| Reorganization and Fresh Start Accounting | Note 2— Chapter 11 Emergence On the Petition Date, Legacy Noble and certain of its subsidiaries, including Finco, filed voluntary petitions in the Bankruptcy Court seeking relief under chapter 11 of the Bankruptcy Code. The Plan was confirmed by the Bankruptcy Court on November 20, 2020, and the Debtors emerged from the bankruptcy proceedings on the Effective Date. On the Effective Date, and pursuant to the terms of the Plan, the Company: • Appointed five new members to the Successor’s board of directors to replace all of the directors of the Predecessor, other than the director also serving as President and Chief Executive Officer, who was re-appointed pursuant to the Plan. Subsequent to the Effective Date, an additional director was appointed. • Terminated and cancelled all ordinary shares and equity-based awards of Legacy Noble that were outstanding immediately prior to the Effective Date; • Transferred approximately 31.7 million ordinary shares of Noble with a nominal value of $0.00001 per share (“Ordinary Shares”) to holders of Legacy Noble’s Senior Notes due 2026 (the “Guaranteed Notes”) in the cancellation of the Guaranteed Notes; • Transferred approximately 2.1 million Ordinary Shares, approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 1 Warrants”) with an exercise price of $19.27 and approximately 8.3 million seven-year warrants with Black-Scholes protection (the “Tranche 2 Warrants”) with an exercise price of $23.13 to holders of Legacy Noble’s then outstanding senior notes (other than the Guaranteed Notes) (the “Legacy Notes”) in cancellation of the Legacy Notes; • Issued approximately 7.7 million Ordinary Shares and $216.0 million principal amount of our senior secured second lien notes (the “Second Lien Notes”) to participants in a rights offering (the “Rights Offering”) at an aggregate subscription price of $200.0 million; • Issued approximately 5.6 million Ordinary Shares to the backstop parties (the “Backstop Parties”) to a Backstop Commitment Agreement, dated October 12, 2020 (the “Backstop Commitment Agreement”), among the Debtors and the Backstop Parties as Holdback Securities (as defined in the Backstop Commitment Agreement); • Issued approximately 1.7 million Ordinary Shares to the Backstop Parties in respect of their backstop commitment to subscribe for Unsubscribed Securities (as defined in the Backstop Commitment Agreement); • Issued approximately 1.2 million Ordinary Shares to the Backstop Parties in connection with the payment of the Backstop Premiums (as defined in the Backstop Commitment Agreement); • Issued 2.8 million five-year warrants with no Black-Scholes protection (the “Tranche 3 Warrants”) with an exercise price of $124.40 to the holders of Legacy Noble’s ordinary shares outstanding prior to the Effective Date; • Entered into a senior secured revolving credit agreement (the “Revolving Credit Agreement”) that provides for a $675.0 million senior secured revolving credit facility (with a $67.5 million sublimit for the issuance of letters of credit thereunder) (the “Revolving Credit Facility”); • Entered into an indenture governing the Second Lien Notes; • Entered into a registration rights agreement with certain parties who received Ordinary Shares under the Plan (the “Equity Registration Rights Agreement”); and • Entered into a registration rights agreement with certain parties who received Second Lien Notes under the Plan. In addition, Noble entered into an exchange agreement with certain Backstop Parties which provided that, as soon as reasonably practicable after the Effective Date, the other parties to such agreement would deliver to the Company an aggregate of approximately 6.5 million Ordinary Shares issued pursuant to the Plan in exchange for the issuance of penny warrants to purchase up to approximately 6.5 million Ordinary Shares, with an exercise price of $0.01 per share (“Penny Warrants”). This exchange was completed in late February 2021. Management Incentive Plan. The Plan contemplated that on or after the Effective Date, the Company would adopt a long-term incentive plan and authorize and reserve 7.7 million Ordinary Shares for issuance pursuant to equity incentive awards to be granted under such plan. On February 18, 2021, the Company adopted the long-term incentive plan and authorized and reserved 7.7 million Ordinary Shares for awards to be granted under such plan. Sources of Cash for Plan Distribution. All cash payments made by the Company under the Plan on the Effective Date were funded from cash on hand, proceeds of the Rights Offering, and proceeds of the Revolving Credit Facility. Reorganization Items, Net In accordance with ASC 852, any incremental expenses, gains and losses that are realized or incurred as of or subsequent to the Petition Date and before the Effective Date that are a direct result of the Chapter 11 Cases are recorded under “Reorganization items, net.” The following table summarizes the components of reorganization items