As Seadrill Foundered, Lawyers, Executives Profited
Battered offshore oil-and-gas contractor Seadrill Ltd. paid bankruptcy professionals well over $100 million before it stepped through the door of a Texas court in September, seeking chapter 11 protection from creditors.
The payments turned up in new court papers Seadrill filed Friday in the U.S. Bankruptcy Court for the Southern District of Texas. They reveal the high cost of the talks that produced Seadrill's chapter 11 turnaround strategy.
One of many offshore drilling operations hurt by low oil prices, Seadrill is pursuing a balance-sheet restructuring and capital-raising effort that will squeeze the holdings of rank-and-file shareholders, but leave founder and board chairman John Fredriksen with a major stake, along with Centerbridge Partners.
The plan is the product of discussions with investment firms interested in the future of Seadrill, one of the world's largest offshore drilling contractors. Seadrill businesses involved in the bankruptcy are carrying about $8 billion in debt, court papers say.
Except for Mr. Fredriksen, Seadrill shareholders weren't involved in the restructuring talks. Recently, shareholders lost a bid to have an official committee appointed to represent them in Seadrill's bankruptcy, after the company argued it was hopelessly insolvent, worth far less than its debts. An official shareholders committee would have provided common shareholders a team of lawyers and financial advisers to look out for their interests.
Unlike the professional fees paid during the chapter 11 case, Seadrill's pre-bankruptcy spending isn't subject to judicial scrutiny.
Kirkland & Ellis, the law firm guiding Seadrill through chapter 11, collected more than $47 million in the year before the company filed for bankruptcy protection, court papers say.
While it was paying its own lawyers and advisers, the company also paid for lawyers and financial consultants for major creditors.
In the 90 days before the bankruptcy petition was filed, Seadrill paid nearly $12 million to the law firm -- Fried, Frank, Harris, Shriver & Jacobson LLP -- representing Centerbridge. About half of that amount was paid for "services." The day of the bankruptcy filing, Seadrill sent $6 million by wire transfer to the New York law firm. Court papers didn't specify the purpose of the wire transfer funds.
Cadwalader Wickersham & Taft LLP, another law firm advising on Seadrill's bailout, was paid more than $10 million in the 90 days before the bankruptcy, including a $5 million transfer the day of the bankruptcy filing. Again, half the money was for "services," and the purpose of the wire-transferred funds isn't specified in court papers.
The lawyers weren't the only ones getting paid during Seadrill's restructuring talks, according to court papers. Less than a week before the bankruptcy filing, nearly $20 million went to Hemen Investments Ltd. a Cyprus affiliate of Hemen Holding, which is controlled by Mr. Fredriksen, a Norwegian billionaire. Court papers say the money was for "services."
Hemen and Centerbridge are part of the group providing $1 billion in new investment to get Seadrill out of bankruptcy with a plan that swaps some debt for equity and gives the offshore driller more time to pay off major loans. Also in that group are Aristeia Capital LLC, GLG Partners LP, Saba Capital Management LP and Whitebox Advisors LLC, according to filings with the Securities and Exchange Commission.
As for any payments to Mr. Fredriksen himself, the documents are mum. In a break with standard bankruptcy practice, Seadrill reported paying insiders an aggregate of more than $23 million in salaries and other items in the 12-month period leading up to the filing, but didn't provide names or even say how many insiders shared that money. Included in that figure is nearly $10 million the struggling company handed out in bonuses to insiders, who are typically top-ranking executives or members of the board of directors. The bonus figure includes letters of credit that were issued to insiders, but not drawn against, court papers say.
Seadrill, its lawyers and the Office of the U.S. Trustee, an arm of the U.S. Department of Justice responsible for bankruptcy oversight, didn't respond to inquiries about the missing details on the official bankruptcy reporting forms.
The court papers are part of the financial disclosure required of companies seeking a fresh start by filing for chapter 11 bankruptcy protection. Creditors review the reports to get a picture of the company's finances. A lawyer for the official committee representing Seadrill's unsecured creditors didn't respond to a request to comment on the insider pay.
Write to Peg Brickley at peg.brickley@wsj.com
(END) Dow Jones Newswires
November 14, 2017 11:14 ET (16:14 GMT)