| Organization and Recent Events | 1. Organization and Recent Events
Vantage Drilling International (the “Company” or
“VDI”), a Cayman Islands exempted company, is an
international offshore drilling company focused on operating a
fleet of modern, high specification drilling units. Our principal
business is to contract drilling units, related equipment and work
crews, primarily on a dayrate basis to drill oil and natural gas
wells for our customers. We also provide construction supervision
services for drilling units owned by others. Through our fleet of
drilling units, we are a provider of offshore contract drilling
services to major, national and independent oil and natural gas
companies, focused primarily on international markets. The Company
was previously known as Offshore Group Investment Limited and
changed its corporate name to Vantage Drilling International
effective February 11, 2016.
Restructuring Agreement and Emergence from Voluntary
Reorganization under Chapter 11 Proceeding
On December 1, 2015, we and Vantage Drilling Company
(“VDC”), our former parent company, entered into a
restructuring support agreement (the “Restructuring
Agreement”) with a majority of our secured creditors.
Pursuant to the terms of the Restructuring Agreement, the Company
agreed to pursue a pre-packaged plan of reorganization (the
“Reorganization Plan”) under Chapter 11 of Title 11 of
the United States Bankruptcy Code and VDC would commence official
liquidation proceedings under the laws of the Cayman Islands. On
December 2, 2015, pursuant to the Restructuring Agreement, the
Company acquired two subsidiaries responsible for the management of
the Company from VDC in exchange for a $61.5 million promissory
note (the “VDC Note”). As this transaction involved a
reorganization of entities under common control, it was reflected
in the consolidated financial statements, at carryover basis, on a
retrospective basis. Effective with the Company’s emergence
from bankruptcy on February 10, 2016 (the “Effective
Date”), VDC’s former equity interest in the Company was
cancelled. Immediately following that event, the VDC Note was
converted into 655,094 new ordinary shares of the reorganized
Company (the “New Shares”) in accordance with the terms
thereof, in satisfaction of the obligation thereunder, which,
including accrued interest, totaled approximately $62.0 million as
of such date.
On December 3, 2015 (the “Petition Date”), the
Company, certain of its subsidiaries and certain VDC subsidiaries
who were guarantors of the Company’s pre-bankruptcy secured
debt, filed the Reorganization Plan in the United States Bankruptcy
Court for the District of Delaware ( In re Vantage Drilling
International (F/K/A Offshore Group Investment Limited), et al.
The following table summarizes the components of our pre-bankruptcy
debt, all of which was reflected as Liabilities Subject to
Compromise (“LSTC”) in our consolidated balance sheet
as of December 31, 2015 (in thousands):
2017 Term Loan and accrued interest $ 326,420
2019 Term Loan and accrued interest 344,738
7.5% Senior Notes and accrued interest 1,136,748
7.125% Senior Notes and accrued interest 736,550
Pre-petition Credit Agreement 150,000
Liabilities Subject to Compromise $ 2,694,456
Pursuant to the terms of the Reorganization Plan, the term loans
and senior notes were retired on the Effective Date by issuing the
debtholders Units in the reorganized Company, with each Unit of
securities originally consisting of one New Share and $172.61 of
principal of the 1%/12% Step-Up Senior Secured Third Lien
Convertible Notes due 2030 (the “Convertible Notes”),
subject to adjustment upon the payment of interest in kind and
certain cases of redemption of conversion of the Convertible Notes,
as well as share splits, share dividends, consolidation or
reclassification of the New Shares . As of June 30, 2016,
taking into account the payment of interest in kind on the
Convertible Notes on such date, each such unit of securities became
comprised of one New Share and $173.28 of principal of Convertible
Notes. The New Shares and the Convertible Notes are issued subject
to the terms of an agreement that prohibits the New Shares and
Convertible Notes from being transferred or exchanged separately.
For every $1,000 of principal, a note holder received 1.722798
Units for the 2017 Term Loan, 1.725087 Units for the 2019 Term
Loan, 1.786070 Units for the 7.5% Senior Notes, and 1.728569 Units
for the 7.125% Senior Notes. In total, these debtholders received
4,344,959 Units under the Reorganization Plan.
The New Shares issued to these creditors and the Convertible Notes
may only be traded together and not separately. The Convertible
Notes are convertible into New Shares in certain circumstances, at
a conversion price (subject to adjustment in accordance with the
terms of the Indenture for the Convertible Notes) which was $95.60
as of the issue date. The Indenture for the Convertible Notes
includes customary covenants that restrict among other things, the
granting of liens and customary events of default, including among
other things, failure to issue securities upon conversion of the
Convertible Notes.
