Response to Summons for Written Resolution - Issuance of new Liquidity Bonds and appointment of Advisors

MEXICO CITY, Dec. 8, 2017 /PRNewswire/ -- On 5 December 2017, Nordic Trustee AS (previously Nordic Trustee ASA) (the "Bond Trustee"), acting as trustee for the bondholders (together, the "Bondholders") in the abovementioned bond issue (the "Bonds" or the "Bond Issue"), a bond loan of USD 939,100,570 issued by Oro Negro Drilling Pte. Ltd. (the "Issuer" and collectively with its respective subsidiaries and affiliates, the "Group") pursuant to a bond agreement dated 24 January 2014 (as amended and restated from time to time, the "Bond Agreement"), issued the abovementioned Summons for Written Resolution (the "Summons")¹ at the request of an ad hoc group of Bondholders (the "Ad Hoc Group").

Integradora de Servicios Petroleros Oro Negro, S.A.P.l. de C.V. ("Integradora") is the ultimate holding company of the Issuer and the other Group companies and is currently subject to concurso mercantil proceedings (the "Concurso Proceedings") in the Second District Court in Mexico City, Mexico (the "Mexican Court").  Integradora, the Issuer and the Rig Owners address this response to the Summons (this "Response") to the Ad Hoc Group, the Bond Trustee, the other Bondholders and the purported new Board of the Issuer. 

The Summons seeks authorization from the Bondholders for the Bond Trustee to implement a Proposal described therein, under which the Issuer would purportedly (i) issue new super priority Liquidity Bonds in an amount of up to $75 million, which would be senior to the Bond Issue, and (ii) agree to pay the fees of AMA Capital Partners ("AMA Capital"), a legal advisor, and a technical advisor.  Integradora, Perforadora Oro Negro, S. de. R.L. de C.V. ("Perforadora"), the Issuer and the Rig Owners believe that actions taken in furtherance of the Proposal represent a clear violation of Mexican law and public policy and do not have the support of the Group.  In addition, the proposed issuance of Liquidity Bonds and the appointment of advisors are not validly or duly authorized, but rather are firmly objected to and opposed by Integradora, Perforadora, the Issuer and the Rig Owners.

1.       BACKGROUND

a.       Events Leading up to Integradora Filing for Concuso Mercantil

The Group's primary business is providing integrated and diversified oilfield services, including the provision of rigs and operational and maintenance crew.  Its most substantial business is the lease of five state-of-the-art drilling rigs, which it operates in the Gulf of Mexico.  The five rigs are each owned by separate Singapore-incorporated subsidiaries of the Issuer (each, a "Rig Owner").  As the ultimate holding company of the Group, the most substantial asset of Integradora is its investment in the Issuer.

The business structure of the Group revolves around three key relationships: (a) bareboat charter agreements executed between each of the Rig Owners and Perforadora, a wholly-owned subsidiary of Integradora, as charterer, (b) lease agreements for each of the rigs executed between Perforadora, as lessor, and Petróleos Mexicanos ("Pemex"), Mexico's national petroleum company, as lessee, and (c) agreements executed with other entities within the Group for the provision of goods and services for the operation, maintenance and conservation of the rigs.

The Group's recent financial difficulties are known to the addressees of this Response.  In an effort to create a sustainable capital structure in light of these difficulties, the Group announced a debt restructuring proposal to the Bondholders in August 2017 designed to allow Bondholders to retain their senior position in the capital structure with significant downside protection and upside opportunity.  The Ad Hoc Group unreasonably refused to engage with the Group regarding a potential restructuring, and instead pressured the Group to accept a proposal from Pemex that was not in the best interests of the Group—or the Bondholders—without concurrent changes to its capital structure.

b.       Perforadora Concurso Proceeding; Illegal Actions by Ad Hoc Group

On 11 September 2017, Perforadora filed voluntary judicial reorganization proceedings pursuant to the Ley de Concursos Mercantiles in the Mexican Court.  The purpose of these proceedings was to preserve the operations and activities of Perforadora in the ordinary course of business and to provide the necessary breathing room to reach a value-maximizing solution for the company and its stakeholders, including the Bondholders.