included in our Condensed Consolidated Statements of Operations for the period January 1, 2021 through February 5, 2021: Predecessor Noble Finco Period From Period From January 1, 2021 January 1, 2021 through through February 5, 2021 February 5, 2021 Professional fees (1) $ (28,739) $ (8,095) Adjustments for estimated allowed litigation claims 77,300 — Write-off of unrecognized share-based compensation (4,406) (4,406) Gain on settlement of liabilities subject to compromise 2,556,147 2,556,147 Loss on fresh start adjustments (2,348,251) (2,348,251) Total Reorganization items, net $ 252,051 $ 195,395 (1) Payments of $44.2 million and $7.2 million related to professional fees have been presented as cash outflows from operating activities in our Condensed Consolidated Statements of Cash Flows for the period January 1, 2021 through February 5, 2021 for Noble and Finco, respectively. Liabilities Subject to Compromise From the Petition Date until the Effective Date, the Company operated as a debtor-in-possession under the jurisdiction of the Bankruptcy Court and in accordance with provisions of the Bankruptcy Code. In accordance with ASC 852, on our Condensed Consolidated Balance Sheets prior to the Effective Date, the caption “Liabilities subject to compromise” reflects the expected allowed amount of the pre-petition claims that are not fully secured and that have at least a possibility of not being repaid at the full claim amount. The Company has considered the chapter 11 motions approved by the Bankruptcy Court with respect to the amount and classification of its pre-petition liabilities. The Company evaluated and adjusted the amount and classification of its pre-petition liabilities through the Effective Date. Note 3— Reorganization and Fresh Start Accounting In connection with our emergence from bankruptcy and in accordance with ASC 852, Noble and Finco qualified for and applied fresh start accounting on the Effective Date. Noble and Finco were required to apply fresh start accounting because (i) the holders of existing Legacy Noble voting shares received less than 50% of the voting shares of the Successor, and (ii) the reorganization value of Noble's and Finco's assets, each of which approximated $1.7 billion, immediately prior to confirmation of the Plan was less than the corresponding post-petition liabilities and allowed claims, each of which approximated $4.0 billion. Applying fresh start accounting resulted in new reporting entities with no beginning retained earnings or accumulated deficit. Accordingly, our financial statements and notes after the Effective Date are not comparable to our financial statements and notes on and to prior to that date. With the application of fresh start accounting, we allocated the reorganization value to our individual assets and liabilities (except for deferred income taxes) based on their estimated fair values in conformity with ASC Topic 805, Business Combinations. The amount of deferred taxes was determined in accordance with ASC Topic 740, Income Taxes and ASC 852. The Effective Date fair values of our assets and liabilities differed materially from their recorded values as reflected on the historical balance sheets. As described in “Note 1— Organization and Basis of Presentation,” Noble and Finco are referred to as Successor, as the context requires, and includes the financial position and results of operations of the reorganized Noble and Finco subsequent to February 5, 2021. References to Predecessor relate to the financial position and results of operations of Legacy Noble and Finco prior to, and including, February 5, 2021. Reorganization Value and Valuation of Assets The reorganization value represents the fair value of the Successor’s and Finco’s total assets and was derived from the enterprise value, which represents the estimated fair value of an entity’s long-term debt and equity. As set forth in the Plan, the enterprise value of the reorganized Debtors was estimated to be in the range of $1.1 billion to $1.6 billion with a midpoint of $1.3 billion. The enterprise value range was determined by using a discounted cash flow analysis and a peer group trading analysis, excluding unrestricted cash at emergence. Based on the estimates and assumptions discussed above, we estimated the enterprise value to be the midpoint of the range of estimated enterprise value of $1.3 billion. The following table reconciles the enterprise value to the Successor equity as of the Effective Date: February 5, 2021 Enterprise Value $ 1,300,300 Plus: Cash and cash equivalents 111,968 Less: Fair value of debt (393,500) Fair Value of Successor Equity $ 1,018,768 The following table reconciles the enterprise value to the reorganization value as of the Effective Date: February 5, 2021 Enterprise Value $ 1,300,300 Plus: Cash and cash equivalents 111,968 Plus: Non-interest bearing current liabilities 185,410 Plus: Non-interest bearing non-current liabilities 108,268 Reorganization value of Successor assets $ 1,705,946 With the assistance of financial advisors, we determined the enterprise and corresponding equity value of the Successor by calculating the present value of future cash flows based on our financial projections. The enterprise value and corresponding equity value are dependent upon achieving future financial results set forth in our valuations, as well as the realization of certain other assumptions. