Paragon Offshore gets agreement in principle for revised restructuring plan

Bankrupt Paragon Offshore’s revised restructuring plan has been agreed in principle with its bondholders and banks, which removes the first hurdle in getting the plan approved and underway.

The amended plan support agreement was signed off in principle by an ad hoc committee of holders of Paragon’s 6.75% senior unsecured notes maturing July 2022 and 7.25% senior unsecured notes maturing August 2024, as well as with a steering committee of certain lenders under Paragon’s senior secured revolving credit agreement.

Paragon said that, if approved, the plan will improve its liquidity and strengthen its balance sheet by allowing the company to retain $60m of additional cash.

A hearing will be held in the US Bankruptcy Court on August 16 to approve Paragon’s disclosure statement supplement, which includes a downside sensitivity analysis. If the court approves the supplement, Paragon said will begin solicitation of its revolver lenders and bondholders to approve the revised restructuring plan. Over 99% of Paragon’s bondholders and 100% of its revolver lenders voted to approve the original plan.

“During the course of the confirmation hearing for our initial restructuring plan, certain feasibility-related issues arose and the court expressed certain concerns. To address those concerns, the company prepared a downside sensitivity case to the projections and then, through discussions with the bondholders and revolver lenders, we developed the revised plan that allows us to retain more cash in the near term while improving our longer-term potential,” Randall D. Stilley, Paragon Offshore’s president and CEO, said today in a release.

The revised plan will reduce the minimum liquidity covenant related to Paragon’s revolving credit agreement with its lenders from $110m to $103m. The holiday on the maximum net leverage ratio and the minimum interest coverage ratio financial covenants will be extended to the first quarter of 2019.

The revolver itself will be modified to include a $165m cash paydown. The balance of approximately $631m, including around $87m in outstanding letters of credit, will be converted to a term loan due in 2021.

Bondholders will collectively receive $285m in cash under the revised plan, which is $60m less than in the original plan. The contingency payment provisions included in the original plan for 2016 and 2017 have been removed.

In exchange, Paragon said it will issue a $60m note due 2021 to its bondholders. The bondholders’ equity ownership will also increase from 35% to 47%, which Paragon said still allows existing shareholders to retain a majority of the equity in the company.

Stilley said the decision to offer additional equity to its bondholders was “not taken lightly”, but the company’s revised plan will ensure a “positive outcome for all stakeholders, including equity holders”.

“If, as we expect, we deliver results consistent with those projected in the base business plan, the additional liquidity and covenant relief will make the company even stronger. However, in the event that our downside densitivity materializes, the increased liquidity and relaxed covenants will help ensure Paragon can survive in a lower-for-much-longer environment,” he explained.