Ocean Rig UDW Inc. (NASDAQ:ORIG) announced that the Scheme Conditions under the schemes of arrangement in respect of each of the Company and Drillships Financing Holding Inc. (DFH), Drill Rigs Holdings Inc. (DRH) and Drillships Ocean Ventures Inc. (DOV) have been satisfied (or waived) in accordance with the terms of the relevant Scheme, the Restructuring Effective Date has occurred and the Company has completed its restructuring.
The Restructuring of each Scheme Company was effected by way of the Schemes under Cayman Islands law. The Schemes provided for substantial deleveraging of the Scheme Companies through an exchange of approximately $3.7 billion principal amount of debt (plus accrued interest) for new equity of the Company, as described below, approximately $288 million in cash and $450 million of new secured debt. The creditors of the Scheme Companies (the “Scheme Creditors”) who submitted a validly completed Account Holder Letter and/or Lender Claim Form together with a valid Confirmation Form to the Information Agent by 5:00 p.m. (Cayman Islands time) on September 13, 2017, have received or are in the process of receiving the scheme consideration to which they are entitled (other than Scheme Creditors which elected to receive New Non-Marginable Shares as described below).
After the hearing held before the U.S. Bankruptcy Court on September 20, 2017, the U.S. Bankruptcy Court issued an order granting comity and giving full force and effect to the Schemes in the United States.
The figures presented below include key preliminary financial information projected and estimated as of September 30, 2017:
- Total cash of at least $690 million, including about $20 million restricted cash associated with the Ocean Rig Apollo.
- Assets (book value basis) of about $2.9 billion, including about $570 million associated with newbuilding installments and about $650 million associated with the Ocean Rig Apollo.
- Debt of about $567 million, including about $117 million associated with the Ocean Rig Apollo.
- Backlog of about $1.2 billion, including about $109 million in termination fees associated with the Ocean Rig Apollo.
- Common shares issued and outstanding after giving effect to all issuances contemplated in the Restructuring (after November 3, 2017, the date of the EGM): 91,555,982.
Restructuring Emergence Details
On September 21, 2017, the Company cancelled 22,222,222 of its treasury shares and 56,079,533 shares of the Company previously held by its subsidiary Ocean Rig Investments Inc.
On September 21, 2017, the Company effected a 1-for-9,200 reverse stock split of the then-existing shares of the Company’s issued common stock. Following the reverse stock split, there were approximately 8,975 shares of the Company’s stock issued and outstanding. The CUSIP number for the common stock following the reverse stock split is G66964118.
On the date hereof, which is the Restructuring Effective Date, the Company issued an aggregate of 90,651,603 common shares of the Company pursuant to the Schemes. Of this amount, 82,126,810 common shares (which together with 895,404 New Non-Marginable shares (described below) comprise 90.68% of the post-Restructuring equity of the Company), were issued to the Scheme Creditors or their nominees as part of the consideration for their claims on account of the Company’s indebtedness. An additional 8,524,793 common shares were issued to a company affiliated with the Company’s Chairman and Chief Executive Officer, Mr. George Economou, pursuant to the TMS Agreement described below.
Additionally, certain Scheme Creditors which opted to receive New Non-Marginable Shares pursuant to the Schemes in lieu of common shares, will receive such shares as soon as possible after the adoption of the Second Amended and Restated Memorandum and Articles of Association of the Company (as described below) and the passing of a resolution to redesignate certain of the Company’s common shares as New Non-Marginable Shares at the UDW EGM. The UDW EGM is expected to take place on November 3, 2017. The New Non-Marginable Shares will be designated as class B convertible common shares of par value of U.S. $0.01 each of the Company and will not be listed on a national securities exchange or a national market system.
Discharge of JPLs
As soon as practicable after the Restructuring Effective Date, the Scheme Companies and the joint provisional liquidators (“JPLs”) shall apply to the Cayman Court for discharge of the JPLs.
New Credit Facility
On the Restructuring Effective Date, pursuant to the Schemes, the Company and certain of its subsidiaries, as borrowers and guarantors, entered into a new credit agreement dated September 22, 2017 (the “New Credit Agreement”) with the Scheme Creditors participating in the Schemes relating to DOV and DFH, or their nominees (the “Lenders”). The New Credit Agreement contains limited financial covenants. In addition, the Company and certain of its subsidiaries will guarantee the obligations of the New Credit Agreement and collateral has been granted to the Lenders by way of a first priority lien over substantially all existing and newly acquired assets of the borrowers and guarantors. The New Credit Agreement consists of an about $450 million senior secured term loan facility bearing interest at 8.00% per annum with a maturity date of September 20, 2024. In connection with the entry into the New Credit Agreement, the borrowers and guarantors entered into a new intercreditor agreement dated September 22, 2017 (the “New Intercreditor Agreement”) with the collateral agents and certain other parties thereto.
Management Services Agreement
On the Restructuring Effective Date, as part of the Restructuring, the Company and each of its vessel-owning subsidiaries entered into the Management Services Agreement dated September 22, 2017 (the “TMS Agreement”), pursuant to which TMS provides certain management services related to the Company drilling units, including but not limited to commercial, financing, legal and insurance services. In consideration for these services, the Company has agreed to pay TMS Offshore Services Ltd. (“TMS”) an annual fee of $15.5 million (not including reimbursement for certain expenses incurred in connection with its performance of services as manager) plus up to an additional $10 million based on the satisfaction of certain performance metrics. The Company has also agreed to pay a 1.0% commercial fee on all earnings under any existing drilling contract and any drilling contract entered into after the commencement of the TMS Agreement, subject to certain conditions.
