DEBTWIRE BROADCAST: PARAGON OFFSHORE VALUATION STRETCH RAISES FEASIBILITY CONCERN

Transcription

1 DEBTWIRE BROADCAST: PARAGON OFFSHORE VALUATION STRETCH RAISES FEASIBILITY CONCERN Debtwire s team of journalists and analysts will recap Paragon s first-day hearing and explore the restructuring plan s seemingly high valuation, alongside potential feasibility roadblocks and the proposed spin-off settlement with ex-parent Noble Corp. 18 February 2016

2 AGENDA 1. Opening Remarks: Kate Marino, Deputy Editor 2. Paragon s Descent: Alexander Gladstone, Energy Reporter Alexander.Gladstone@Debtwire.com 3. Financial Analysis: Denis Rudnev, Distressed Analyst Denis.Rudnev@Debtwire.com 4. First Day Hearing: Pat Holohan, Court Reporter Pat.Holohan@Debtwire.com 5. Legal Hurdles: Richard Goldman, Legal Analyst Richard.Goldman@Debtwire.com 6. Q & A 7. Appendix 2

3 PARAGON S DESCENT Prospects for new contracts deteriorated under adverse market conditions. Paragon drew down revolver before filing. Plan leaves term loan lenders unimpaired, while bondholders get cash and equity. Trading levels indicate that the plan is distorted from market values. 3

4 FINANCIAL ANALYSIS: CAPITAL STRUCTURE Pre-Petition Capital Structure Coupon Maturity PRE-PETITION CAPITAL STRUCTURE Pre-Petition Face Amt. Current Price Market Amount Yield Est. Annual Interest 2016P Face Leverage 2016P Mkt Leverage Proposed Restructuring Adjustments USD 800m First Lien Revolver (87.4m LC) L + 2.0% 23 Jul x 3.8x (165) 631 First Lien Term Loan L % 18 Jul % x 4.4x S/L Transaction (Capital Lease) x 5.8x Secured Debt 1,727 1, Unsecured Notes 6.75% 15 Jul % x 6.3x (457) - Unsecured Notes 7.25% 15 Aug % x 7.0x (527) - Total Debt 2,710 1, Cash & Equivalent (2/1/16) (510) 268 Net Debt 1, x 3.2x *Leverage metrics based on management projections of USD 209m adjusted EBITDA in PRO FORMA CAPITAL STRUCTURE SUMMARY (USDm) - Assumed 6/30/16 Emergence Date Pro Forma Capital Structure Coupon Maturity Face Out Est Annual Interest 2016P Face Leverage Converted USD 631m Term Loan 5.50% 01 Jan x L %, 1% Libor Floor. Min liquidity covenant of USD 110m. Existing Term Loan 3.75% 18 Jul x L %, 1% Fl.PSA contemplates keeping TL in place under original terms. S/L Transaction (Capital Lease) x PSA contemplates keeping sale-leaseback agreement in place under original terms. Secured Debt 1, Pro Forma Cash 205 (see DS valuation portion) Net Debt 1, x Implied Equity Value (Midpoint) 763 (see DS valuation portion) Total EV 2, x *Leverage metrics based on management projections of USD 209m adjusted EBITDA in Notes Adjusted Amt. COMPANY'S EBITDA PROJECTIONS (USDm) 2015 EBITDA Projection EBITDA Projection EBITDA Projection EBITDA Projection EBITDA Projection 514 CONTINGENT PAYMENT TARGETS Year EBITDA Payout Sources: SEC filings, press releases, disclosure statement (projections), MarketAxess, Markit, FINRA, Debtwire Analytics. 4

