Nautical Solutions sinks into Chapter 11 with $651 million in debt

By Sarah Lizee

Olympia, Wash., Jan. 10 – Nautical Solutions, LLC filed Chapter 11 bankruptcy on Monday in the U.S. Bankruptcy Court for the Southern District of Texas to implement a pre-packaged Chapter 11 plan of reorganization, according to court documents.

The deepwater drilling servicer said that because of a worsening industry-wide downturn and oversupply that spanned almost eight years, the company was left with an over-levered balance sheet and insufficient liquidity to meet near-term debt maturities.

The company currently has $338 million in outstanding principal amount of borrowings under a term loan with JPMorgan Chase Bank, NA as agent, and $312 million in outstanding principal amount under two series of secured notes due November 2023. Both the credit agreement and the notes bear interest at 7½% per annum.

The company said it spent over a year negotiating the terms of a restructuring support agreement with prepetition lenders and noteholders.

Prior to the filing, Nautical solicited votes from holders of first-lien claims for an out-of-court private exchange of first-lien claims for new senior secured notes, but didn’t get the needed consents.

Plan terms

The pre-packaged plan calls for the cancelation of the company’s existing debt, the issuance of new senior secured notes, an excess cash distribution to the prepetition funded debt creditors, and the reinstatement of existing equity interests.

Under the plan, other secured claims, other priority claims, general unsecured claims and existing interests are unimpaired.

The holders of general unsecured claims will get either payment in full in cash, have their claims reinstated or receive other treatment leaving the claims unimpaired.

Holders of first-lien claims are impaired and will receive their pro rata share of new senior secured notes, any excess cash distribution under the new senior secured notes exchange agreement, and additional cash in amount calculated at a rate of 8.5% per annum on $587.5 million for the period of Sept. 1, 2022 through the effective date. This is the only class that was entitled to vote on the plan.

Intercompany interests will be reinstated, set off, settled, distributed, contributed, canceled and released with no distribution, or receive other treatment determined by the debtors.

Nautical said the plan has been accepted by holders of 73.6% in total amount of first-lien claims who voted.

The company is hoping for a combined hearing on approval of the disclosure statement and confirmation of the plan on Feb. 15.

Objections would be due by 6 p.m. ET on Feb. 6.

Lender objections

On Tuesday morning, an informal group of the term loan lenders filed several objections, one of which was to the company’s motion seeking approval to use cash collateral.

In that objection, the lenders called the debtor’s plan “highly unusual” since it allows existing equity to retain their interests while forcing secured creditors with liens on all assets to write down a substantial portion of their secured claims, which further enhances equity recovery.

“The debtors do this with the support of certain creditors who may have a financial interest in non-debtor affiliates owned by the same equity holders or whose votes are bought with enhanced and impermissible payments under the plan, or both,” the group said.

The lenders also objected to the company’s proposed plan timeline, saying the debtor’s need for a speedy confirmation is belied by the fact that it waited more than 13 months since defaulting on its term loans and more than four months since entering into a restructuring support agreement – which was extended three times – with a favored group of secured creditors before filing the case.

“There is no explanation for the sudden urgency to consummate the restructuring in the face of legitimate, good faith opposition to the plan,” the group added.

Other details

In its petition, the company listed $500 million to $1 billion in assets and about $651 million in debt.

Kirkland & Ellis LLP and Kirkland & Ellis International LLP is acting as general bankruptcy counsel. Jackson Walker LLP is local bankruptcy counsel. Jefferies LLC is acting as investment banker. Ankura Consulting Group is financial adviser.

Nautical Solutions is based in Dallas. The Chapter 11 case number is 23-90002.

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