Law360 (April 27, 2020, 4:22 PM EDT) -- Houston's Diamond Offshore Drilling Inc. has filed for Chapter 11 protection in a Texas federal court with about $2.6 billion in debt, citing a downward trend in the industry that was exponentially worsened by the oil price wars this year and the coronavirus pandemic.
In a bankruptcy petition Sunday, Diamond said it has $5.8 billion of assets and $2.6 billion of debt based on its most recent fiscal data from the close of 2019. The company said it has about $434.9 million in cash and can continue to operate normally. In a statement Monday, the company said it is engaged in negotiations with key stakeholders to negotiate the debt restructuring.
Diamond President and CEO Marc Edwards wrote in his declaration in support of the company's Chapter 11 petition that the proceedings are an effort "to stabilize operations while proactively restructuring their balance sheet to successfully compete in the changing global energy markets."
Edwards said in his declaration that the company's debt includes about $2.4 billion in unsecured loans.
In a separate declaration, Nicholas Grossi, managing director of Diamond's restructuring adviser Alvarez & Marsal North America, said the company's other debts include over $15 million tied up in a Brazilian tax dispute in which a nondebtor affiliate of Diamond is challenging $90 million in unpaid income taxes.
Along with the restructuring petition, Diamond lodged an adversary complaint against Beach Energy Ltd. the same day. The suit seeks to force Beach Energy to honor a multiyear drilling contract "worth potentially more than a hundred million dollars to the debtor's estate."
Diamond said it has spent more than $100 million over the last year building and transporting a rig to a site off the southern coast of Australia in accordance with their drilling agreement with Beach Energy.
But Beach Energy abruptly pulled out of the deal citing a delay in rig delivery despite having been in communication for months about how to navigate obstacles created by the coronavirus, Diamond says in the complaint. Regardless, Diamond says Beach Energy was the source of the delay and called Beach's actions a blatant attempt "to renegotiate the parties' original deal."
In a hearing Monday, U.S. District Judge David R. Jones praised the decision to voluntarily enter Chapter 11, characterizing it as "reading the room."
"I think the actions were deliberate and smart," Judge Jones said in the hearing.
One of Diamond's attorneys, Paul M. Basta of Paul Weiss Rifkind Wharton & Garrison LLP, told the court two of the company's key stakeholders are Bank of New York Mellon Corp., which is the indenture trustee for $2 billion in unsecured notes, and Wells Fargo, the agent for an unsecured revolving credit facility that is $442 million drawn.
In its bankruptcy filings, Diamond said its global operations employ about 2,300 people in 10 countries and said it already has laid off over 100 employees.
Fifteen Diamond entities also filed bankruptcy proceedings in the same Texas court on Sunday.
"After a careful and diligent review of our financial alternatives, the board of directors and management, along with our advisers, concluded that the best path forward for Diamond and its stakeholders is to seek Chapter 11 protection," Edwards said in the company's statement. "Through this process, we intend to restructure our balance sheet to achieve a more sustainable debt level to reposition the business for long-term success."
The company has retained Lazard Frères & Co. LLC as financial adviser and Alvarez & Marsal as restructuring adviser.
Diamond is represented by Paul M. Basta, Andrew G. Gordon, Julia Tarver Mason Wood, Jacqueline P. Rubin, Robert A. Britton, Claudia R. Tobler and Christopher Hopkins of Paul Weiss Rifkind Wharton & Garrison LLP and John F. Higgins, Eric M. English, M. Shane Johnson and Genevieve M. Graham of Porter Hedges LLP.
The case is In re: Diamond Offshore Drilling Inc., case number 4:20-bk-32307, in the U.S. Bankruptcy Court for the Southern District of Texas.
--Editing by Orlando Lorenzo.
Update: This story has been updated with information from Monday's first-day hearing.
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