Other significant elements of the Reorganization Plan included
:
Second Amended and Restated Credit Agreement
10% Senior Secured Second Lien Notes
The Reorganization Plan allowed the Company to continue business
operations during the court proceedings and maintain all operating
assets and agreements. The Company had adequate liquidity prior to
the filing and did not have to seek any debtor-in-possession
financing. All trade payables, credits, wages and other related
obligations were unimpaired by the Reorganization Plan.
Other Events: Titanium Explorer | |
| Organization and Recent Events | | 1. Organization and Recent Events
Vantage Drilling International (the “Company” or
“VDI”), a Cayman Islands exempted company, is an
international offshore drilling company focused on operating a
fleet of modern, high specification drilling units. Our principal
business is to contract drilling units, related equipment and work
crews, primarily on a dayrate basis to drill oil and natural gas
wells for our customers. We also provide construction supervision
services for drilling units owned by others. Through our fleet of
drilling units, we are a provider of offshore contract drilling
services to major, national and independent oil and natural gas
companies, focused primarily on international markets. The Company
was previously known as Offshore Group Investment Limited and
changed its corporate name to Vantage Drilling International
effective February 11, 2016.
Restructuring Agreement and Bankruptcy Proceedings under
Chapter 11
On December 1, 2015, we and Vantage Drilling Company
(“VDC”), entered into a restructuring support agreement
(“Restructuring Agreement”) with a majority of our
secured creditors. Pursuant to the terms of the Restructuring
Agreement, the Company agreed to pursue a pre-packaged plan of
reorganization (the “Reorganization Plan”) under
Chapter 11 of Title 11 of the United States Bankruptcy
Code and VDC would commence official liquidation proceedings under
the laws of the Cayman Islands. On December 2, 2015, pursuant
to the Restructuring Agreement, the Company acquired two
subsidiaries responsible for the management of the Company from VDC
in exchange for a $61.5 million promissory note (the
“VDC Note”). As this transaction involved a
reorganization of entities under common control, it has been
reflected in the accompanying consolidated financial statements, at
carryover basis, on a retrospective basis.
On December 3, 2015, the Company, certain of its subsidiaries
and certain VDC subsidiaries who were guarantors of the
Company’s pre-bankruptcy secured debt, filed the
Reorganization Plan in the United States Bankruptcy Court for the
District of Delaware (In re Vantage Drilling International (F/K/A
Offshore Group Investment Limited), et al., Case
No. 15-12422). On January 15, 2016, the District Court of
Delaware confirmed the Company’s pre-packaged Reorganization
Plan and the Company emerged from bankruptcy effective on
February 10, 2016. The significant elements of the
Reorganization Plan included:
Second Amended and Restated Credit Agreement.
The maturity date of the term loans and commitments established
under the Credit Agreement is December 31, 2019. Interest is
payable on the unpaid principal amount of each term loan under the
Credit Agreement at LIBOR plus 6.5%, with a LIBOR floor
of 0.5%. The initial term loans are currently bearing interest
at 7.1%.
Fees are payable on the outstanding face amount of letters of
credit at a rate per annum equal to 5.50% as such rate may be
increased from time to time pursuant to the terms of the Credit
Agreement.
The Credit Agreement includes customary representations and
warranties, mandatory prepayments, affirmative and negative
covenants and events of default, including covenants that, among
other things, restrict the granting of liens, the incurrence of
indebtedness, the making of investments and capital expenditures,
the sale or other conveyance of assets, including vessels,
transactions with affiliates, prepayments of certain debt and the
operation of vessels. The Credit Agreement also requires that the
Company maintain certain levels of available cash (defined to
include unrestricted cash and cash equivalents plus undrawn
commitments).
10% Senior Secured Second Lien Notes.
The 10% Second Lien Notes were issued at par, and are fully
and unconditionally guaranteed, on a senior secured basis, by
certain subsidiaries of the Company. The 10% Second Lien Notes
mature on December 31, 2020, and bear interest from the date
of their issuance at the rate of 10% per year. Interest on
outstanding 10% Second Lien Notes is payable semi-annually in
arrears, commencing on June 30, 2016. Interest is computed on
the basis of a 360-day year comprised of twelve 30-day
months.
The Second Lien Indenture includes customary covenants and events
of default, including covenants that, among other things, restrict
the granting of liens, restrict the making of investments, restrict
the incurrence of indebtedness and the conveyance of vessels, limit
transactions with affiliates, and require that the Company provide
periodic financial report.
