to say the very least.
The stock will likely commence trading on the OTC on Monday under a new ticker symbol.
Given the issues discussed above, investors should exit existing positions and move on.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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