In the Matters of Ocean Rig UDW Inc., Drill Rigs Holdings Inc., Drillships Financing Holdings Inc. and Drillships Ocean Ventures Inc., (Each in Provisional Liquidation)
| Jurisdiction | Cayman Islands |
| Judge | Justice Parker |
| Judgment Date | 18 September 2017 |
| Court | Grand Court (Cayman Islands) |
| Docket Number | CAUSE NO: FSD 100, 101, 102 and 103 OF 2017 (RPJ) |
| Date | 18 September 2017 |
and
The Hon. Justice Parker
CAUSE NO: FSD 100, 101, 102 and 103 OF 2017 (RPJ)
IN THE GRAND COURT OF THE CAYMAN ISLANDS
FINANCIAL SERVICES DIVISION
Schemes of arrangement-class composition-convening hearing considerations-Section 86 Companies Law (2016 Revision)-Practice Direction (No 2] of 2010-sanction hearing considerations.
On behalf of the Scheme Companies:
Mr Daniel Bayfield QC of South Square. Instructed by Ms Caroline Moran, Ms Sherice Arman, Mr Nick Herrod, Mr Christian La-Roda Thomas and Ms Grace Boos of Maples and Calder
On behalf of the Joint Provisional Liquidators:
Ms Rachael Reynolds and Mr William Jones of Ogier. Instructed by the Joint Provisional Liquidators.
On behalf of Highland Capital Management LLP:
Mr Michael Todd QC of Erskine Chambers. Instructed by Mr Stephen Leontsinis and Ms Heather Froude of Collas Crill
On behalf of Ad Hoc Group of Supporting Creditors
Mr Antony Zacaroli QC of South Square, Instructed by Mr Tony Heaver-Wren, Mr David Bulley and Mr Jeremy Snead of Appleby.
On behalf of Archview Investment Group LP, Brigade Capital Management LP. Hof Hooreneman Banklers NV and Caspian Capital LP.
Mr Mark Goodman and Mr Hamid Khanbhai of Campbells
On behalf of 2019 Notes Trustee
Mr Ben Hobden of Conyers Dill & Pearman (appearing at convening hearing and watching brief only at sanction).
1. The first part of this decision concerns the convening hearing and whether each of the Scheme Companies has a single class of scheme creditor. The second part of this decision concerns whether the Schemes proposed should be sanctioned. Since objection has been made at both stages and I haveheard argument at both stages, it is now convenient to give my reasons on both matters in one judgement.
2. Ocean Rig UDW Inc (UDW), Drillships Financing Holding Inc (DFH), Drillships Ocean Ventures Inc (DOV) and Drillships Rigs Holdings Inc (DRH) are each in provisional liquidation. They present four Petitions and Summonses for determination by the Court as the Scheme Companies. UDW is a Cayman Islands incorporated company. DFH, DOV and DRH are direct wholly owned Marshall Islands subsidiaries of UDW (together the Silo companies). The Scheme Companies are members of the Ocean Rig Group (the Group), an offshore ultra-deepwater drilling contractor that is publicly listed on the NASDAQ.
3. On 24 March 2017, each of the Scheme Companies presented winding up petitions to the Grand Court of the Cayman Islands and filed applications seeking the appointment of the joint provisional liquidators (JPLs). The Group is in severe financial distress. This has resulted from a lengthy depression in the global oil and gas markets which has rendered it unable to service its very substantial debt.
4. McMillan J made orders dated 27 March 2017 with respect to each of the Scheme Companies appointing the JPLs and determining that each of the Companies is insolvent or likely to become insolvent.
5. The Scheme Companies represented by Mr Bayfield QC are promoting four separate interlinked Schemes of Arrangement with their largest financial creditors in order to compromise over US $3.69 billion of New York law governed debt so as to return the Group to solvency. The purpose of the restructuring is to de-leverage the Group and allow it to continue as a going concern.
More specifically:
— DFH seeks to compromise its secured term loans with $1.83 billion plus accrued interest outstanding.
— DOV seeks to compromise its secured term loans with $1.27 billion plus accrued interest outstanding.
— DRH seeks to compromise its secured notes with $459.7 milIion plus accrued interest outstanding.
— UDW seeks to compromise its unsecured notes with $131 million plus accrued interest outstanding, and its unsecured guarantees over the debt of the Silo companies.
The principal liabilities of UDW comprise the $131 million plus interest owed to the senior unsecured 2019 Note holders and $3.56 billion owed pursuant to the UDW guarantees of the indebtedness of the Silo companies. The guarantees granted by UDW in support of the debt of the Silo companies are secured over the shares in the Silo companies, which have a single shareholder, UDW.
