Debt

9 Months Ended

Sep. 30, 2023

Debt

Debt

Note 6—Debt

Overview

Outstanding—The aggregate principal amounts and aggregate carrying amounts, including the contractual interest payments of previously restructured debt, a bifurcated compound exchange feature, and unamortized debt-related balances, such as discounts, premiums and issue costs, were as follows (in millions):

	Principal amount				Carrying amount
	September 30,		December 31,		September 30,		December 31,
	2023		2022		2023		2022
0.50% Exchangeable Senior Bonds due January 2023	$	—	$	49	$	—	$	49
5.375% Senior Secured Notes due May 2023		—		243		—		242
5.875% Senior Secured Notes due January 2024		—		352		—		350
7.75% Senior Secured Notes due October 2024		—		240		—		238
6.25% Senior Secured Notes due December 2024		—		250		—		248
6.125% Senior Secured Notes due August 2025		—		336		—		332
7.25% Senior Notes due November 2025		354		354		352		351
4.00% Senior Guaranteed Exchangeable Bonds due December 2025		294		294		276		271
7.50% Senior Notes due January 2026		569		569		567		566
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		—		238		—		265
11.50% Senior Guaranteed Notes due January 2027		687		687		938		1,008
6.875% Senior Secured Notes due February 2027		413		482		409		477
8.00% Senior Notes due February 2027		612		612		609		608
7.45% Notes due April 2027		52		52		52		52
8.00% Debentures due April 2027		22		22		22		22
4.50% Shipyard Loans due September 2027		430		439		390		389
8.375% Senior Secured Notes due February 2028		525		—		517		—
7.00% Notes due June 2028		261		261		264		264
4.625% Senior Guaranteed Exchangeable Bonds due September 2029		300		300		721		440
8.75% Senior Secured Notes due February 2030		1,116		—		1,093		—
7.50% Notes due April 2031		396		396		395		394
6.80% Senior Notes due March 2038		610		610		605		605
7.35% Senior Notes due December 2041		177		177		176		176
Total debt		6,818		6,963		7,386		7,347
Less debt due within one year
0.50% Exchangeable Senior Bonds due January 2023		—		49		—		49
5.375% Senior Secured Notes due May 2023		—		243		—		242
5.875% Senior Secured Notes due January 2024		—		83		—		81
7.75% Senior Secured Notes due October 2024		—		60		—		59
6.25% Senior Secured Notes due December 2024		—		62		—		61
6.125% Senior Secured Notes due August 2025		—		66		—		64
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		—		—		—		6
11.50% Senior Guaranteed Notes due January 2027		—		—		71		70
6.875% Senior Secured Notes due February 2027		83		69		81		67
4.50% Shipyard Loans due September 2027		70		20		55		20
8.75% Senior Secured Notes due February 2030		117		—		113		—
Total debt due within one year		270		652		320		719
Total long-term debt	$	6,548	$	6,311	$	7,066	$	6,628

Scheduled maturities—At September 30, 2023, scheduled maturities of our debt, including the principal installments and other installments, representing the contractual interest payments of previously restructured debt, were as follows (in millions):

	Principal		Other
	installments		installments		Total
Twelve months ending September 30,
2024	$	270	$	71	$	341
2025		420		72		492
2026		1,680		72		1,752
2027		1,902		36		1,938
2028		534		—		534
Thereafter		2,012		—		2,012
Total installments of debt	$	6,818	$	251		7,069
Total unamortized debt-related balances, net						(250)
Bifurcated compound exchange feature, at estimated fair value						567
Total carrying amount of debt					$	7,386