The Company may terminate the TMS Agreement at any time, subject to the payment of a termination fee of the greater of (x) $150 million, which amount shall be reduced ratably on a daily basis over the term of the TMS Agreement, which initial term is ten years commencing from the commencement date or (y) $30 million (the “Convenience Termination Fee”). The Company may also terminate the TMS Agreement for “cause” upon five business days’ notice to TMS, subject to certain conditions, including the payment to an escrow account of the lesser of (x) of $50 million or (y) the Convenience Termination Fee, due and owing at the time, such funds to be released in accordance with the decision of an appointed arbitrator. The TMS Agreement may also be terminated by TMS if the Company defaults under the TMS Agreement and such default is not cured within ninety (90) days of written notice of such default.
The TMS Agreement replaced the management services agreement the Company and its subsidiaries had entered into with TMS on March 31, 2016, as amended.
On the Restructuring Effective Date, the Company entered into a Governance Agreement dated September 22, 2017 (the “Governance Agreement”) with certain of the Scheme Creditors receiving new equity of the Company pursuant to the Schemes. The Governance Agreement provides for certain governance and shareholders’ rights, including customary registration rights.
New UDW Articles
As previously announced, shareholders of the Company will have the opportunity to vote at the UDW EGM on proposals to: (i) adopt the Second Amended and Restated Memorandum and Articles of Association of the Company (the “New UDW Articles”), (ii) reduce the authorized share capital of the Company and (iii) re-designate issued and unissued authorized common shares as class A common shares (which the Company believes will continue to be traded on NASDAQ under the symbol “ORIG”) and class B common shares of the Company, to reduce the number of unissued authorized preferred shares of the Company and to cancel the remaining unissued authorized common shares. Upon the adoption of the New UDW Articles, the Company’s board of directors will increase in size to consist of seven directors, of which three directors will be appointed by certain significant Lenders granted appointment rights under the New UDW Articles (the “Lender Directors”) and four directors will be appointed by Mr. Economou. The New UDW Articles will also provide that, until the later of the fifth anniversary of the Restructuring Effective Date and (ii) the day immediately preceding the fifth Annual General Meeting held after the Restructuring Effective Date, unless such provision is earlier terminated (the “Termination Date”), the right to remove a director will be limited to the persons entitled to designate such director or for cause by either the affirmative vote of at least two-thirds of the board of directors or a majority of the Lender Directors. Under the terms of the Governance Agreement, the shareholders that are a party thereto have agreed to vote against any proposal to amend the New UDW Articles or the winding-up of the Company unless such proposal is approved by the board of directors, including a majority of the Lender Directors.
The New UDW Articles will also provide that the Company will not take certain actions without the approval of the majority of the Lender Directors, including future issuances of common shares or other securities, the payment of dividends, if any, on the Company’s common shares, the incurrence or modification of debt by the Company, amendments to the New UDW Articles, the entering into of certain extraordinary transactions and the Company’s engagement in certain other Major Actions, as defined in the New UDW Articles. The Lender Directors will retain these veto rights until the Termination Date. Furthermore, until the three Lender Directors have been appointed following the adoption of the New UDW Articles, the Company will not be permitted to take any action if such action would otherwise require the approval of the Lender Directors. These veto rights provide the Lender Directors with significant influence over the Company’s operations and strategy, and the Lender Directors may support proposals and actions with which shareholders may disagree or which are not in shareholders’ interests.
Scheme Creditors representing at least two-thirds of the shares that will be entitled to vote at the EGM have, pursuant to the Schemes, granted proxies to vote in favor of adopting the New UDW Articles at the UDW EGM.
Termination of the Company’s Amended and Restated Rights Agreement (“Poison Pill”)
On September 20, 2017, the Company entered into Amendment No. 1 to the Amended and Restated Rights Agreement by and between the Company and American Stock Transfer & Trust Company, LLC, (the “Rights Agent”) (the “Amendment”). The Amendment was made in connection with the Restructuring and has the effect of terminating the Rights Agreement on the date on which the Company notifies the Rights Agent that all of the Restructuring Support Agreement Conditions (as defined in the explanatory statement issued by each of the Scheme Companies dated July 21, 2017 pursuant to Order 102, Rule 20(4) of the Cayman Islands Grand Court Rules 1995 (Revised Edition) (the “Explanatory Statement”)), other than the termination of the Rights Agreement, have been satisfied or waived pursuant to the Scheme (as defined in the Explanatory Statement). The Company provided notice to the Rights Agent and effectively terminated the Rights Agreement on the Restructuring Effective Date.
George Economou, Chairman and CEO commented:
“I thank the Joint Provisional Liquidators, our advisors and our financial creditors for the tremendously hard work required to implement a complex restructuring of this nature. We have been supported throughout by our clients, employees and vendors and, having been placed on firm financial footing, Ocean Rig looks forward to focusing back on its underlying business.”
Ocean Rid UDW is a holding company, which engages in offshore drilling operations. Through its subsidiaries, it provides oilfield services for offshore oil and gas exploration, development, and production drilling, specializing in the ultra-deepwater and harsh-environment segment of the offshore drilling industry. It owns and operates offshore ultra deepwater drilling units, comprised of ultra deepwater semisubmersible drilling rigs and ultra deepwater drilling ships.