December 7, 2020 – The Debtors filed a Prepackaged Plan of Reorganization and a related Disclosure Statement [Docket Nos. 11 and 12, respectively]; and further filed a motion seeking Court approval of (i) the Debtors’ Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a January 19th Plan confirmation hearing [Docket No. 20]. As is standard in respect of prepackaged Plans, the Debtors have also requested a waiver of an obligation to hold a creditors' meeting and to file SOFAs and schedules.

Also on December 7th, Debtors filed redlined pages of their Disclosure Statement reflecting non-material changes between the version now filed and a December 5th iteration circulated to some stakeholders just in advance of the Chapter 11 filings [Docket No. 46].

[Update] On December 8th, the Court hearing the Superior Energy Services cases issued an order approving the Debtors’ (i) Disclosure Statement (conditionally), (ii) proposed Plan solicitation and voting procedures and (iii) a proposed timetable culminating in a January 19, 2021 Plan confirmation hearing [Docket No. 98].

RSA and Plan Overview

On December 4, 2020, the Debtors (including Debtor SESI, L.L.C. or “SESI”) entered into an Amended and Restated Restructuring Support Agreement (the “Amended RSA” amending the September 29th original) with certain holders (collectively, the “Consenting Noteholders”) of SESI’s outstanding (i) 7.125% senior unsecured notes due 2021 and (ii) 7.750% senior unsecured notes due 2024 (collectively, the “Existing Notes”). 

The Amended RSA and the Plan contemplate, among other things, the following: 

• The Debtors will enter into a $120 million asset-based revolving credit facility (the “Exit ABL Facility”) on terms and conditions acceptable to the Consenting Noteholders who executed the Original RSA on September 29, 2020 and hold at least 66.6% of the aggregate principal amount of Notes (the “Required Consenting Noteholders”); 
• Under the Plan, certain classes of claims will receive the following treatment: 
  • Administrative expense claims, priority tax claims, other priority claims, and other secured claims will be paid in full in the ordinary course (or receive such other treatment rendering such claims unimpaired); 
  • The Company’s existing equity will be discharged and terminated without any distribution or retaining any property on account of such equity interests; 
  • General unsecured creditors for the Affiliate Debtors will remain unimpaired and are to receive payment in cash, in full, in the ordinary course;
  • Each holder of an Existing Notes Claim against the Company will receive its pro rata share of a $125,000 cash pool (the “Parent GUC Recovery Cash Pool”); provided that the holders of the Existing Notes Claims against the Company will waive any distribution from the Parent GUC Recovery Cash Pool;
  • Each holder of a general unsecured claim against the Company will receive its pro rata share of the $125,000 Parent GUC Recovery Cash Pool; 
  • Eligible holders of the Existing Notes Claims will receive their pro rata share of: 
    • the Cash Payout; or 
    • solely to the extent that a holder of Existing Notes Claims timely and validly elects to be a Cash Opt-Out Noteholder, (A) 100% of New Common Stock, subject to dilution on account of New Common Stock issued to management of the reorganized Company under a management equity incentive plan, and (B), to the extent such holder is an Accredited Cash Opt-Out Noteholder, Subscription Rights; 
  • The Debtors intend to conduct a rights offering (the “Equity Rights Offering”) of subscription rights (the “Subscription Rights”) exercisable by the Accredited Cash Opt-Out Noteholders for purchase of the new common stock issued by the reorganized Company (the “New Common Stock”) on a pro rata basis; 
  •  If the Equity Rights Offering is consummated, eligible holders of allowed claims arising under the Existing Notes (the “Existing Notes Claims”) that do not elect to become a Cash Opt-Out Noteholder may receive a cash distribution in an aggregate amount equal to 2.00% of the principal due under the Existing Notes held by such holders in full and final satisfaction thereof (such aggregate amount, the “Cash Payout”). The proceeds from the Equity Rights Offering will be used to exclusively fund the Cash Payout, and the Cash Payout shall not exceed the total amount of the proceeds of the Equity Rights Offering. Any remaining portion of such holder’s Existing Notes Claims that is not satisfied by the Cash Payout will receive the treatment such holder would otherwise be entitled to if such holder were a Cash Opt-Out Noteholder; and
  • Contingent claims arising from outstanding letters of credit under the Existing ABL Facility (as defined below) that remain undrawn upon consummation of the Transaction shall either be (i) rolled into the Exit ABL Facility, (ii) if not rolled, then 105% cash collateralized and remain outstanding or (iii) receive such other treatment as may be acceptable to the Debtors, the agent under the Existing ABL Facility, the issuer of such letter of credit and the Required Consenting Noteholders. 
• As under the Original RSA, the Amended RSA contains certain covenants on the part of the Debtors and the Consenting Noteholders, including limitations on the parties’ ability to pursue alternative transactions, commitments by the Consenting Noteholders to vote in favor of the Plan, and commitments of the Debtors and the Consenting Noteholders to cooperate in good faith to finalize the documents and agreements contemplated by the Amended RSA and the Plan. 