5 FINANCIAL ANALYSIS: PROJECTED INCOME STATEMENT Source: Disclosure statement. PROJECTED INCOME STATEMENT (US $ in thousands) FYE December 31, 2015E 2016P 2017P 2018P 2019P Revenue $1,492,427 $837,684 $845,299 $991,630 $1,110,307 Operating Costs 871, , , , ,217 Gross Margin $620,646 $260,715 $327,920 $464,953 $569,090 Gross Margin 41.6% 31.1% 38.8% 46.9% 51.3% Depreciation and Amortization $339,267 $209,689 $161,126 $154,552 $158,469 G&A 50,047 52,183 52,183 53,749 55,361 Operating Income $231,332 ($1,157) $114,610 $256,652 $355,260 Interest Expense and Other 128,096 83,641 80,447 85,411 83,067 Income Before Taxes and Non-Recurring Items $103,236 ($84,798) $34,163 $171,241 $272,193 Tax Provision (72,108) 27,843 29,395 38,238 41,390 Restructuring Expenses 9,376 56, Unusual Events (Includes Gain on Senior Notes Cancellation) 1,163,796 (622,788) Net Income ($997,829) $453,535 $4,769 $133,003 $230,803 RECONCILIATION OF NET INCOME TO ADJ. EBITDA Net Income ($997,829) $453,535 $4,769 $133,003 $230,803 Tax Provision (72,108) 27,843 29,395 38,238 41,390 Interest Expense 130,036 83,641 80,447 85,411 83,067 Depreciation and Amortization 339, , , , ,469 Minority Interest (31) Restructuring Expenses 9,376 56, Unusual Event (Includes Gain on Repurchase of Senior Notes) 1,163,796 (622,788) ADJ. EBITDA $572,508 $208,531 $275,736 $411,204 $513,729 5

6 FINANCIAL ANALYSIS: PROJECTED CASH FLOWS Source: Disclosure statement. PROJECTED CASH FLOW STATEMENT (US $ in thousands) FYE December 31, 2015E 2016P 2017P 2018P 2019P OPERATING ACTIVITIES Net Income ($997,829) $453,535 $4,769 $133,003 $230,803 Depreciation and Amortization 339, , , , ,469 Loss on Impairment 1,152, (Gain) on Disposal of Assets 15, (Gain)/Loss on Repurchase of Senior Notes & Cancellation of Interest (4,345) (622,788) Deferred Income Taxes (70,339) Changes in Working Capital & Other 1, ,921 5,755 (18,330) 1,174 Total Operating Activities $436,734 $160,357 $171,649 $269,225 $390,445 INVESTING ACTIVITIES Capital Expenditures ($202,909) ($135,945) ($127,246) ($124,546) ($119,546) Proceeds from Sale of Assets 29, Cash From in Other Investing Activities (2,185) Total Investing Activities ($175,371) ($135,945) ($127,246) ($124,546) ($119,546) FINANCING ACTIVITIES Change in Debt $474,787 ($537,492) ($26,500) ($36,500) ($60,656) Sale Leaseback Principal Amortization (28,853) (61,406) (49,422) (34,515) (37,316) Total Financing Activities $445,934 ($598,899) ($75,922) ($71,015) ($97,972) Total Change in Cash $707,297 ($574,486) ($31,519) $73,664 $172,927 6

7 FINANCIAL ANALYSIS: LIQUIDATION ANALYSIS Source: Disclosure statement. LIQUIDATION ANALYSIS SUMMARY ($000's) Note: Book Value Recovery % Proceeds Low High Low High Cash [A] $778, % 100% $778,446 $778,446 Unbilled Accounts Receivable, net [B] 180,799 30% 50% 54,240 90,400 Accounts Receivable, net [C] 104,074 65% 75% 67,727 78,254 Prepaid Expenses [D] 7,168 10% 20% 717 1,434 Taxes Receivable [E] 33,126 50% 75% 16,563 24,845 Inventory [F] 3,909 20% 30% 782 1,173 PP&E [G] 1,111,098 2% 11% 24, ,862 Other Assets [H] 136,452 15% 17% 20,500 23,688 Gross Proceeds from Liquidation $2,355,073 41% 48% $963,156 $1,122,101 Administrative [I] Administrative Claims: 46,306 48,832 Recovery $ 46,306 48,832 Recovery % 100.0% 100.0% Senior Secured [J] Senior Secured Claims - Revolver and Senior Term Loan 1,440,751 1,440,751 Senior Secured Recovery from Pledged Assets 199, ,720 Senior Secured Deficiency Claims 1,241,080 1,105,031 Senior Secured Recovery from Deficiency Claims 378, ,371 Recovery % 30.5% 33.1% Total Senior Secured Recovery $ 578, ,090 Total Senior Secured Recovery % 40.1% 48.7% General Unsecured General Unsecured Claims - All Entities (excluding notes) [K] 292, ,426 Recovery $ 27,115 34,739 Recovery % 9.3% 11.9% Senior Notes Senior Notes - General Unsecured Claims [L] 1,020,556 1,020,556 Recovery $ 311, ,440 Recovery % 30.5% 33.1% Total Distributions $963,156 $1,122,101 7

