Shareholders Reject, Criticize Hercules Offshore Plan to Liquidate
July 28 2016 - 2:00PM
Dow Jones News
Hercules Offshore Inc.'s plan to liquidate came under attack
from a federal bankruptcy watchdog and from shareholders that have
been counting on a turnaround for the oil drilling operation.
Unhappy shareholders include Centerbridge Partners LP, which has
continued to buy Hercules Offshore's shares in the open market,
while battling the company's proposed prepackaged bankruptcy
liquidation plan.
Centerbridge, a $25 billion private-equity and distressed debt
investor, put Hercules under pressure early in its bankruptcy,
which began in June with the announcement that the company is
taking a sensible way out—-liquidation—-of the tough market for
energy industry service companies.
A tally of votes reveals more than half the shareholders that
cast ballots said "no" to Hercules Offshore's plan. The rejection
will force an open-court contest over a plan that Hercules
Equipment insists is the best it can do in a rough energy market.
Shareholders say Hercules's plan is designed to give lenders a
"massive windfall."
A spokesman for the Houston company didn't immediately respond
to a request to comment on multiple critiques of its chapter 11
plan. Instead of reorganizing, Hercules proposes to shut down
operations and sell its offshore oil drilling equipment, paying
creditors and leaving something for shareholders.
The offer doesn't sit well with shareholders, many of them
investors that followed Hercules Offshore out of a recent
bankruptcy case and were counting on a turnaround when oil prices
rebounded.
Less than eight months after emerging from a chapter 11 balance
sheet reshaping, Hercules was back in bankruptcy, complaining that
conditions were tougher than it realized.
Shareholders immediately challenged the assertion, insisting
they knew 2016 was going to be rough, and were prepared to wait for
a return to profits. In court hearings, lawyers for shareholders
raised suspicions about dealings involving Hercules's top-ranking
lenders in the months before the company's return to
bankruptcy.
For example, Hercules gave lenders back $200 million they had
pledged for the completion of a new state-of-the-art rig, the
Highlander, which was one of the central selling points of last
year's bankruptcy restructuring.
Instead of finishing the construction, however, Hercules handed
the Highlander over to a subsidiary of Maersk Drilling, calling the
handoff a win because it relieved the company of the obligation to
finish the Highlander and put it to work. Shareholders called for
an investigation, and on Wednesday termed the return of $200
million "coerced."
Results of their investigation and other grounds for protest are
under wraps in bankruptcy court documents. Hercules, its lenders
and the official shareholders committee agreed to cloak any
material other parties deemed confidential.
That leaves shareholders of the public company in the dark about
what the official committee that represents them found out about
Hercules Offshore's prebankruptcy deliberations.
Court filings show shareholders have called into question the
purported defaults on senior loans that pushed Hercules back into
bankruptcy. The events, such as a week's delay in delivering to
lenders the registration documents for a vessel in Nigeria, aren't
sufficient grounds for blowing up a major loan, shareholders have
suggested.
Lenders are seeking to collect $579 million under the chapter 11
plan, a figure that apparently includes a loan premium of about
$136 million. Shareholders say the premium payment claim is hooked
to the allegedly defective defaults, and should not be allowed.
U.S. Trustee Andrew Vara, an officer of the Justice Department
responsible for overseeing bankruptcy matters, criticized Hercules
Offshore for depriving creditors of required information and
protection.
Hercules wants the bankruptcy court to bless a process that will
allow it to shut down with "minimal oversight and disclosure," Mr.
Vara's lawyer wrote. The company also wants a grant of blanket
immunity to those involved in Hercules Offshore's final
affairs.
That means Hercules will never have to answer questions about
how hundreds of millions of dollars in value went missing in the
few months before the bankruptcy filing. As of the end of March,
Hercules Offshore's Securities and Exchange Commission filings
reflected shareholder equity of about $537 million. Bankruptcy
estimates prepared months later, however, reflect much lower values
for the entire company.
Mr. Vara additionally called into question Hercules Offshore's
insistence it will pay all trade debts. The company skipped filing
the reports that would detail its debts, and hasn't established the
usual process for claims, the U.S. Trustee said. That is likely to
put a damper on the number of creditors that actually get paid.
Houston-based Hercules operates a fleet of 25 self-elevating,
mobile offshore drilling units, or "jackup rigs," and 19
self-elevating, self-propelled "liftboat" vessels designed to get
oil and gas out of shallow waters.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
July 28, 2016 14:45 ET (18:45 GMT)
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