On 25 September 2017, the Bond Trustee issued a notice of default to the Issuer alleging that Perforadora's voluntary commencement of Concurso proceedings amounted to an event of default under the terms of the Bond Agreement; accordingly, the Bond Trustee relied on a provision of the Bond Agreement that is void as a matter of Mexican law.  On that same day, the Bond Trustee sent a second letter purporting to exercise its rights under the Bond Agreement to remove the then-directors of the Issuer and each of the Rig Owners and replace them with directors appointed by the Bond Trustee.

The next day, Perforadora's solicitors in Mexico, Guerra Gonzalez y Asociados, S.C., informed the Bond Trustee by way of letter that the actions taken by the Bond Trustee to issue a notice of default and to remove and replace the board of directors of the Issuer and the Rig Owners was in violation of Article 87 of the Ley de Concursos Mercantiles and, accordingly, were ineffective.

c.       Integradora, the Issuer, and the Rig Owners File Concurso Proceedings

On 29 September 2017, Integradora, the Issuer, and each Rig Owner filed voluntary Concurso proceedings in the Mexican court.

Integradora was admitted into Concurso by the Mexican Court on 6 November 2017, and the Mexican Court granted certain injunctions in favor of Integradora at that time.

The petitions filed by the Issuer and the Rig Owners remain pending as a result of actions taken by individuals unlawfully appointed as directors and/or attorneys in fact of these entities by the Bond Trustee at the direction of the Ad Hoc Group purporting to withdraw the insolvency filings on behalf of the Issuer and the Rig Owners.

As a result of the purported withdrawal of the insolvency filings, Integradora, Perforadora, the Issuer and the Rig Owners filed a motion: (i) to declare the inefficacy of all actions taken by the Bond Trustee and the individuals unlawfully appointed as directors and/or attorneys in fact of the Issuer and the Rig Owners, and (ii) to seek payment of punitive damages.  This motion was brought against the Bond Trustee, OND Pte. Ltd. and the individuals purportedly appointed as new directors of the Issuer and the Rig Owners and, as of today, it has been admitted and is being heard by the court.

2.       THE PROPOSAL VIOLATES MEXICAN LAW AND PUBLIC POLICY

The Proposal would result in the Issuer – Integradora's most valuable asset – incurring up to $75 million of additional debt for no discernible business purpose and, without a doubt, in worsening the financial position of the Issuer itself.  If the purpose of the Liquidity Bonds is to fund a "litigation war chest" to be deployed against Integradora and its affiliates and subsidiaries, that is certainly improper.

Moreover, the purported new Board of the Issuer and the Rig Owners was installed illegally, in contravention of Mexican law and public policy, and so has no corporate authority to enact the Proposal, incur the Liquidity Bond debt, or engage AMA Capital or other advisors.

Integradora, Perforadora, the Issuer and the Rig Owners will continue to pursue their actions against the Bond Trustee and the Ad Hoc Group for violations of applicable Mexican law, of which the Proposal is the latest example.  The Bond Trustee, the Ad Hoc Group and the purported new Board of the Issuer are on notice that violations of Mexican Concurso and other applicable law and Mexican public policy may result in damages and additional punitive damages, which in this case could total hundreds of millions of dollars.

3.       CONCLUSION

Integradora hereby submits this Response to the Summons and requests that the Bond Trustee, the Ad Hoc Group and the purported new Board of the Issuer cease to take any actions in furtherance of the Proposal.

About Oro Negro

Founded in 2012, Integradora de Servicios Petroleros Oro Negro, S.A.P.I. de C.V. (Oro Negro) is a leading Mexican company that provides integrated and diversified oilfield services.

Oro Negro provides full drilling services through its premium assets and well-qualified employees. The Company owns five state-of-the-art jack-up rigs; these are under contract with Pemex for drilling operations in the Gulf of Mexico.

¹ Capitalized terms used herein shall have the meaning assigned to them in the Bond Agreement or the Summons unless otherwise defined herein.

SOURCE Oro Negro