Vantage Drilling Co files for Chapter 11 Bankruptcy Protection

Vantage Drilling Co files Chapter 11

On Dec. 3, Vantage Drilling Co., a global provider of offshore contract drilling services to major independent energy companies, announced that it had filed for Chapter 11 bankruptcy protection. According to a Seeking Alpha report, Vantage Drilling has agreed to a deal with its largest creditors to exchange its outstanding debt for equity shares in the company. As part of the agreement, $1.6 billion in debt will be converted to equity, with an additional $750 million in new subordinate bonds to infuse capital into company operations.

Vantage Drilling Co falls into debt

In its bankruptcy documents, Vantage Drilling cited the fact that like many others in the energy sector, it took a significant hit by the decline of oil and natural gas prices, according to Rig Zone. The Wall Street Journal reported that the company’s revenues were significantly impacted by the downturn in the energy market as only $6 million of its $638.4 million revenues were generated between January and September this year.

Vantage stated though that energy commodities prices have only exacerbated the issues for rig contractors like Vantage as the offshore drilling industry has experienced surplus supplies in their inventories for the previous two years. As a result, customers have turned to onshore drilling contractors that focus on shale natural gas as a way to reduce costs, as opposed to the more expensive offshore drilling operators.

Following its financial troubles in recent years, the company listed assets at approximately $3.5 billion, with $3 billion in liabilities. According to a Splash 247 report, these liabilities culminated when the company was recently delisted from the New York Stock Exchange after it missed an interest payment.

The scandal that forced Vantage Drilling Co into insolvency

The company was also rocked by recent corruption allegations which involved the state-run oil firm Petróleo Brasileiro SA. According to a WSJ report, a shipping executive from China and a Vantage employee from Brazil reached a deal to bribe Petróleo Brasileiro SA and Brazilian politicians in order to land a drill leasing contract. As a result, the two men were charged with money laundering and corruption, which sent shares in the company into a free fall after news hit.

The reorganization plan

As part of the restructuring agreement, the company’s exchange of its outstanding debt for equity with its lenders and bondholders will remove more than $1.6 billion in liabilities. The agreement between Vantage Drilling and its senior lenders and bondholders will cut $152 million in annual interest costs, and supply the company with an additional $242 million in cash. In turn, the agreement will provide $75 million in new capital to fund operations. These lenders and bondholders will also receive a pro rata share of senior subordinated notes valued at more than $750 million.

In bankruptcy documents, the company stated that it intends to emerge from the bankruptcy process as a viable business and that operations will continue through the restructuring period. The reorganization will also enable its subsidiary, Vantage’s Offshore Group Investment Ltd. to maintain operations, while Vantage Drilling will wind down its business in the Cayman Islands.

Significance

While Vantage Drilling plans to continue operations with Vantage’s Offshore Group Investment Ltd., its Chapter 11 bankruptcy filing is just the latest in a disturbing trend in the energy sector. According to the WSJ, as crude oil prices have dropped from $100 per barrel to below $40, fellow offshore rig contractors Hercules Offshore Inc. and Cal Dive International Inc. have sought Chapter 11 bankruptcy protection since 2014.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.