Hercules Offshore to file for bankruptcy

HOUSTON — Shallow-water driller Hercules Offshore is planning to hand ownership of the company to its creditors in a financial restructuring deal that will require it to seek Chapter 11 bankruptcy protection by early July.

Two-thirds of the Houston firm’s debt holders have agreed to a plan that will convert $1.2 billion in senior debt into new equity, giving them nearly 97 percent of the company’s shares. The plan would have to be approved by a bankruptcy court after Hercules files for Chapter 11 in the next few weeks.

Under the pact, the creditors will backstop a $450 million capital raise to pay for a new drilling rig, the Hercules Highlander, among other corporate purposes. The company said its operations will continue as usual, its trade vendors will be paid and contracts will not be broken. The company’s existing shareholders will get 3.1 percent of Hercules’ shares.

“The new capital structure will provide a better foundation for Hercules to meet the challenges in the global offshore drilling market due to the down-cycle in crude oil prices and expected influx of new-build jack-up rigs over the coming years,” Hercules CEO John Rynd said in a written statement.

Analysts with investment banking firm Tudor, Pickering, Holt & Co. wrote Thursday the deal reflects the “depressing state” of the U.S. Gulf of Mexico and international jack-up markets and came about because of Hercules’ highly levered balance sheet.

Hercules, a jack-up rig contractor with most of its fleet in the shallow waters of the Gulf of Mexico, will be the second oil field services company this year to file for Chapter 11 bankruptcy protection amid falling oil prices. Four U.S. oil producers, BPZ Resources, Quicksilver Resources, American Eagle Corp. and Dune Energy all sought bankruptcy protection in recent months. Hercules has cut 40 percent of its 1,800 employees in recent months and has cold-stacked 11 of its 20 Gulf rigs.

“The high amount of leverage and weaker macro conditions have weighed on the company’s financial health and, as such, this announcement does not come as a surprise,” analysts with Raymond James wrote Thursday.