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, the estimates, assumptions, valuations or financial projections may not be realized and actual results could vary materially. Valuation Process Under the application of fresh start accounting and with the assistance of valuation experts, we conducted an analysis of the Condensed Consolidated Balance Sheet to determine if any of the Company’s net assets would require a fair value adjustment as of the Effective Date. The results of our analysis indicated that our principal assets, which include mobile offshore drilling units, certain intangibles and debt issued at emergence would require a fair value adjustment on the Effective Date. The rest of the Company’s net assets were determined to have carrying values that approximated fair value on the Effective Date. Further details regarding the valuation process is described further below. Property, Plant and Equipment The valuation of the Company’s mobile offshore drilling units and other related tangible assets was determined by using a combination of (1) the discounted cash flows expected to be generated from our drilling assets over their remaining useful lives and (2) the cost to replace our drilling assets, as adjusted by the current market for similar offshore drilling assets. Assumptions used in our assessment included, but were not limited to, future marketability of each unit in light of the current market conditions and its current technical specifications, timing of future contract awards and expected operating dayrates, operating costs, utilization rates, tax rates, discount rates, capital expenditures, market values, weighting of market values, reactivation costs, estimated economic useful lives and, in certain cases, our belief that a drilling unit is no longer marketable and is unlikely to return to service in the near to medium term. We included an allocation for corporate overhead when calculating the discounted cash flows expected to be generated from our drilling assets over their remaining useful lives. The cash flows were discounted at our weighted average cost of capital (“WACC”), which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain US Treasury rates, and certain risk premiums specific to the Company. The valuation of our remaining property and equipment, including owned real estate, construction in progress assets, and other equipment essential to our operations, was determined utilizing a combination of replacement cost and market valuation approaches. Specifically, the land was valued using a sales comparison method of the market approach, in which we utilized recent sales of comparable properties to estimate the fair value on a US Dollar per acre basis. The remaining property and equipment were valued using a cost approach, in which we estimated the replacement cost of the assets and applied adjustments for physical depreciation and obsolescence, where applicable, to arrive at a fair value. Intangible Assets At emergence, we held contracts for drilling services related to certain long-term contracts. Given the contract dayrates relative to market dayrates at the Effective Date, we determined the contracts represent favorable contract intangible assets. Based on a discounted cash flow analysis utilizing the dayrate differential between current market dayrates and the contract dayrates, and a risk-adjusted discount rate of 17%, we determined the aggregate fair value of our contracts for these certain contracts to be $113.4 million above the fair value of the contracts if they were priced at current market dayrates on the Effective Date. The dayrate differential on these contracts as compared to prior years was primarily driven by the combination of continued market oversupply of offshore drilling units, the volatility in oil and gas price and the unprecedented crude product consumption levels experienced in 2020. Debt The valuations of the Company’s Revolving Credit Facility and Second Lien Notes were based on relevant market data as of the Effective Date and the terms of each of the respective instruments. Considering the interest rates and implied yields for the Revolving Credit Facility and Second Lien Notes were within a range of comparable market yields (with considerations for term and seniority), fair value adjustments were recorded relating to each of the instruments. Successor Warrants On the Effective Date, the Company issued Tranche 1 Warrants and Tranche 2 Warrants to certain former bondholders as part of the settlement of their pre-petition claims. The Company also issued Tranche 3 Warrants to holders of the Predecessor’s