The expected effect of the Restructuring on the Debtors’ capital structure is summarized as follows:

^FN3 While there are no outstanding loans under the Prepetition Credit Agreement, the Debtors have approximately $47,357,274.86 in letters of credit outstanding under the Prepetition Credit Agreement.

RSA Milestones 

• Deadline to commence Plan solicitation: December 6, 2020;
• Deadline to file for Chapter 11 protection: December 7, 2020;
• Deadline to file Plan and Disclosure Statement: December 7, 2020;
• Deadline to confirm Chapter 11 Plan: January 25, 2021; and
• Deadline for Plan Effectiveness: February 1, 2021

The following is a summary of classes, 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 Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 2 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 3 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 4 (“Prepetition Credit Agreement Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. Expected aggregate claims are $47,357,275 and expected recovery is 100%.
• Class 5 (“Prepetition Notes  Claims Against Parent”) is impaired and entitled to vote on the Plan. Expected aggregate claims are $1.3bn and expected recovery is 63.0%-76.0% (NB: This recovery under the Plan applies collectively to Holders of Claims in both Class 5 and Class 7; it does not represent the recovery for Holders of Claims in Class 5 alone. Each Holder of an Allowed Prepetition Notes Claim against Parent will receive its Pro Rata share (calculated together with the Claims in Class 6) of the Parent GUC Recovery Cash Pool (ie $125k); provided that the Holders of the Prepetition Notes Claims against the Parent will waive any distribution from the Parent GUC Recovery Cash Pool.
• Class 6 (“General Unsecured Claims Against Parent”) is impaired and entitled to vote on the Plan. Expected aggregate claims are "contingent and undetermined" are $1.3bn and expected recovery is "undetermined but >0%." Each Holder of an Allowed General Unsecured Claim against Parent will receive its Pro Rata share (calculated together with the Claims in Class 5) of the Parent GUC Recovery Cash Pool (ie $125k).
• Class 7 (“Prepetition Notes  Claims Against Affiliate Debtors”) is impaired and entitled to vote on the Plan. Expected aggregate claims are $1.3bn and expected recovery is 63.0%-76.0% [NB: The $1.3bn is comprised of (i) $800.0mn in aggregate principal amount, plus accrued and unpaid interest on account of the 2021 Notes; and (ii) $500.0mn million in aggregate principal amount, plus accrued and unpaid interest on account of the 2024 Notes]. Each Holder of an Allowed Prepetition Notes Claim against any Affiliate Debtor will receive, in full and final satisfaction, settlement, discharge and release of, and in exchange for, such Claim, its Pro Rata share of: (i) the Cash Payout, or (ii) solely to the extent that such Holder timely and validly elects to be a Cash Opt-Out Noteholder on the Ballot provided to such Holder or is otherwise deemed to be a Cash Opt-Out Noteholder, (A) 100% of the New Common Stock Pool, subject to dilution from and after the Effective Date on account of the New MIP Equity, and (B), to the extent such Holder is an Accredited Cash Opt-Out Noteholder, Subscription Rights.
• Class 8 (“General Unsecured Claims Against Affiliate Debtors”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 9 (“Intercompany Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 10 (“Old Parent Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. Class 11 (“Intercompany Equity Interests”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
• Class 12 (“510(b) Equity Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.

