Oil On Troubled Waters: Successful Restructuring Of Ocean Rig Group

In Ocean Rig 1, the Grand Court sanctioned four inter-related schemes of arrangement (the "Schemes"), as part of a group restructuring of over US$3.69 billion of New York law governed debt - in value terms, the largest judicially approved restructuring in the Cayman Islands. In each case, the scheme companies moved their COMI from the Marshall Islands to the Cayman Islands not long before the Schemes were promoted; but that did not prevent the Schemes subsequently receiving recognition in parallel Chapter 15 proceedings.

Creditor participation and support at the scheme meetings was high, but there was opposition from a significant creditor, Highland Capital Management LP and affiliates ("Highland"), which voted against the proposed scheme of the parent company Ocean Rig UDW Inc ("UDW"), on which the other schemes were conditional. Highland also objected to the UDW scheme at both the convening hearing and the sanction hearing.

Highland's position changed over the course of the two hearings, but Highland's main arguments were that:

two class meetings, and not one, should be convened for the UDW scheme, which would have given Highland a sufficient interest to block the whole restructuring; and/or the UDW scheme was unfair and Highland should be entirely carved out of the group restructuring. The Proposed Schemes

In order to continue as a going concern, UDW, an international contractor of offshore deepwater drilling services, needed to restructure around US$3.69 billion of debt held directly by UDW or through three of its wholly owned subsidiaries ("DOV", "DFH", "DRH"; collectively the "Silo Companies" and collectively with UDW the "Group"). Four interlinked schemes were proposed within a 'light touch' provisional liquidation of UDW and the Silo Companies. There was a successful COMI shift of all four companies from the Marshall Islands to the Cayman Islands, which withstood an objection in the related US Chapter 15 proceedings 2.

DOV and DFH sought to compromise their secured term loan facilities of over US$3 billion plus accrued interest outstanding ("Term Loans"). DRH sought to compromise its secured notes with over US$450 million plus accrued interest outstanding ("DRH Notes").

UDW sought to compromise (i) unsecured notes issued by UDW with over US$130 million plus accrued interest outstanding ("UDW Notes") as well as (ii) UDW's guarantees of the Term Loans and the DRH Notes ("UDW Guarantees"). The distinctions between UDW noteholders and UDW guarantee creditors were at the core of this case.

The Schemes proposed a reduction of debt through an exchange for (mostly) equity, a smaller debt burden, and cash. If the Schemes were to fail, it was common ground that the result would be a liquidation of the Group, with value destruction for all creditors (i.e. all creditors would receive less in a liquidation than under the Schemes).

One of the features of the Group restructuring was that a funded Preserved Claims Trust ("PCT") was to be established to preserve, in particular, the claims to set aside alleged fraudulent conveyances that had been asserted by Highland in a draft complaint aimed at, among others, UDW's chief executive officer (George Economou) and chief financial...