Constellation’s Second Restructuring of $1.84 Billion in Total Indebtedness

June 10, 2022

Cleary Gottlieb represented the secured lenders of Constellation Oil Services Holding S.A. (Constellation), in connection with the recently announced closing of the restructuring of Constellation’s $1.84 billion in total indebtedness.

Constellation is a market-leading provider of oil and gas drilling and FPSO services in Brazil and other developing markets.

Constellation filed for judicial reorganization (recuperação judicial) under Brazilian Bankruptcy Law in December 2018, in what has been among Brazil’s largest and most complex bankruptcy filings. Since then, Cleary has been actively involved in all aspects of the restructuring. The closing took place on June 10, 2022.

In December 2019, the creditors approved a judicial reorganization plan to restructure $1.67 billion in total indebtedness. The new money provided by the project finance lenders afforded Constellation the capital and stability needed to continue to bid for new contracts and maintain its rigs and ongoing operations going forward. But soon afterward, the group faced new liquidity issues due to pressures arising from the impact of COVID-19, depressed oil prices, and continued adverse conditions in the sector.

On March 24, 2022, an amended plan of reorganization was approved by creditors and subsequently confirmed by the Brazilian and U.S. (Chapter 15) courts, pursuant to which, among other things, $800 million was restructured into convertible debt that mandatorily converts into shares in the event of a M&A transaction that is approved by the required creditor majorities. A complex and detailed waterfall determines the allocation of proceeds from such M&A transaction. At closing of the restructuring, creditors hold 73% of the company’s equity. In addition, an ad hoc group of bondholders provided $60 million in new financing in the form of super senior secured notes. As part of the transaction, the lenders agreed to share in some of the collateral to permit financing for the continuation of the business.