Hercules Offshore, Inc. (NASDAQ:HERO) revealed on Tuesday that it has filed for voluntary bankruptcy under the Chapter 11 of the US Bankruptcy Code after 99.70% of its first lien lenders agreed to the prepackaged Chapter plan proposed in May.
The announcement immediately led Hercules Offshore to lose 19% during pre market hours on Monday. Year-to-date, the stock is down by 35%.
Chapter 11 Plan
Under the bankruptcy protection agreement, all Hero Offshore assets will be up for sale. It is important to note that international assets are not encompassed in the Chapter 11 process but are part of the assets to be sold. Once the Chapter 11 procedure has been fulfilled, all unsold assets will be placed into a wind-down vehicle. All unsecured creditors will receive full payment either in ordinary course or at the fulfillment of the entire Chapter 11 procedure. Depending on how the sales go, the lenders are also entitled to cash payments. However, they have agreed to compromise their respective recoveries to enable the company’s shareholders receive their own recoveries.
Shareholders who accept the terms of the agreement, consequently, are entitled to cash recoveries and interests in the wind-down vehicle. Those who are against the terms of the agreement will only receive the latter. Moreover, these will be distributed only after the creditors have received their full payments.
Voting procedures among shareholders are still being conducted. They are highly encouraged to support the bankruptcy protection plan since they are entitled to receive more should they vote for it.
First Day Motions
Nonetheless, Hercules Offshore has filed for First Day Motions along with its Chapter 11 procedure. The company has decided to continue normal operations simultaneously with the commencement of the Chapter 11 case. As a result, Hercules Offshore will continue to satisfy its obligations to its suppliers, workers, and customers alike around the world. The filing will allow the company to protect the interests of its current employees. Moreover, the motion will enable Hercules Offshore to continue paying in full for the goods and services it received prior to the Chapter 11 filing and will receive thereafter.