(Troubled Company Reporter - Feb. 14, 2011)
The TCR reports that Seahawk Drilling Inc. and its affiliates sought chapter 11 protection (Bankr. S.D. Texas Lead Case No. 11-20089) to sell their assets to Hercules Offshore, Inc., for $105 million in cash and shares.
Seahawk said a Chapter 11 filing is warranted to protect and
preserve their going concern value and to facilitate a prompt sale
of substantially all of their assets for the benefit of all
stakeholders.
The Debtors have postpetition financing in the aggregate amount of
up to $35,000,000 from D.E. Shaw Direct Capital Portfolios, L.L.C.
Based on court filings, the Debtors do not intend to conduct any
bankruptcy auction or further market test the assets while under
Chapter 11. In the opinion of Simmons And Company International
and the board of directors, further marketing efforts would not
likely result in any offers superior to the Hercules Asset
Purchase Agreement.
The fist day hearing is scheduled today February 14, 2011, at 3:30
p.m. CST.
Seahawk expects no impact on operations and Seahawk will continue
to perform work for its customers without interruption. Seahawk
expects that full payment of all funded debt and trade payables
will be made. Additionally, Seahawk expects to pay all vendors
for goods and services provided after the filing.
Parties' Statement
Seahawk's Chief Executive Officer, Randy Stilley, stated, "After a
thorough and disciplined process, an independent committee of
Seahawk's directors and its full Board of Directors determined
that an asset sale to Hercules provides the highest level of value
to Seahawk's stakeholders."
Mr. Stilley continued, "The transaction with Hercules creates a
company with a larger, more diverse fleet, broader customer
relationships and greater operational flexibility. In addition to
increased economies of scale, combining the fleets will provide
for substantial cost savings through the elimination of overhead
and duplicative public company expenses."
Both companies expect to obtain regulatory clearance under the
Hart-Scott-Rodino Antitrust Act and close the transaction in the
second quarter of 2011.
"The filing permits us to effectuate the sale in an efficient
manner, allowing us to address legacy liabilities inherited from
Pride International, Inc. as part of the August 2009 spin-off, and
ensure we continue to operate our business as usual as we proceed
with the sale process," Mr. Stilley said.
John T. Rynd, President and Chief Executive Officer of Hercules
Offshore, Inc., stated, "We believe that the strategic rationale
and value proposition of this transaction are very compelling for
our shareholders. This is a unique opportunity to acquire assets
at an attractive price, and we expect significant synergies once
they are added to our rig fleet. Furthermore, the structure and
terms by which we are acquiring these assets will provide benefits
to our shareholders, allowing us to fully dedicate our time to
operate these assets to their maximum potential. We will have the
ability to operate a significantly larger fleet of rigs for our
customers, with a small amount of incremental cost."
The Board of Directors of Hercules Offshore has approved the
transaction. Closing of the transaction is subject to bankruptcy
court approval, Hercules Offshore lender approval, as well as
regulatory approvals and other customary conditions. Assuming
such conditions are achieved, Hercules anticipates closing of this
transaction to occur during the second quarter of 2011. Jefferies
& Company provided a fairness opinion to the Hercules Offshore
Board of Directors, and Andrews Kurth LLP and Thompson & Knight
LLP acted as legal advisors to Hercules Offshore for this
transaction.
Hercules Offshore is scheduled to conduct a conference call on
today, Feb. 14, 2011, at 7:00 a.m. CST (8:00 a.m. EST) to discuss
the transaction. To participate in the conference call by
telephone, please call 10 minutes prior to the scheduled start
time, one of the following telephone numbers:
866-271-0675 (Domestic)
617-213-8892 (International)
The access or confirmation code is 73179107.
Road to Chapter 11
Randall D. Stilley, president, chief executive officer and a
member of the board of directors of Seahawk Drilling, relates that
since mid-2008, the demand for drilling services has declined
dramatically, principally as a result of the global financial
crisis, declining prices of crude oil and natural gas and
deteriorating worldwide economic conditions. The decline in the
United States jackup rig market since 2009 has been one of the
sharpest downturns for domestic jackup rig activity over the past
30 years. In addition, the regulatory and financial uncertainties
regarding a former customer, PEMEX, have had a significant effect
on Seahawk's business. Finally, from August 2009 to March 2010,
the Debtors' active rig count averaged five to seven working rigs
at any given time.
On April 20, 2010, the demand for offshore drilling services in
the Gulf of Mexico was further negatively impacted by the Macondo
well blowout, prompting, among other things, the United States
Government to issue a moratorium on all U.S. offshore drilling.
According to Mr. Stilley, notwithstanding the termination of the
Government-imposed drilling prohibitions later in 2010, the
Debtors' customers are experiencing significant delays in the
issuance of drilling permits and very few new drilling permits
have been issued. In addition, there is an increasingly uncertain
regulatory and cost environment which continues to adversely
affect the Debtors' business.
As a result of all of these factors, the Debtors' active rig count
declined to three working rigs during October 2010. While there
has been some recent marginal improvement in market conditions --
seven rigs are currently working -- the combined impact of all of
these events, together with negative cash flows throughout 2009
and 2010, has severely stressed and exhausted the Debtors'
liquidity and even the current operating level results continue to
produce negative cash flows for the Debtors, Mr. Stilley relates.