1%/12% Step-Up Senior Secured Third Lien Convertible Notes.
Interest on the Convertible Notes is payable semi-annually in
arrears commencing June 30, 2016 as a payment in kind, either
through an increase in the outstanding principal amount of the
Convertible Notes or, if the Company is unable to increase such
principal amount, by the issuance of additional Convertible Notes.
Interest is computed on the basis of a 360-day year comprised
of twelve 30-day months at a rate of 1% per annum for the
first four years and then increasing to 12% per annum until
maturity.
Conversion.
Upon the occurrence of specified change of control events or
certain losses of our vessels in the agreements governing our
Credit Agreement, 10% Second Lien Notes or Convertible Notes, we
will be required to offer to repurchase or repay all (or in the
case of events of losses of vessels, an amount up to the amount of
proceeds received from such event of loss) of such outstanding debt
under such debt agreements at the prices and upon the terms set
forth in the applicable agreements. In addition, in connection with
certain asset sales, we will be required to offer to repurchase or
repay such outstanding debt as set forth in the applicable debt
agreements.
VDC Note.
The Reorganization Plan allowed the Company to maintain all
operating assets and agreements. All trade payables, credits, wages
and other related obligations were unimpaired by the Reorganization
Plan.
Debtor-In-Possession.
Liabilities Subject to Compromise
The following table summarizes the components of Liabilities
Subject to Compromise included on our Consolidated Balance Sheet as
of December 31, 2015 (in thousands):
December 31, 2015
2017 Term Loan and accrued interest $ 326,420
2019 Term Loan and accrued interest 344,738
7.5% Senior Notes and accrued interest 1,136,748
7.125% Senior Notes and accrued interest 736,550
Old Credit Agreement 150,000
Liabilities Subject to Compromise $ 2,694,456
Pursuant to the terms of the Reorganization Plan, the liabilities
subject to compromise were retired on February 10, 2016 by
issuing the debtholders securities in the reorganized Company,
consisting of one New Share and $172.61 worth of the Convertible
Notes. The New Shares and the Convertible Notes are issued subject
to the terms of an agreement that prohibits the New Shares and
Convertible Notes from being transferred or exchanged separately.
For every $1,000 of principal, a note holder received 1.722798
New Shares and $297.37 worth of Convertible Notes for the 2017
Term Loan, 1.725087 New Shares and $297.77 worth of Convertible
Notes for the 2019 Term Loan, 1.786070 New Shares and $308.29
worth of Convertible Notes for the 7.5% Senior Notes,
and 1.728569 New Shares and $298.37 worth of Convertible Notes
for the 7.125% Senior Notes. In total, the debtholders
received 4,344,959 New Shares under the Reorganization
Plan.
Reorganization Expenses.
The following table summarizes the components included in
Reorganization items in our Consolidated Statements of Operations
for the year ended December 31, 2015 (in thousands):
December 31, 2015
Professional fees incurred (a) $ 2,225
Write-off of debt discount and debt issuance costs on Term Loans
(b) 14,498
Write-off of debt issuance costs on 7.5% Senior Notes
and 7.125% Senior Notes (b) 21,517
Write-off of debt issuance costs on Old Credit Agreement (b) 1,114
Reorganization Items $ 39,354
(a) For the year ended December 31,
2015, cash payments for reorganization items totaled
$0.0 million.
(b) The carrying value of debt that is
subject to compromise was adjusted to include the related
unamortized debt discount and debt issuance costs; the debt is
adjusted to the expected amount of allowed claims.
Condensed Combined Debtor-In-Possession Financial
Information.
