Weatherford International plc – Debtors Scramble to get Court Approval of Plan Modifications in Advance of September 11th Confirmation Hearing, Hope to Avoid Resolicitation of Creditors

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September 9, 2019 – With a September 11th Plan confirmation hearing looming, the Debtors filed an emergency motion requesting Court sign-off on Plan modifications in an effort to preclude the need to resolicit creditor support for their (already voted on) pre-packaged Plan [Docket No. 328]. The motion attaches a Second Amended Plan as Exhibit B and includes a blackline to show changes to the First Amended Plan filed on September 4, 2019. The Debtors are arguing that notwithstanding major changes (eg, the complete elimination of $1.25bn in Tranche B Notes), the Debtors estates and voting classes benefit ("The Second Amended Plan Modifications are positive for all key constituencies in these Chapter 11 Cases") from the revamped deal cut on September 9th with the Debtors' "Consenting Noteholders."

The Debtors have also filed a Plan Supplement which attaches the Debtors' amended Restructuring Support Agreement, an Amendment to the Backstop Commitment Agreement, an amended DIP term sheet and an amended exit Senior Unsecured Notes term sheet which memorialize the Plan changes (which are also summarize in a table below) [Docket No. 332].

In a press release announcing the Plan modifications, undoubtedly trying to soften the impact on the Court and Creditors of the surprise last-minute modifications, the Debtors stated: “the Company has filed the Second Amended Joint Prepackaged Plan…with the United States Bankruptcy Court…The Amended Plan is accompanied by an amendment to the Restructuring Support Agreement, which has been signed by holders of approximately 82% of the Company's outstanding senior unsecured notes, and an amendment to the Backstop Commitment Agreement, which has been signed by approximately 80% of the holders of the Company's outstanding senior unsecured notes….as a result [of the amended RSA]…the Company believes that there will be a dollar-for-dollar increase in the imputed range of potential equity value for the reorganized Company.

The Debtors' motion states: "The Debtors respectfully request emergency consideration of the Motion pursuant to Bankruptcy Local Rule 9013-1(i) because the failure to approve the Motion at confirmation could force the Debtors to resolicit the Modified Plan, thereby delaying the Confirmation Hearing currently scheduled for September 11, 2019. The Consenting Noteholders (who in the aggregate hold approximately 82% of the Prepetition Notes Claims) support the relief requested in the Motion and have consented to the Court hearing the Motion on September 11, 2019 in advance of the currently scheduled Confirmation Hearing.

These Chapter 11 Cases were commenced as a ‘pre-packaged’ chapter 11 reorganization….Under the Original Plan, there were only two voting classes (the ‘Voting Classes’): Class 7 (Prepetition Notes Claims) and Class 10 (Existing Common Stock)….The Debtors commenced the solicitation of votes of the Prepetition Noteholders prior to the Petition Date, with a voting deadline of August 1, 2019. With respect to the Holders of Existing Common Stock, the Debtors commenced the solicitation of their votes after the Petition Date pursuant to order of this Court dated July 2, 2019,4 with a voting deadline of August 13, 2019.

The Original Plan received overwhelming support from both Voting Classes as summarized in the table below:

Class

Number & Percentage Accepting

Number & Percentage Rejecting

Amount & Percentage Accepting

Amount & Percentage Rejecting

Class Voting Result

Class 7: Prepetition Notes

1,780 (97.53%)

45 (2.47%)

$6,419,301,3306 (99.79%)

$13,642,000 (0.21%)

Accept

Class 10 Common Stock

N/A 

N/A 

387,344,353 (79.38%)

100,622,047 (20.62%)

Accept

 As previously announced in open court on August 1, 2019, the Debtors, the Consenting Noteholders, and an ad hoc group of equity holders reached a global resolution regarding modified terms to the Original Plan.

The terms of such global settlement were memorialized in the First Amended Joint Prepackaged Plan of Reorganization for Weatherford International plc and its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code, dated September 4, 2019 [Docket No. 315, Exhibit A] (the ‘First Amended Plan’). 

As announced in open court on September 9, 2019, the Debtors and the Consenting Noteholders have agreed to certain additional modified terms with respect to the Original Plan…which modifications primarily involve the amount and structure of the new unsecured notes upon the Debtors’ emergence from these Chapter 11 Cases. 

The Debtors seek to modify the First Amended Plan as set forth in the Second Amended Joint Prepackaged Plan of Reorganization for Weatherford International plc and its Affiliate Debtors Under Chapter 11 of the Bankruptcy Code, dated September 9, 2019, attached hereto as Exhibit B (the “Second Amended Plan”). 

…under the Original Plan, the Reorganized Debtors’ exit capital structure was contemplated to include up to a new $1.0 billion secured revolving credit facility (with a sub-limit for letters of credit), plus two tranches of unsecured debt totaling $2.5 billion in the aggregate. The New Tranche A Senior Unsecured Notes were to be new money debt in the amount of $1.25 billion raised pursuant to a rights offering and backstopped by certain members of the Ad Hoc Noteholder Committee. The New Tranche B Unsecured Notes were to be takeback debt in the aggregate amount of $1.25 billion, with an option to convert up to $500 million of the New Tranche B Unsecured Notes to New Common Stock at a set conversion price. 

