Seahawk Drilling in bankruptcy, inks deal to sell assets to Hercules

By Caroline Salls

Pittsburgh, Feb. 14 - Seahawk Drilling, Inc. filed Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Texas to complete the proposed sale of substantially all of its assets to Hercules Offshore, Inc. in a transaction valued at about $105 million, according to an 8-K filed with the Securities and Exchange Commission.

As previously reported, the total sale consideration is comprised of 22.3 million Hercules shares plus enough cash to retire roughly $25 million of debt, as well as working capital liabilities subject to closing adjustments.

The amount of Hercules Offshore common shares issued will be proportionally reduced at closing, based on a fixed price of $3.36 per share, if the outstanding amount of the company's debtor-in-possession loan exceeds $25 million, with the total cash consideration not to exceed $45 million.

The sale is expected to close in the second quarter, subject to bankruptcy court approval, Hercules lender approval and regulatory approval.

Seahawk said it does not expect the bankruptcy to have any impact on its operations, and the company expects all funded debt and trade payables to be paid in full.

DIP loan terms

Additionally, Seahawk has obtained a $35 million debtor-in-possession credit facility from the D.E. Shaw group's direct capital unit to support its business and liquidity needs.

According to the 8-K, interest on the DIP loan will be 12% plus the higher of one-month Libor and 3%.

The facility will mature on the earliest of 180 days from closing, 45 days after the bankruptcy filing if a final order has not been entered, the effective date of a plan of reorganization, upon approval of a sale of the company's assets or collateral, 60 days after the filing date if Seahawk has not entered into an agreement for the sale of substantially all of its assets that provides for payment of all of the DIP loan debt and 120 days after the filing if the sale has not closed by then.

Filing defaults

The bankruptcy filing triggered an event of default under the company's pre-bankruptcy revolving credit agreement and its tax-sharing agreement. However, any attempts to enforce those defaults are automatically stayed by the filing.

Pride International, Inc. sent a notice of default and request for cash collateralization under the tax support agreement on Feb. 9, according to the 8-K.

Under the agreement, which was entered into when Seahawk spun off from Pride, Pride agreed to provide a guarantee, indemnity or other credit support of any surety bonds or other collateral issued in connection with specified Mexican tax assessments made before the spin-off.

The default notice claims that Seahawk failed to pay to Pride $459,215 in credit support fees and failed to make a $260,866 reimbursement payment.

Pride also terminated its obligation to provide any additional credit support instruments under the tax agreement and ordered Seahawk to cash collateralize Pride's current credit support exposure in an amount in dollars equal to Ps. 600.14 million.

Management changes

In connection with the sale and a company-wide employee reduction expected to be required by the DIP credit agreement, Seahawk said it will terminate some employees and officers, including senior vice president, general counsel, chief compliance officer and secretary Alejandro Cestero and vice president and chief accounting officer William G. Evans.

Cestero and Evans will continue to serve in their posts until Feb. 14 and be terminated effective at the end of the day on Friday.

In addition, Seahawk said directors Stephen A. Snider, Mark E. Baldwin and Richard J. Alario will resign from the board at the end of the day on Feb. 16.

Also, Randall D. Stilley will resign as director at the end of the day on Feb. 16 but will continue to serve as the company's president and chief executive officer.

The remaining board members will constitute the company's full board of directors, with Franklin Myers serving as chairman once Snider resigns.

Debt details

According to court documents, Seahawk had $504.9 million of total assets and $124.47 million of total debt as of Sept. 30.

The company's largest unsecured creditors include:

• Pride International, Inc., based in Houston, with a $15.62 million trade payable claim;

• McGriff, Seibels and Williams of TX, based in Houston, with a $3.52 million trade payable claim; and

• Offshore Towing, Inc. of Larose, La., with a $1.91 million trade payable claim.

The company has hired Alvarez & Marsal as its financial adviser and Fulbright & Jaworski LLP as its law firm.

Seahawk is a Houston-based offshore drilling company. The Chapter 11 case number is 11-20089.

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