Paragon Offshore plc (fka PGNPQ)

[SPARK]

Paragon offshore lenders to vote on restructuring plan by june



Paragon Offshore Plc ( OTCMKTS:PGNPQ) will start the second round of debt restructuring in coming months as bankruptcy judge, Christopher Sontchi, has approved its new plan to reduce liabilities.

The judge has allowed the company’s creditors to vote on a plan that would mop up around $1 billion liabilities form its balance sheet. Paragon Offshore filed for Chapter 11 bankruptcy protection in February as low oil and gas prices weighed down its financial position.

The lenders of the company will now cast their votes on the plan by May 31 and Mr. Sontchi will give the final verdict on June 21. The restructuring plan would allow lenders to forgo $1 billion of liabilities and would reduce the company’s annual interest expense by almost $60 million.

The restructuring plans will not only help the company reduce liabilities, but it would also improve its cash balance. Low Oil Prices on a Roll

Since June 2014, crude oil prices have dropped more than 65%. Global crude oil benchmark, Brent, which was above $110 per barrel, now trades at $44.5. The US crude benchmark, West Texas Intermediate (WTI) is trading at $42.07 per barrel.

The low oil prices have hit hard the oil and gas exploration and production (E&P) companies. Their earnings have reduced, while their debt burden has increased significantly. The deteriorating financial position forced the upstream companies to lower their capital and operating spending. According to the consulting firm, Wood Mackenzie, about $400 billion worth of energy projects have been shelved because of the ongoing crisis in the oil market. The reduction in spending adversely impacted the oilfield drillers and services companies, including Paragon Offshore.

Moreover, as Petroleo Brasileiro SA Petrobras (ADR) ( NYSE:PBR) was also one of the major customer of Paragon Offshore. The corruption scandal at the Brazilian state-run company and the ongoing crisis in the market has also hit hard the offshore driller. Last year, Petrobras terminated its drilling contract with the company.

In the fourth quarter of fiscal 2015, Paragon Offshore reported $299.56 million revenue. In the same period last year, the company had revenues of $494.99 million and during the same period, its liabilities grew from $2.76 billion to $2.89 billion.

In February, the energy company reached an agreement with the creditors. In exchange for the reduction in liabilities of offshore drilling company, the lenders agreed to receive cash payment.

As a part of the restructuring plan, the revolving loan of $795 million was converted into a term loan of $544 million due 2021. The lenders agreed to receive $165 million of cash in exchange. The company now has total term loan of $644 million, which will carry through the duration of bankruptcy.

Moreover, the senior bondholders have also agreed to forgo $984 million of debts against a cash payment of $395 million and 35% equity shares. According to The Wall Street Journal, which cited the court papers, by the exchange program, the bondholders of the company are expected to recover 52–66.5% of their lending.

If in May, the creditors vote in favor of the restructuring plan, it would provide a sigh of relief to the company. Paragon’s liquidity position would improve slightly as in exchange of some cash payments and its $1 billion worth of liabilities would be reduced.