DIP Financing

The Debtors intends to obtain $120.0mn of debtor-in-possession ("DIP") financing; with Debtor SESI as borrower, certain of the lenders under SESI’s existing credit facility (the “Existing Facility”) as lenders and JPMorgan Chase Bank, N.A. as administrative agent. Upon Bankruptcy Court approval, approximately $47.4 million of outstanding undrawn letters of credit under the Existing Facility will be deemed outstanding under the DIP Facility. The DIP Facility is expected to provide sufficient letter of credit capacity to support the Company’s continuing business operations and minimize disruption during the Chapter 11 Cases.

Events Leading to the Chapter 11 Filing

The Disclosure Statement provides: “The oil and gas industry has been in one of the longest, steepest, and most sustained declines in oil and gas prices in recent history. As a result of the sustained market downturn, oil and gas companies around the world have dramatically curtailed capital and operating expenditures dedicated to oil and gas exploration, development and production, which in turn has contributed to the financial distress of numerous oilfield services companies

The Company’s revenues and earnings can be affected by several factors, including changes in competition, fluctuations in drilling and completion activity, perceptions of future prices of oil and gas, government regulation, disruptions caused by weather, and general economic conditions. However, the first three quarters of 2020 were characterized by unforeseeable shocks to the global economy generally, and the energy sector in particular. Specifically, the Saudi- Russian oil price war, combined with the COVID-19 pandemic, led to a decrease in the price of oil which was exacerbated by the decreased demand for oil. These unanticipated events have had a devastating near-term impact on the Debtors’ operations and its various business lines, and has negatively impacted the Debtors’ customers, vendors, and suppliers in all geographic areas where the Debtors operate. In fact, the U.S. oil and gas rig count fell by approximately 25% during the first quarter of 2020 and, as a further result of the COVID-19 pandemic and the Saudi-Russian oil price war, plunged by more than 60% in the second quarter of 2020. Further, according to the Baker Hughes’ weekly worldwide and international rig count data for 2020, the number of oil and gas rigs outside of the U.S. and Canada fell by more than 20% in the second quarter of 2020, each resulting in a decrease in demand for the Debtors’ products and services.

As a result, the Company’s revenue in the second quarter of 2020 decreased by 43% to $183.9 million, as compared to $321.5 million in the first quarter of 2020. As the Debtors’ customers continue to revise their capital budgets in order to adjust spending levels in response to lower commodity prices, the Debtors continue to experience significant pricing pressure for their products and services. The Company’s revenue further decreased by approximately 9% to $166.9 million in the third quarter of 2020."

The following documents were attached to the Disclosure Statement [Docket No. 12]:

• Exhibit A: Plan of Reorganization
• Exhibit B: Restructuring Support Agreement
• Exhibit C: Liquidation Analysis
• Exhibit D: Financial Projections
• Exhibit E: Valuation Analysis 
• Exhibit F: Organizational Structure Chart 
• Exhibit G: Guarantee Claims

Proposed Key Dates

• Voting Deadline: January 8, 2021
• Plan Supplement Filing Deadline: January 8, 2021
• Plan and Disclosure Statement Objection Deadline: January 12, 2021
• Combined Hearing: January 19, 2021

Liquidation Analysis (see Exhibit C to Disclosure Statement for notes)

About the Debtors

According to the Debtors: “Superior serves the drilling, completion, and production-related needs of oil and gas companies worldwide through a diversified portfolio of specialized oilfield services and equipment that are used throughout the economic life cycle of oil and gas wells."

Corporate Structure Chart [Exhibit F to Disclosure Statement]

Read more Bankruptcy News