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Kaye Scholer Succeeds on Behalf of Term Loan Lenders in Defeating Confirmation...

October 31, 2016

Kaye Scholer Succeeds on Behalf of Term Loan Lenders in Defeating Confirmation of Paragon Offshore Chapter 11 Plan

Victory Follows Nine Days of Trial Proceedings

 

» Read more about the "unprecedented victory" on Debtwire.Kaye Scholer represents Cortland Capital Market Services (Cortland), the agent for approximately $650 million of term loan debt of Paragon Offshore, a provider of offshore jackup drilling rigs and a semi-submersible drilling rig. Paragon filed for Chapter 11 relief in the United States Bankruptcy Court for the District of Delaware in February 2016 in order to reduce its aggregate $2.3 billion of indebtedness to the term loan lenders, revolving loan lenders and bondholders.

Paragon proposed a Chapter 11 Plan of Reorganization that had the support of the revolver loan lenders and the bondholders, but was opposed by the term loan lenders. Under the Plan, Paragon would have distributed $165 million in cash to the revolver lenders and $285 million in cash to the bondholders, while retaining $457 million in cash. The $544 million balance of the $709 million in revolver loans would have been converted to term loans. The balance of the $1.02 billion in bonds would have received $60 million in new notes and 47 percent of the equity in the reorganized entity. The $650 million in term loan debt would have been reinstated.

Kaye Scholer, on behalf of Cortland and the term loan lenders, opposed confirmation, arguing that the Plan was not feasible. More specifically, Kaye Scholer asserted that Paragon’s business plan was not viable in view of prevailing market conditions in the offshore rig industry; that Paragon would not be able to refinance its $1.3 billion of indebtedness that would remain outstanding following confirmation; and that confirmation of the Plan would leave Paragon in an insolvent financial condition.

In an oral ruling issued on October 28, 2016, Judge Christopher Sontchi of the United States Bankruptcy Court for the District of Delaware ruled in favor of Cortland, denying confirmation of Paragon’s plan of reorganization on the grounds that Paragon’s Plan of Reorganization is not feasible. Judge Sontchi found that Paragon’s business plan was not feasible and was based on unreasonable assumptions as to rig utilization and day rates. He determined that Paragon “will either run out of cash altogether or breach their financial covenants upon emergence.” He also concluded that Paragon had not shown that the debt remaining after confirmation could be refinanced at or prior to maturity. Judge Sontchi delivered the formal, written decision on November 15, 2016.

In the wake of the Court’s decision, Kaye Scholer and Cortland are looking forward to participating in fruitful plan negotiations with all stakeholders with a view toward ultimately confirming a Plan of Reorganization for Paragon that will enable the company to emerge from bankruptcy in the near term.

The Paragon trial team was led by Bankruptcy & Restructuring partners Mark Liscio, Madlyn Gleich PrimoffBenjamin Mintz and Scott Talmadge. Litigation partners Peter Haveles and Jeffrey Fuisz also played vital roles in the trial. Valuable members of the trial team also included Negisa Balluku, Samantha Braunstein, Steven Fruchter, Holly Martin, Kara Neaton, Marisa Orlandi, Kimberly Gelfand, David Giroux and Timothy Langsdorf.

» Read the full written decision (PDF).

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