ordinary shares. The fair values of the warrants on the Effective Date were determined using an options pricing model while considering the contractual terms for each respective tranche, including the mandatory exercise provisions related to Tranche 1 Warrants and Tranche 2 Warrants. The key market data assumptions for the options pricing model are the estimated volatility and the risk-free rate. The volatility assumption was estimated using market data for similar offshore drilling market participants with consideration for differences in size and leverage. The risk-free rate assumption was based on US Constant Maturity Treasury rates as of the Effective Date. Condensed Consolidated Balance Sheet at Emergence The adjustments set forth in the following Condensed Consolidated Balance Sheet as of February 5, 2021 reflect the consummation of the transactions contemplated by the Plan and carried out by the Company (“Reorganization Adjustments”) and the fair value adjustments as a result of the application of fresh start accounting (“Fresh Start Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine fair values and significant assumptions or inputs. The following table reflects the reorganization and application of ASC 852 on our condensed consolidated balance sheet as of February 5, 2021: Predecessor Reorganization Adjustments Fresh Start Adjustments Successor ASSETS Current assets Cash and cash equivalents $ 317,962 $ (205,994) (a) $ — $ 111,968 Accounts receivable, net 189,207 — — 189,207 Taxes receivable 32,556 — — 32,556 Prepaid expenses and other current assets 63,056 (20,302) (b) (10,073) (m) 32,681 Total current assets 602,781 (226,296) (10,073) 366,412 Intangible assets — — 113,389 (n) 113,389 Property and equipment, at cost 4,787,661 — (3,631,936) (o) 1,155,725 Accumulated depreciation (1,221,033) — 1,221,033 (o) — Property and equipment, net 3,566,628 — (2,410,903) 1,155,725 Other assets 69,940 10,983 (c) (10,503) (m) 70,420 Total assets $ 4,239,349 $ (215,313) $ (2,318,090) $ 1,705,946 LIABILITIES AND EQUITY Current liabilities Accounts payable $ 89,215 $ (7,266) (d) $ — $ 81,949 Accrued payroll and related costs 35,615 — — 35,615 Taxes payable 34,211 — — 34,211 Other current liabilities 64,943 21,305 (e) (52,613) (m) 33,635 Total current liabilities 223,984 14,039 (52,613) 185,410 Long-term debt — 352,054 (f) 41,446 (p) 393,500 Deferred income taxes 9,303 (17,328) (g) 29,550 (q) 21,525 Other liabilities 108,489 4,659 (h) (26,405) (m) 86,743 Liabilities subject to compromise 4,143,812 (4,143,812) (i) — — Total liabilities 4,485,588 (3,790,388) (8,022) 687,178 Shareholders’ equity Common stock (Predecessor) 2,511 (2,511) (j) — — Common stock (Successor) — 1 (k) — 1 Additional paid-in capital (Predecessor) 815,505 (815,505) (j) — — Additional paid-in capital (Successor) — 1,018,767 (k) — 1,018,767 Accumulated deficit (1,006,351) 3,374,323 (l) (2,367,972) (r) — Accumulated other comprehensive loss (57,904) — 57,904 (s) — Total shareholders’ equity (246,239) 3,575,075 (2,310,068) 1,018,768 Total liabilities and equity $ 4,239,349 $ (215,313) $ (2,318,090) $ 1,705,946 Reorganization Adjustments (a) Represents the reorganization adjustment to cash and cash equivalents: Proceeds from Rights Offering $ 200,000 Proceeds from the Revolving Credit Facility, net of issuance costs 167,361 Transfer of cash from restricted cash 300 Payment of professional service fees (23,261) Payment of the pre-petition revolving credit facility principal and accrued interest (550,019) Deconsolidation of NHUK (300) Payment of recurring debt fees (75) Change in cash and cash equivalents $ (205,994) (b) Represents the reorganization adjustment for the following: Payment of professional service fees from escrow $ (12,380) Payment of Paragon litigation settlement form escrow (7,700) Transfer of restricted cash to cash (300) Adjustment to miscellaneous receivables related to the deconsolidation of NHUK upon emergence 78 Change in prepaid expenses and other current assets $ (20,302) (c) Adjustments to other assets relates to capitalization of long-term debt issuance costs related to the Revolving Credit Facility of $11.1 million and the impact of reorganization adjustments on deferred tax assets of $(0.1) million. (d) Adjustments to accounts payable related to the payment of professional fees $(15.2) million and the reinstatement of trade payables from liabilities subject to compromise of $8.0 million. (e) Adjustment of $21.3 million to other current liabilities related to the reinstatement of liabilities subject to compromise. (f) Represents $352.1 million of outstanding borrowings, net of financing costs, under the Second Lien Notes and Revolving Credit Facility. (g) Represents the write-off of $(17.3) million deferred income taxes as the result of the Company’s internal restructuring. (h) Represents cancellation o f $(0.1) million cash-based compensation plans and the reinstatement of $4.7 million right-of-use lease liabilities. (i) Liabilities subject to compromise