8 FIRST DAY HEARING Term loan lenders prepared to challenge restructuring plan vigorously, claiming exclusion from pre-filing talks. Judge Sontchi noted he will of course hear all arguments at disclosure statement hearing, including potential confirmation objections. Paragon didn t help its cause by submitting first-day motions/orders that Judge Sontchi called out for legal, grammatical and spelling errors. The court approved first day motions, including use of cash collateral. Scheduled 9 March second day hearing and 6 April disclosure statement hearing. 8

9 LEGAL HURDLES Term loan lender opposition Reinstatement versus cram up/down Feasibility under Bankruptcy Code section 1129(a)(11) Noble spinoff settlement issues Fraudco comps (In)sufficient consideration Unsecured creditors committee delayed role 9

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12 FINANCIAL ANALYSIS: PROJECTED BALANCE SHEET (US $ in thousands) ASSETS 2015E PROJECTED BALANCE SHEET June 2016P (Pro Forma) FYE December 31, 2016P 2017P 2018P 2019P Cash and Cash Equivalents $776,571 $205,283 $202,085 $170,566 $244,231 $417,158 Accounts Receivable 266, , , , , ,675 Prepaid Expenses and Deposits 35,286 40,487 27,393 26,899 26,899 26,899 Taxes Receivable 42,744 42,744 42,744 42,744 42,744 42,744 Other Current Assets 31,998 46,347 29,659 29,939 30,373 29,932 Current Assets $1,152,924 $520,207 $467,651 $473,023 $591,177 $782,408 PP&E $1,111,099 $1,119,227 $1,037,355 $1,003,475 $973,469 $934,546 Other Assets 127, , ,274 97,771 91,808 85,845 Total Assets $2,391,593 $1,759,394 $1,617,279 $1,574,268 $1,656,453 $1,802,799 LIABILITIES AND SHAREHOLDERS' EQUITY Short-Term Debt $40,629 $38,950 $36,314 $29,510 $30,881 $94,737 Accounts Payable 85,374 78,712 56,723 70,829 76,108 74,932 Other Current Liabilities 158, , , , , ,422 Current Liabilities $284,978 $291,512 $246,710 $234,464 $242,070 $305,091 Revolver $708,500 $543,500 $543,500 $543,500 $543,500 $543,500 Term Loan 632, , , , , ,530 Prospector Capital Leases (Long-Term Portion) 234, , , , , Senior Notes 983, Deferred Taxes and Other 50,637 80,637 80,637 80,637 50,637 50,637 Total Liabilities $2,895,078 $1,731,155 $1,654,661 $1,594,313 $1,530,550 $1,432,758 Shareholders' Equity(a) (503,485) 28,239 (37,382) (20,044) 125, ,040 Total Liabilities and Shareholders' Equity $2,391,593 $1,759,394 $1,617,279 $1,574,268 $1,656,453 $1,802,799 (a) Benefit of gain from debt cancellation reduced by $50 million due to accrual of 2016 Deferred Cash Payment and 2017 Deferred Cash Payment as liabilities at face value. Source: Disclosure statement. 12

13 CORPORATE STRUCTURE Source: Disclosure statement. 13

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