Seadrill Ltd: May File Chapter 11

We hear from Seeking Alpha that energy company Seadrill Ltd may file Chapter 11 after failing to renegotiate with its creditors a mutually agreeable restructuring of its balance sheet. The company indicated :”We are considering all options at this stage, of which Chapter 11 is one.. We anticipate this to take place over the coming year, but it is too early to say for certain.”

This does not sound good for the only BDC with exposure: Barings BDC (BBDC), which has $9.5mn invested at cost in the 2021 senior secured term debt. Even at March 31, 2020 BBDC had written down the investment by (83%) to $1.6mn. Now the BDC faces losing ($0.600mn) of annual investment income from what was supposed to be a “safer” energy investment, if such a creature exists. Currently the debt trades at a fifth of par, but a complete write-off is still possible. The loan was first booked back in IIIQ 2018 but has been underperforming ever since. At this point the position is not material for a BDC with over $1bn in portfolio assets.

We are maintaining our CCR 4 rating for the company – which the latest news has only justified – and we are adding Seadrill to the BDC Credit Reporter’s soon-to-be world famous Weakest Links list, given that we’ve heard from the horse’s mouth that a bankruptcy filing is being actively considered. That usually means a bankruptcy firm is already on speed dial and contingency plans drawn up.