settled or reinstated in accordance with the Plan and the resulting gain were determined as follows: 4.900% senior notes due Aug. 2020 $ 62,535 4.625% senior notes due Mar. 2021 79,937 3.950% senior notes due Mar. 2022 21,213 7.750% senior notes due Jan. 2024 397,025 7.950% senior notes due Apr. 2025 450,000 7.875% senior notes due Feb. 2026 750,000 6.200% senior notes due Aug. 2040 393,597 6.050% senior notes due Mar. 2041 395,000 5.250% senior notes due Mar. 2042 483,619 8.950% senior notes due Apr. 2045 400,000 5.958% revolving credit facility maturing Jan. 2023 545,000 Accrued and unpaid interest 110,300 Protection and indemnity insurance liabilities 25,669 Accounts payable and other payables 8,163 Estimated loss on litigation 15,700 Lease liabilities 6,054 Total consolidated liabilities subject to compromise 4,143,812 Issuance of Successor common stock (854,909) Issuance of Successor warrants to certain Predecessor creditors (141,029) Payment of the pre-petition revolving credit facility principal and accrued interest (550,020) Payment of Paragon litigation settlement from escrow (7,700) Reinstatement of Transocean litigation liability (8,000) Reinstatement of protection and indemnity insurance liabilities (11,791) Reinstatement of trade payables and right-of-use lease liabilities (14,216) Gain on settlement of liabilities subject to compromise $ 2,556,147 (j) Represents the cancellation of the Predecessor’s common stock of $(2.5) million and Additional paid-in capital of $(815.5) million. (k) Represents the reorganization adjustments to common stock and additional paid in capital: Par value of 50 million shares of new common stock issued $ 1 Capital in excess of par value of 50 million issued and authorized shares of new common stock issued 875,931 Fair value of new warrants issued 142,836 Total Successor equity issued on the Effective Date $ 1,018,768 (l) Represents the reorganization adjustments to accumulated deficit: Gain on settlement of liabilities subject to compromise $ 2,556,147 Professional fees and success fees (15,017) Write-off of unrecognized share-based compensation (4,406) Reorganization items, net 2,536,724 Cancellation of Predecessor common stock and additional paid-in capital 820,299 Cancellation of Predecessor cash and equity compensation plans 2,183 Issuance of Successor warrants to Predecessor equity holders (1,807) Deconsolidation of NHUK (222) Recognition of recurring debt fees (75) Tax impacts of reorganization 17,221 Net impact to Accumulated Deficit $ 3,374,323 Fresh Start Adjustments (m) Reflects adjustments to capitalized deferred costs, deferred revenue and pension balances due to the application of fresh start accounting as follows: Prepaid expenses and other current assets Other assets Other current liabilities Other liabilities Deferred contract assets and revenues $ (10,073) $ (2,616) $ (52,616) $ (20,320) Write-off of certain financing costs — (6,238) — — Pension assets and obligations — (1,010) 3 (6,085) Fair value adjustments to other assets — (639) — — $ (10,073) $ (10,503) $ (52,613) $ (26,405) (n) Reflects the fair value adjustment of $113.4 million to record an intangible asset for favorable contracts with customers. (o) Reflects the fair value adjustment of $2.4 billion to property and equipment of the Predecessor. The following table presents a comparison of the historical and new fair values upon emergence: Historical Value Fair Value Drilling equipment and facilities $ 4,355,384 $ 1,070,931 Construction in progress 231,626 75,159 Other 200,651 9,635 Less: accumulated depreciation (1,221,033) — Property and equipment, at cost $ 3,566,628 $ 1,155,725 (p) Reflects a fair value adjustment of $41.4 million to the carrying value of the Second Lien Notes due to application of fresh start accounting. (q) New deferred tax balances of $29.6 million were established for favorable contracts with customers due to application of fresh start accounting. (r) The following table summarizes the cumulative impact of the fresh start adjustments, as discussed above, the elimination of the Predecessor’s accumulated other comprehensive loss, and the adjustments required to eliminate accumulated deficit: Fair value adjustment to Prepaid and other current assets $ (10,073) Fair value adjustment to Intangible assets 113,389 Fair value adjustment to Property and equipment, net (2,410,903) Fair value adjustment to Other assets (10,503) Fair value adjustment to Other current liabilities 52,613 Fair value adjustment to Long-term debt (41,446) Fair value adjustment to Deferred income taxes (9,829) Fair value adjustment to Other liabilities 26,405 Derecognition of Predecessor Accumulated other comprehensive loss (57,904) Total fresh start adjustments included in Reorganization items, net (2,348,251) Tax impact of fresh start adjustments (19,721) Net change in accumulated deficit $ (2,367,972) (s) Reflects $57.9 million for the derecognition of Predecessor Accumulated other comprehensive loss through Reorganization items, net. |
