Corporate advisors consult on near $4 billion restructure of Ocean Rig

31 October 2017 Consultancy.uk

Corporate and restructuring advisors from AlixPartners and Kalo Advisors, as well as legal experts from Orrick and Sidley, among others, were part of a team that successfully managed to restructure the finances of Ocean Rig after it initially filed for bankruptcy in March.

Ocean Rig UDW is an operator of semi-submersible oil rigs and UDW drill-ships based in the Cayman Islands. The company also maintains offices in Greece, Luanda, Angola, Jersey, Rio de Janeiro, Brazil and Stavanger, Norway. Severely affected by the deep and prolonged oil and gas industry downturn, in March 2017, Ocean Rig filed for bankruptcy, promising their Management 9.5% of new equity, and common shareholders next to nothing for their assets in the company. Since then, a number of restructuring advisors have been drafted in for an extensive $3.8 billion restructuring, which has now been completed, as all restructuring documents, including a New Credit Facility, the Management Services Agreement, and the Governance Agreements have become effective.

The complex operation saw the group’s restructuring implemented through four separate and interconnected Cayman Islands-law governed schemes of arrangement, along with Chapter 15 recognition of the schemes in the United States. Due to the listing of the group in four holding companies across multiple national fronts, a complex and cutting-edge cross-border restructuring was required, making it the largest ever by value in the Cayman Islands to use schemes of arrangement in the process. The international effort subsequently involved coordinating with several legal and financial advisers in the UK, the US, Cayman Islands, Marshall Islands and Greece.

Corporate advisors advise on near $4 billion restructure of Ocean Rig

The restructuring of the approximately $3.8 billion in financial indebtedness was implemented through the appointment of multiple professional services firms, including joint provisional liquidators Eleanor Fisher of Cayman Islands-based Kalo Advisors, and Simon Appell of AlixPartners, over the four holding companies in the Ocean Rig group. While Kalo officially only came into existence as of March 2017, the team has been serving clients for companies predominantly domiciled in the Cayman Islands and the British Virgin Islands, before its rebranding from its former identity of AlixPartners Caribbean. AlixPartners themselves are currently involved in the restructuring of embattled US retailer BonTon, having already been enlisted by the Croatian government to similarly rescue Agrokor, the Baltic nation’s largest employer.

Among others, the administrators were represented legally by Sidley, whose team was led by Corporate Reorganisation and Bankruptcy Partner Patrick Corr. Fellow legal practice Orrick, meanwhile, were among the firms who advised Ocean Rig in its comprehensive deleveraging and recapitalisation. The Orrick team advising Ocean Rig was led by Bill Haft.

Moving forward

After a hearing held before the U.S. Bankruptcy Court on September 20, 2017, the US Bankruptcy Court issued an order granting comity and giving full force and effect to the Schemes in the United States. The restructuring provides the Ocean Rig group with a vastly deleveraged capital structure, and allows the group to face the ongoing challenging market conditions – which has even seen the likes of oil giant Shell diversify – in a more agile manner.

Bill Haft, of Orrick, commented, “This significant debt restructuring will help our client to emerge as one of the financially strongest companies in this sector, well positioned to weather adverse market conditions for several years and seize on new market opportunities.”

George Economou, Ocean Rig’s Chairman and Chief Executive Officer, meanwhile said in a statement, “Our entire team at Ocean Rig is wholly committed to the success of the company and looks forward to our emergence from this financial restructuring that will ultimately enable us to better service our customers in the long term.”

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8 tips for successfully buying or selling a distressed business

18 April 2019 Consultancy.uk

Embarking on the sale of a business is one of the most challenging experiences a management team can undertake. Even serial dealmakers acknowledge that the transaction process can be gruelling, exposing management to a level of scrutiny and challenge through due diligence that can be distinctly uncomfortable.

So, to embark on a sale process when a business is in distress is twice as challenging. While management is urgently trying to keep the business afloat, they are simultaneously required to prepare it for scrutiny by potential acquirers. Tim Wainwright, an experienced Transactions Partner with Eight Advisory, says that this dual requirement means sellers of distressed businesses must focus on presenting their business in a way that supports buyers in identifying value, whilst simultaneously being open about the causes of distress. 

According to Wainwright, sellers of distressed businesses should focus on eight key aspects to ensure they are as well prepared as possible:

  • Cash: In a distressed situation cash truly is king. Accurate forecasting and day-by-day cash balances are often required to ensure any buyer is confident that scarce cash reserves are under proper control. 
  • Equity story and turnaround plan: Any buyer is going to want to understand the proposed turnaround strategy: how is the business going to enact its recovery and what value can be created that means the distressed business is worth saving? Clear presentation of this strategy is essential.
  • The business model: Clear demonstration of how the business model generates cash is required, with analysis that shows how financial performance will respond to key changes – whether these are positive improvements (e.g., increases in revenue) or emerging risks that further damage the business.  Demonstrating the business is resilient enough to cope with these changes can go a long way to assuring investors there is a viable future.
  • Management team: As outlined above, this is a challenging process. The management team are in it together and need to be consistent in presenting the turnaround. Above all, the team needs to be open about the underlying causes that resulted in the distressed situation arising.  A defensive management team who fail to acknowledge root causes of distress are unlikely to resolve the situation.

8 tips for successfully buying or selling a distressed business

  • Financing: More than in any traditional transaction, distressed businesses need to understand the impact on working capital. The distressed situation frequently results in costs rising as credit insurance becomes more difficult to obtain or as customers and suppliers reduce credit. Understanding how these unwind will be important to the potential investors.
  • Employees: Any restructuring programme can be difficult for employees. Maintaining open communications and respecting the need for consultation is the basic requirement. In successful turnarounds, employees are often deeply engaged in designing and developing solutions. Demonstrating a supportive, flexible employee base can often support the sale process.
  • Structuring: Understanding how to structure the business for the proposed acquisition can add significant value. Where possible, asset sales may be preferred, enabling buyers to move forward with limited liabilities. However, impacts on customers, employees and other stakeholders need to be considered.
  • Off balance sheet assets: In the course of selling a distressed business, additional attention is often given to communicating the value of items that may not be fully valued in the financial statements. Brands, intellectual property and historic tax losses are all examples of items that may be of significant value to a purchaser. Highlighting these aspects can make an acquisition more appealing.

“These eight focus areas can help to sell a distressed business and are important in reaching a successful outcome, but it should be noted that it will remain a challenging process,” Wainwright explains. 

With recent studies indicating that the valuation of distressed business is trending north. With increased appetite from buyers who are accustomed to taking on these situations, it is likely that more distressed deals will be seen in the coming months. “Preparing management teams as best as possible for delivering these will be key to ensuring these businesses can pass on to new owners who can hopefully drive the restructuring required to see these succeed,” Wainwright added.