Paragon Offshore Files for Chapter 11 Bankruptcy Protection

Paragon Offshore files for Chapter 11 bankruptcy protection 

Recently, Paragon Offshore PLC, the U.S.-based international oil driller, announced that it had filed for Chapter 11 bankruptcy protection. According to a Reuters report, the company became the first U.S. energy company to file a Chapter 11 bankruptcy petition this year after a market slowdown drove it into insolvency.

The company spirals into debt

Paragon Offshore cited in its bankruptcy documents that the collapse of oil prices was primarily the cause of its insolvency. According to Bloomberg, oil prices have dropped over 70 percent to $30 per barrel since June 2014. This opened the door for an abundance of new offshore drilling competition on the market, while consumer spending had begun to plummet as well. As a result, its debt load mounted, which forced the company to seek Chapter 11 bankruptcy protection.

In court filings, the company listed that it had recently decided not to make payment on its $15.4 million bond interest agreement. In turn, as it defaulted on its payment, a 30-day grace period was triggered. Paragon Offshore stated that it had over $2.47 billion in assets and $2.96 billion in liabilities, which includes $708 million debt owed as part of a revolving credit agreement and another $642 million due on a secured term loan, both owed to JPMorgan Chase Bank NA. It also owes over $1 billion in bonds to its debt-holders.

The reorganization plan

Paragon Offshore reached a restructuring agreement with its debt-holders which will cut over $1.1 billion in debt as well as $60 million in annual cash interest payments. Bloomberg reported that the previous revolving-credit agreement will be decreased with a $165 million cash infusion. Lenders will also be provided with new payment terms, which will include mandatory prepayments.

Existing shareholders in the company will also retain 65 percent equity. Bondholders will swap $984 million in senior unsecured notes for $345 million in cash with 35 percent equity shares in the newly formed company. These bondholders may also receive deferred cash annuity payments up to $50 million based on EBITDA performance the next two years.

The company expects to exit the reorganization period with more than $300 million in available cash on hand. In its bankruptcy petition, Paragon Offshore plans to continue operations throughout the bankruptcy process and emerge as a viable business.

For related articles on Chapter 11 Bankruptcy in the Oil Industry, check out:

Milagro Oil & Gas Files for Chapter 11 Bankruptcy

Vantage Drilling Co files for Chapter 11 Bankruptcy Protection

Hercules Offshore Files for Chapter 11 Bankruptcy Protection

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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.