Pursuant to the Second Amended Plan Modifications, the $2.5 billion of new unsecured notes (issued in two tranches) will be reduced by $400 million in the aggregate and replaced with a single tranche of new unsecured notes in the aggregate amount of $2.1 billion (consisting of $1.6 billion in new money Rights Offering Notes and $500 million of Takeback Notes). 

The Second Amended Plan Modifications do not affect the Reorganized Debtors’ enterprise value in the aggregate amount of between $4.80 and $6.80 billion as set forth in the Disclosure Statement. Instead, as a result of the $400 million reduction in unsecured notes, the Debtors believe it would increase the imputed range of potential equity value for Reorganized Parent proportionately from between $2.62 and $4.62 billion to $3.02 and $5.02 billion.

The Second Amended Plan Modifications are positive for all key constituencies in these Chapter 11 Cases because the Reorganized Debtors will emerge from Chapter 11 with lower funded debt. From the perspective of the Prepetition Noteholders, they experience minimal (if any) change to their overall recoveries (and certainly not ‘material and adverse’ changes as described more fully below) since the $400 million in reduced unsecured notes results in a dollar-for-dollar increase in the potential equity value for Reorganized Parent, of which they own 99.0% upon emergence. The reduction in unsecured notes increases the implied equity value of the Debtors’ go-forward business and allows the Reorganized Debtors to better compete with a right-sized capital structure as compared to their peers upon emergence.

Finally, since the Rights Offering is increasing by $350 million (from $1.25 billion under the Original Plan to $1.60 billion under the Modified Plan), a large subset of the Prepetition Noteholders (members of the Ad Hoc Noteholder Committee holding approximately 80% of the Prepetition Notes) will receive an additional 5.0% fee for backstopping this $350 million in new money as well as the commitments of certain holders no longer wishing to participate in the backstop ($18.7 million underwriting fee), which fee would be approved pursuant to the Confirmation Order and paid on the Effective Date. 18.The Debtors believe, in the exercise of their business judgment and consistent with their fiduciary duties, that the Modified Plan reflects an enhancement to the Debtors and does not change the treatment of either Voting Class in a materially adverse manner. In accordance with section 1127(a) of the Bankruptcy Code and Bankruptcy Rule 3019, the Debtors believe that no additional solicitation is required with respect to either of the two Voting Classes under the Original Plan as the Plan Modifications are not materially adverse to either class."

Summary of Changed Terms

 

Original Plan

Modified Plan

Exit Facility

Up to $1.0bn, inclusive of $500.0mn LC sublimit

At least $600 million, inclusive of $500.0mn LC sublimit

New Tranche A Notes 

(New Money) 

(Rights Offering)

  • $1.25bn that is fully backstopped by certain Prepetition Noteholders
  • Pari passu with $1.25 billion of New Tranche B Notes
  • Maturity: 5 years
  • Interest Rate: 12% (result with expected flex)
  • Call Protection
    • No call for first 2 years
    • For year 2-3, par + 50% coupon
    • For year 3-4, par + 25% coupon
    • For year 4-5, par

At any time, up to $500.0mn callable at 103

  • Up to $2.1 billion, comprised of (i) up to $1.6bnFN that is fully backstopped by certain Prepetition Noteholders, plus (ii) $500.0mn of takeback notes (formerly New Tranche B Notes)
  • Maturity: 5 years
  • Interest Rate: 11% (no flex)

Call Protection (same as prior New Tranche A Notes) 

FN The principal amount of the Rights Offering Notes will be reduced dollar-for-dollar based on the amount of the Exit Facility commitments in excess of $650.0mn as of the Effective Date, but, in any case, to no less than $1.5bn. 

New Tranche B Notes (Takeback Debt)

  • $1.25bn
  • Pari passu with New Tranche A Notes
  • Maturity: 7 years
  • Coupon: 8%
  • Call Protection
    • No call for first 3 years
    • For year 3-4, par + 75% coupon
    • For year 4-5, par + 50% coupon
    • For year 5-6, par + 25% coupon
    • For year 6-7, par

Up to $500.0mn could be converted into New Common Stock at the election of each Pre-petition Noteholder under the Chapter 11 Plan

New Tranche B Notes are eliminated.

Syndication and Backstop Fee for New Tranche A Notes

Backstopped rights offering to all noteholders ($1.25B).

5% backstop fee ($62.5mn) paid prior to Petition Date on original backstop amount of $1.25bn

Backstopped rights offering to all noteholders ($1.6bn).

No change as to the original backstop fee that was already paid.

5% backstop fee on additional $350.0mn commitment and commitments of original backstoppers no longer wishing to participate ($18.7 million) to be paid on the Effective Date and approved pursuant to the Confirmation Order.

The additional $350 million commitment allocated ratably based on current holdings of the Ad Hoc Noteholder Committee and the full $1.6 billion has been fully backstopped by the Ad Hoc Noteholder Committee.

 

The Second Plan Supplement attached the following documents:

  • Exhibit 1: Third Amendment to Restructuring Support Agreement (the “RSA”) – The RSA attaches the following documents: 
    • Exhibit A: Amended RSA Term Sheet, dated September 9, 2019 which itself attaches
  1. a DIP term sheet, and
  2. an exit Senior Unsecured Notes term sheet
  • Exhibit 2: First Amendment to Backstop Commitment Agreement

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