Item 2.03. Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.
Forbearance and Amendment to Credit Agreement
As previously disclosed, on November 6, 2015, Hercules Offshore, Inc. (the Company or the Borrower) entered
into a Credit Agreement (the Credit Agreement) among the Company, as borrower, its subsidiaries party thereto, as guarantors, Jefferies Finance LLC, as administrative agent and as collateral agent (in such capacities, the
Agent), and the financial institutions party thereto, as lenders (the Lenders). The Credit Agreement provides for a $450.0 million senior secured credit facility consisting entirely of term loans. A portion of the proceeds
equal to $200.0 million (the Escrowed Amount) was placed into an escrow account pursuant to an Escrow Agreement among the Company, the Agent and Wilmington Trust, National Association (the Escrow Agreement), to be released
pursuant to the terms thereof (the Escrow Conditions). The Escrowed Amount is required to be used to finance the remaining installment payment on the
Hercules Highlander
and the expenses, costs and charges related to the
construction and purchase of the
Hercules Highlander
.
On April 18, 2016, the Company and certain of its subsidiaries
(the Loan Parties) entered into a Forbearance Agreement and First Amendment to the Credit Agreement (the Amendment), with the Agent for itself and certain Lenders designated therein. Pursuant to the Amendment, the Required
Lenders have agreed, during the Forbearance Period (as hereinafter defined), to forbear from exercising their rights and remedies (if any) under the Credit Agreement with respect to the alleged failure by the Borrowers to comply with certain
specified affirmative covenants under the Credit Agreement. Certain Lenders have asserted (but have not given notice under the Credit Agreement) that (i) an Event of Default occurred based on the Borrowers alleged failure to be in
compliance with an affirmative covenant with respect to causing Hercules Offshore Nigeria Limited to deliver the certificate of registration of the vessel mortgage for collateral purposes by April 15, 2016, and (ii) a Default has occurred
based on the Borrowers alleged failure to be in compliance with an affirmative covenant with respect to using best efforts to cause the Gibraltar Guarantor to dissolve, merge or consolidate with or into another Loan Party within the required
time period. The Borrower believes that defenses may exist with respect to the alleged Default and Event of Default and has reserved all rights with respect thereto. Capitalized terms used in this Current Report on Form 8-K and not otherwise defined
herein have the meanings given to such terms in the Credit Agreement, as amended by the Amendment.
The Lenders forbearance under
the Amendment will commence on the date that certain conditions in the Amendment are met and continue until the earlier to occur of: (i) the termination of the Forbearance Period as a result of any Forbearance Default; and
(ii) April 28, 2016, unless otherwise mutually agreed in writing by the Borrower and the Required Lenders (with written notice to the Agent) (the Forbearance Period).
Under the Amendment, the Lenders forbearance is subject to certain conditions as described therein and in the Credit Agreement as
amended thereby. The Amendment further serves to amend the Credit Agreement to, among other matters, clarify the process to be followed for delivery of an officers certificate and release of the Escrowed Amount under the Escrow Agreement.
During the Forbearance Period, as provided in the Amendment, the Company will not be able to receive any of the Escrowed Amount, and
accordingly will not be able to accept delivery of the
Hercules Highlander.
During the Forbearance Period, the Loan Parties and the Lenders who are parties to the Amendment agree to negotiate in good faith an agreement with respect to a
potential recapitalization, business combination or other alternative strategic transaction with respect to the Borrower, including a potential restructuring of the Loans.
The foregoing description of the Amendment is qualified in its entirety by reference to the
Amendment, attached hereto as Exhibit 10.1, and incorporated herein by reference. The material terms of the Credit Agreement described in this Item 2.03, including the foregoing descriptions of the Amendment, are qualified in their entirety by
the Credit Agreement previously filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on November 6, 2015, which is incorporated herein by reference.