Capital Structure
As of November 9, 2010, Seahawk reported a loss of $32.1 million
from continuing operations, or $2.69 per diluted share, for the
three months ended September 30, 2010, compared to a loss of $32.4
million, or $2.80 per diluted share, for the three months ended
September 30, 2009. Revenues totaled $18.6 million during the
three months ended September 30, 2010, compared with $67.6 million
during the three months ended September 30, 2009.
Seahawk's consolidated balance sheet at September 30, 2010,
included cash and cash equivalents of $41.4 million and net
working capital of $11.4 million. Capital expenditures during the
third quarter of 2010 were $4.5 million. On September 30, 2010,
Seahawk had total assets of $504.9 million, stockholders' equity
of $380.4 million, and short-term debt of $17.9 million.
Sale to Hercules
In February 2011, after evaluating the indications of interest and
potential offers received from a number of interested parties, the
Board authorized the Debtors to enter into an Asset Purchase
Agreement with Hercules Offshore Inc. The executed APA
contemplates the acquisition by Hercules or one or more of its
subsidiaries of substantially all of the assets and jackup rigs of
the Debtors through a sale pursuant to Section 363 of the
Bankruptcy Code. The aggregate consideration for the Purchased
Assets is (a) 22,321,425 shares of Hercules Common Stock plus (b)
cash in an amount equal to $25,000,012, subject to certain
adjustments. Using the closing stock price of Hercules' stock as
of February 10, 2011, the Base Aggregate Consideration would be
valued at approximately $105 million before any adjustments. The
Base Aggregate Consideration is to be payable at closing by
Purchaser to Sellers.
The Debtors propose to sell these assets to Hercules:
a. Rigs. Substantially all of the Debtors' 20 jackup Rigs;
b. Contracts. All of the interests, rights, Claims, and
benefits arising or accruing to any of Sellers under any
Contract to the extent Sellers' interest in such Contract
is transferable;
c. Equipment. All furniture, equipment, computers, computer
equipment, machinery, tools, hand tools, spare parts, test
equipment, supplies, inventory, office supplies,
telephones, and all other tangible personal property
relating to the operation of the Business.
d. Rolling Stock. All automobiles, vans, trucks, trailers, and
other motorized and similar vehicles and stock of every
kind, whether owned or leased, used in the operation of the
Business;
e. Additional Tangible Assets. All other Tangible Personal
Property of every kind used in the operation of the
Business;
f. Accounts and Notes Receivable. All trade accounts
receivable, notes receivable, and other rights of Sellers
to payment from customers and other third parties;
g. Insurance Benefits. All insurance benefits arising from or
related to the Business;
h. Cash. All cash and cash equivalents, securities, money on
deposit with banks, certificates of deposit, and similar
short-term investments of Sellers;
i. Prepaid Deposits and Expenses. Any deposits and prepaid
expenses (paid to or by Sellers), Claims for refunds, and
rights of set off related to the Purchased Assets or
Business;
j. Claims. Any and all Claims against third parties relating
or attributable to the Business;
k. Permits. Any and all Permits, including pending
applications or filings therefor and renewals thereof, of
every kind;
l. Books and Records. Photocopies of all of the Books and
Records;
m. Warranties. All Claims, warranties, reimbursements,
indemnities, and causes of action with respect to (i) the
Purchased Assets, (ii) the Business and (iii) the Assumed
Liabilities;
n. Other Assets. All other tangible or intangible assets,
rights, privileges, benefits, Claims, and interests of a
Seller, whether real, personal or mixed, of every kind and
description and wherever located, that relate to, used in
or held for use in the operation of the Business.
Excluded assets in the sale include (a) any and all Claims or
rights of the Debtors arising under chapter 5 of the Bankruptcy
Code; and (b) any and all claims or rights of the Debtors against
former parent Pride International Inc.
An expedited sale of the Debtors' assets is a mandatory condition
of the APA. Hercules can terminate the APA if
(i) a final order approving the sale is not entered by the
Bankruptcy Court by 120 days after the Petition Date; and
(ii) the DIP Financing is not approved within 21 days of the
Petition Date.
About Hercules
Headquartered in Houston, Hercules Offshore, Inc. operates a fleet
of 30 jackup rigs, 17 barge rigs, 65 liftboats, three submersible
rigs, one platform rig and a fleet of marine support vessels. The
Company offers a range of services to oil and gas producers to
meet their needs during drilling, well service, platform
inspection, maintenance, and decommissioning operations in several
key shallow water provinces around the world. Additional
information may be found at http://www.herculesoffshore.com/
About Seahawk
Seahawk Drilling, Inc. is an offshore drilling company
headquartered in Houston, Texas. Seahawk owns a fleet of 20 jackup
rigs that provide shallow water services in the Gulf of Mexico.
Seahawk's shares are traded on the NASDAQ Stock Market under the
symbol "HAWK." Additional information may be found at
http://www.seahawkdrilling.com/
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