Debtors’ Condensed Combined Balance Sheet (in
thousands)
As of December 31,
2015 2014
Cash and cash equivalents $ 198,594 $ 62,902
Other current assets 150,440 233,248
Total current assets 349,034 298.150
Property and equipment, net 2,888,463 2,993,225
Other assets 15,249 67,408
Total assets $ 3,252,746 $ 3,358,783
Accounts payable and accrued liabilities $ 59,986 $ 264,837
Intercompany payable to non-filing entities 3,331 13,027
Current maturities of long-term debt
— 53,500
Note payable to VDC 61,477
—
Total current liabilities 124,794 331,364
Long-term debt
— 2,497,103
Other long term liabilities 24,143 76,720
Liabilities subject to compromise 2,694,456
—
VDI shareholder’s equity 394,116 442,886
Noncontrolling interests 15,237 10,710
Total equity 409,353 453,596
Total liabilities and shareholder’s equity $ 3,252,746 $ 3,358,783
Debtors’ Condensed Combined Statements of Operations (in
thousands)
Year Ended
December 31,
2015 2014 2013
Revenues $ 755,568 $ 852,872 $ 696,669
Operating costs and expenses 502,963 543,249 431,669
Income from operations 252,605 309,623 265,000
Interest expense (173,634 ) (196,160 ) (198,544 )
Other, net 14,531 3,962 (100,146 )
Reorganization items (39,354 )
—
—
Income (loss) before income taxes 54,148 117,425 (33,690 )
Income tax provision 36,356 38,336 25,354
Net income (loss) 17,792 79,089 (59,044 )
Net income (loss) attributable to noncontrolling interests 5,085 304 (423 )
Net income (loss) attributable to VDI $ 12,707 $ 78,785 $ (58,621 )
Debtors’ Condensed Combined Statement of Cash Flows (in
thousands)
Year Ended
December 31,
2015 2014 2013
Cash flows from operating activities
Net cash provided by (used in) operating activities $ 65,495 $ 217,023 $ (333 )
Cash flows from investing activities
Additions to property and equipment (11,325 ) (18,521 ) (504,958 )
Net cash used in investing activities (11,325 ) (18,521 ) (504,958 )
Cash flows from financing activities
Proceeds from issuance of debt, net
—
— 1,092,071
Repayment of debt (67,980 ) (167,562 ) (1,033,874 )
Distributions to VDC (498 ) (995 ) (360 )
Proceeds from (repayment of) revolving credit facility 150,000 (10,000 ) 10,000
Net cash provided by (used in) financing activities 81,522 (178,557 ) 67,837
Net increase (decrease) in cash and cash equivalents 135,692 19,945 (437,454 )
Cash and cash equivalents—beginning of period 62,902 42,957 480,411
Cash and cash equivalents—end of period $ 198,594 $ 62,902 $ 42,957
Other Events: Titanium Explorer
On August 31, 2015, VDC received notice from Petrobras
America, Inc. (“PAI”) and Petrobras Venezuela
Investments & Services B.V. (“PVIS”) stating
that PAI and PVIS were terminating the Agreement for the Provision
of Drilling Services dated February 4, 2009 (the
“Drilling Contract”). The Drilling Contract was
initially entered into between PVIS and Vantage Deepwater Company,
one of our wholly-owned indirect subsidiaries, and was later
novated by PVIS to PAI and by Vantage Deepwater Company to Vantage
Deepwater Drilling, Inc., another of our wholly-owned indirect
subsidiaries. The notice stated that PAI and PVIS were terminating
the Drilling Contract because Vantage had allegedly breached its
obligations under the agreement. Under the terms of the Drilling
Contract we initiated arbitration proceedings before the American
Arbitration Association on August 31, 2015, challenging PVIS
and PAI’s wrongful attempt to terminate the Drilling
Contract. Vantage has maintained that it complied with all of its
obligations under the Drilling Contract and that PVIS and
PAI’s attempt to terminate the agreement is both improper and
a breach of the Drilling Contract.
In the ongoing arbitration proceeding, the parties have exchanged
initial pleadings and have confirmed an arbitral tribunal. Vantage
has asserted claims against PAI and PVIS for declaratory relief and
monetary damages based on breach of contract. Vantage has also
asserted a claim against Petroleo Brasileiro S.A.
(“PBP”) to enforce a guaranty provided by PBP. The
Petrobras entities (PVIS, PAI, and PBP) have asserted that the
Drilling Contract is void as illegally procured, that PVIS and PBP
are not proper parties to the arbitration, and that PAI and PVIS
properly terminated the contract. PAI has further counterclaimed
for attorneys’ fees and costs alleging that Vantage failed to
negotiate in good faith before commencing arbitration proceedings.
Vantage denies that any of the claims or defenses asserted by the
Petrobras entities have merit and intends to vigorously pursue its
claims in the arbitration proceeding.
In connection with the cancellation of the contract, we recognized
$21.5 million of deferred mobilization revenue in
September 2015.
Market conditions for offshore drilling services are driven by the
exploration and production spending of our customers. Due to the
significant decline in oil and natural gas prices over the last
year, our customers have been dramatically reducing their capital
spending levels. This has resulted in a significant decline in the
current market rates for drilling services and a decline in the
utilization of offshore drilling rigs. We amended the Tungsten
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