The creditors who fall to be dealt with comprise by the UDW Scheme compromise:
— Those persons having guarantee claims against UDW pursuant to the DRH indenture dated 20 September 2012 also known as 2017 Notes holders.
— Those persons having guarantee claims against UDW pursuant to the terms of the DFH Credit Facility and guarantee agreement dated 12 July 2013.
— Those persons having guarantee claims against UDW pursuant to the terms of the DOV Credit Facility and guarantee agreement dated 25 July 2014.
— The holders of the 7.25% senior unsecured notes due 30 April 2019 issued by UDW pursuant to an indenture dated 26 March 2014 known as the 2019 Notes holders.
6. It is worth noting that the 2019 Notes are unsecured, structurally subordinated at the bottom of the capital structure, and represent a very small proportion (approximately 4%) of UDW's (and the Group's) financial indebtedness.
7. The Schemes have the overwhelming support of the Scheme creditors. More than 90% of the Scheme creditors have agreed to the terms of a restructuring support agreement (RSA) to vote in favour of the Schemes.
8. The Schemes propose in essence that the Group's debt is exchanged for a mixture of (mostly) equity, a smaller debt burden, and cash. The vast majority of the value of the Group is in the Silo companies, predominantly within the DFH and DOV silos.
9. The JPLs represented by Ms Reynolds, who have looked in detail at the merits of the restructuring and have been intimately involved in all aspects of it, support the four Schemes and a single class in respect of all of them, including the UDW Scheme, as do the Ad Hoc Group (a group of Scheme creditors holding in aggregate the majority of the Group's debt), who are represented by Mr Zacaroli QC.
10. If the restructuring should fail for any reason it is accepted that the Scheme Companies will go into liquidation and there would be a Group-wide insolvency causing winding up and other insolvency proceedings in the various jurisdictions in which the Group subsidiaries operate. There would also likely be enforcement by the secured lenders over the assets of the Group. More specifically no value would be realised by UDW from its ownership of the Silo companies on a liquidation whereas on the restructuring as proposed, UDW would have a substantial going concern value.
11. In other words the alternative to the Schemes will involve inevitably the liquidation of the Group and enforcement of security by creditors which it is accepted would result in value destruction generally for all creditors.
12. FTI Consulting has produced a liquidation analysis which appears in the Explanatory Statement. They confirm that a liquidation will involve a likely breakup of the Group and a distressed sale of its assets which would inevitably lead to a substantial destruction of the value of the Group, as compared to its value as a going concern. The survival of the Group's business depends upon the Group being released from the enormous debt burden under which it operates and the restructuring is premised on the assumption that the Group's business will remain viable in the medium to long-term if it is allowed to trade through the financial difficulties which have meant that is has been unable to service its debt.
13. The Scheme Consideration payable to those creditors who are eligible to receive it has been determined by a detailed allocation and valuation methodology, which was prepared by Evercore and is set out in the Explanatory Statement. In essence the allocation and valuation of the Scheme Consideration in each of the Schemes is based on the distributable value of each Scheme Company on a going concern basis and the values have been calculated by reference to the estimated enterprise value of the Silo companies and the non-silo subsidiaries and the projected cash balances of the Scheme Companies under the Group's business plan. For that purpose Evercore produced a value for each silo on a going concern basis using a discounted cash flow methodology.
14. The estimated recovery for Scheme Creditors under the Schemes is appreciably higher in each case than the estimated recovery the creditors would receive on a liquidation. The Explanatory Statement details and compares recoveries for Scheme Creditors under the proposed Schemes and recoveries on a liquidation of the Scheme Companies.
15. Those are the essential features of this case which have relevance to the matters the Court needs to consider when dealing with the matters proposed by the Scheme Companies.
16. I bear in mind that it is well established that in the context of schemes of arrangements the creditors are likely to be the best judges of what is in their commercial interests and in this case the Schemes had, prior to the convening hearing, already achieved over 90% levels of support of the Scheme creditors of each of the Scheme Companies.
17. Each of the four Scheme Companies seeks liberty to convene a single class meeting of its Scheme creditors to consider and, if thought fit, to approve the Scheme proposed by those companies.
18. There is no objection taken to the proposal that, in relation to each of the Silo companies' Schemes, there is a single class of Scheme Creditor. However, funds managed by Highland Capital Management LP (Highland), represented by Mr Todd QC, oppose one of the Schemes, the UDW Scheme. This is so...
To continue reading
Request your trial