May 18, 2020 – Hornbeck Offshore Services, Inc. and 13 affiliated Debtors (OTCQB:HOSS; “Hornbeck” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case number 20-31920. The Debtors, a leading provider of offshore service vessels primarily in the Gulf of Mexico and Latin America, are represented by Matthew D. Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include (i) Kirkland & Ellis LLP as general bankruptcy counsel, (ii) Portage Point Partners, LLC as restructuring advisors, (iii) Guggenheim Securities, LLC as financial advisors/investment banker and (iv) Stretto as claims agent. 

The Debtors’ lead petition notes between 1,000 and 5,000 creditors; estimated assets of $2.7bn and estimated liabilities of $1.5bn. Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) Wilmington Trust, National Association (as Trustee for $450.0mn plus interest 5.00% Notes due 2021),
(ii) (i) Wilmington Trust, National Association (as Trustee for $225.0mn plus interest 5.875% Notes due 2020) and (iii) Astromaritima Navegacao, S.A. ($909k disputed arbitration claim).

Prepackaged Plan and Restructuring Support Agreement

The Disclosure Statement provides the following overview: "

• Subject to the terms and conditions set forth in the Restructuring Support Agreement, the Debtors agree to commence voluntary cases under chapter 11 of the Bankruptcy Code and each of the Consenting Creditors and Debtors agree to take certain actions in support of the Plan, including:
  • supporting the restructuring transactions;
  • acting in favor of any matter requiring approval to the extent necessary to implement the restructuring transactions; and 
  • negotiating in good faith to finalize the documentation required to implement the Plan.
• The Consenting Creditors agree to reserve and forebear exercising certain contractual rights against the applicable Debtors until the earlier to occur of the Termination Date and the Petition Date, in each case, as defined therein.
• Pursuant to the restructuring transactions contemplated by the Restructuring Support Agreement, the Company will achieve:
  • a significant de-levering of the Company’s capital structure;
  • a $75 million debtor-in-possession term loan facility;
  • access to $100 million of new equity capital post-emergence, fully-backstopped by existing creditors; and 
  • capacity for post-petition financing to provide additional liquidity to the Reorganized Hornbeck post-emergence." 

In a May 13th press release announcing the solicitation of Chapter 11 votes, the Debtors advised that “the Company has the support of secured lenders holding approximately 83% of the Company's aggregate secured indebtedness and unsecured noteholders holding approximately 79% of the Company's aggregate unsecured notes outstanding for the Plan. The Company intends to seek a hearing on June 19, 2020 for confirmation of the Plan following the conclusion of the solicitation period.  

As previously reported, the Company will have access to a $75 million debtor-in-possession term loan facility provided by existing creditors and permitted use of existing cash on hand and cash generated from operations to support the business during the financial restructuring process, which will enable the Company to operate in the ordinary course of business without disruption to its customers, vendors and workforce.  The Plan provides for payment in full of all vendors and employees."

The following Documents were attached to the Disclosure Statement:

• Exhibit A Plan of Reorganization
• Exhibit B Restructuring Support Agreement
• Exhibit C Exit First Lien Facility Term Sheet
• Exhibit D Exit Second Lien Facility Term Sheet
• E Exhibit E Backstop Commitment Agreement
• Exhibit F New Securityholder Agreement and Corporate Governance Term Sheet
• Exhibit G Management Incentive Plan Term Sheet
• Exhibit H Executive Employee Agreement Term Sheet
• Exhibit I Amended and Restated License Agreement
• Exhibit J Corporate Organization Chart
• Exhibit K Liquidation Analysis
• Exhibit L Financial Projections
• Exhibit M Valuation Analysis

The following is a summary of claases, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement; see also the liquidation analysis below)

• Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims is $0 and expected recovery is 100%.
• Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims is $5.0mn and expected recovery is 100%
• Class 3 (“ABL Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.The projected aggregate amount of claims is $53.2mn and expected recovery is 100%
• Class 4 (“First Lien Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $364.1mn and expected recovery is 88%. Each Holder of an Allowed First Lien Claim shall receive: (i) if such Holder is an Eligible Holder, its Pro Rata share (determined as a percentage of all Allowed First Lien Claims excluding any portion of such Allowed First Lien Claims on account of the First Lien Redemption Fee) of (y) subject to the U.S. Citizen Determination Procedures, 24.6% of the New Equity (subject to dilution by the DIP Exit Backstop Premium, the Backstop Commitment Premium, the Management Incentive Plan, and the exercise of the New Creditor Warrants) and (z) the First Lien Subscription Rights; (ii) if such Holder is a Non-Eligible Holder, a Cash payment equivalent to the Holder’s recovery under clause (i) if such Holder had been deemed an Eligible Holder; (iii) its Pro Rata share (determined as a percentage of all Allowed First Lien Claims excluding any portion of such Allowed First Lien Claims on account of the First Lien Redemption Fee) of the Exit Second Lien Facility; and (iv) with respect to any portion of such Holder’s Allowed First Lien Claim on account of the First Lien Redemption Fee, its Pro Rata share (determined as a percentage of all Allowed First Lien Claims on account of the First Lien Redemption Fee) of the Specified 2L Exit Fee.
• Class 5 (“Second Lien Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $124.6mn and expected recovery is 6.1%. Each Holder of an Allowed Second Lien Claims shall receive: (i) if such Holder is an Eligible Holder, its Pro Rata share (determined as a percentage of all Allowed Second Lien Claims) of (x) subject to theU.S. Citizen Determination Procedures, 5.1% of the New Equity (subject to dilution by the DIP Exit Backstop Premium, the Backstop Commitment Premium, the Management Incentive Plan, and the exercise of the New Creditor Warrants), (y) 15.0% of the New Creditor Warrants and (z) the Second Lien Subscription Rights; and (ii) if such Holder is a Non-Eligible Holder, a Cash payment equal to 6.1% of such Holder’s Allowed Second Lien Claim.
• Class 6 (“Unsecured Notes Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is $698.6mn and expected recovery is 0.5%. Each Holder of an Allowed 2020 Notes Claim shall receive, in full and final satisfaction, settlement, release, and discharge of, and in exchange for each 2020 Notes Claim: (i) if such Holder is an Eligible Holder, its Pro Rata share (determined as a percentage of all Allowed Unsecured Notes Claims) of (x) subject to the U.S. Citizen Determination Procedures, 0.3% of the New Equity (subject to dilution by the DIP Exit Backstop Premium, the Backstop Commitment Premium, the Management Incentive Plan, and the exercise of the New Creditor Warrants), (y) 85.0% of the New Creditor Warrants and (z) the Noteholder Subscription Rights; and (ii) if such Holder is a Non-Eligible Holder, a Cash payment equal to 0.5% of such Holder’s Allowed 2020 Notes Claim.
• Class 7 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The projected aggregate amount of claims is $12.3mn and expected recovery is 100%.
• Class 8 (“Debtor Intercompany Claims”) is impaired/unimpaired, deemed to accept/reject and not entitle to vote on the Plan. The projected aggregate amount of claims is N/A and expected recovery is N/A.
• Class 9 (“Equity Interests”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is N/A and expected recovery is N/A.
• Class 10 (“Intercompany Interests”) is impaired/unimpaired, deemed to accept/reject and not entitle to vote on the Plan. The projected aggregate amount of claims is N/A and expected recovery is N/A.
• Class 11 (“Section 510(b) Claims”) is impaired and entitled to vote on the Plan. The projected aggregate amount of claims is N/A and expected recovery is N/A.

Events Leading to the Chapter 11 Filing

The Disclosure statement provides: "The Debtors have suffered from the same industry-wide headwinds facing other offshore oilfield service market participants, including their OSV peers. As a transportation and service provider to energy companies that operate offshore, the Debtors are dependent on continued investment in offshore drilling, exploration and production by their customers. Such investment is often tied to the current and expected price of oil and, to a lesser extent, natural gas. 

Since the fourth quarter of 2014, oil and natural gas prices worldwide have dropped significantly. This decline has negatively impacted the economics of planned drilling and ongoing production projects, resulting in the curtailment, reduction, delay or postponement of such projects for an indeterminate period of time. These cuts in drilling and production projects impacted the demand for OSVs and other oilfield service sectors by contributing to a considerable vessel oversupply in the marketplace. Industry-wide oversupply granted substantial pricing power to exploration and production companies and deeply impacted all market participants. Other OSV market participants, including Tidewater, GulfMark Offshore, Inc., and HGIM Holdings, LLC, effectuated chapter 11 restructurings in the past several years to substantially deleverage their balance sheets in light of the market pressures. Tidewater and GulfMark Offshore, Inc. later merged. 

Going into 2020, while oil prices were finally showing a partial recovery prior to the advent of the recent oil price war initiated by Russia and Saudi Arabia that started on March 7, 2020, they still remained below the average prices between 2005 and 2014, and they had yet to result in a marked increase in offshore and/or deepwater capital spending by the Debtors’ customers. Though an uptick in drilling activity and dayrates was expected to occur in 2020, the Coronavirus and its impact on the worldwide demand for oil along with the escalating oil price war have further exacerbated current industry conditions and dampened the likelihood of a near-term exit from the current energy downturn, now in its sixth year."

Prepetition Indebtedness

As of the Petition date, Hornbeck has approximately $1.196 billion in aggregate principal amount of funded debt obligations, including:

About the Debtors

Hornbeck Offshore Services, Inc. is a leading provider of technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. 

Liquidation Analysis (see Exhibit Kof the Disclosure Statement for notes)

Corporate Structure Chart

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