Credit agreement

Secured Credit Facility—As of September 30, 2023, we have a secured revolving credit facility established under a bank credit agreement (as amended from time to time, the “Secured Credit Facility”), which provides us with borrowing capacity of $600 million through its scheduled maturity on June 22, 2025.  We may borrow under the Secured Credit Facility at a forward-looking term rate based on the secured overnight financing rate (“Term SOFR”) plus a margin (the “Secured Credit Facility Margin”) and a Term SOFR spread adjustment of 0.10 percent.  The Secured Credit Facility is subject to permitted extensions and certain early maturity triggers, including if on any date the aggregate amount of scheduled principal repayments of indebtedness, with certain exceptions, due within 91 days thereof is equal to or in excess of $200 million and available cash is less than $250 million.  The Secured Credit Facility permits us to increase the aggregate amount of commitments by up to $250 million.  At September 30, 2023, based on the credit rating of the Secured Credit Facility as of that date, the Secured Credit Facility Margin was 2.875 percent and the facility fee was 0.625 percent.  At September 30, 2023, we had no borrowings outstanding, $13 million of letters of credit issued, and we had $587 million of available borrowing capacity under the Secured Credit Facility.

Exchangeable bonds

Effective interest rates and fair values—At September 30, 2023, the effective interest rates and estimated fair values of our exchangeable bonds were as follows (in millions, except effective interest rates):

	Effective		Fair
	interest rate		value
4.00% Senior Guaranteed Exchangeable Bonds due December 2025		6.9%	$	531
4.625% Senior Guaranteed Exchangeable Bonds due September 2029		18.3%	$	810

We recognized interest expense for our exchangeable bonds as follows (in millions):

	Three months ended				Nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Contractual interest	$	6	$	3	$	19	$	9
Amortization		5		1		15		5
Bifurcated compound exchange feature		93		—		272		—
Total	$	104	$	4	$	306	$	14

We estimated the fair values of the exchangeable debt instruments, including the exchange features, by employing a binomial lattice model using significant other observable inputs, representative of Level 2 fair value measurements, including the terms and credit spreads of our debt and the expected volatility of the market price for our shares.

The 4.625% senior guaranteed exchangeable bonds due September 2029 (the “4.625% Senior Guaranteed Exchangeable Bonds”) contain a compound exchange feature that, in addition to the exchange terms presented below, requires us to pay holders a make-whole premium of future interest through March 30, 2028, for exchanges exercised during a redemption notice period.  Such compound exchange feature must be bifurcated from the host debt instrument since it is not considered indexed to our stock.  Accordingly, we recognize changes to the estimated fair value of the bifurcated compound exchange feature, recorded as a component of the carrying amount of debt, with a corresponding adjustment to interest expense.  At September 30, 2023 and December 31, 2022, the carrying amount of the bifurcated compound exchange feature was $567 million and $295 million, respectively.

Exchange terms—At September 30, 2023, the (a) current exchange rates, expressed as the number of Transocean Ltd. shares per $1,000 note, (b) implied exchange prices per Transocean Ltd. share and (c) aggregate shares, expressed in millions, issuable upon exchange of our exchangeable bonds were as follows:

			Implied
	Exchange		exchange		Shares
	rate		price		issuable
4.00% Senior Guaranteed Exchangeable Bonds due December 2025		190.4762	$	5.25		56.0
4.625% Senior Guaranteed Exchangeable Bonds due September 2029		290.6618	$	3.44		87.2

The exchange rates, presented above, are subject to adjustment upon the occurrence of certain events.  The 4.00% senior guaranteed exchangeable bonds due December 2025 (the “4.00% Senior Guaranteed Exchangeable Bonds”) may be exchanged by holders at any time prior to the close of business on the second business day immediately preceding the maturity date and, at our election, such exchange may be settled by delivering cash, Transocean Ltd. shares or a combination of cash and shares.  The 4.625% Senior Guaranteed Exchangeable Bonds may be exchanged by holders at any time prior to the close of business on the second business day immediately preceding the maturity date or redemption date and, at our election, such exchange may be settled by delivering cash, Transocean Ltd. shares or a combination of cash and shares.

Exchanges—In April 2023, Perestroika exchanged $213 million aggregate principal amount of the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “2.50% Senior Guaranteed Exchangeable Bonds”) under the terms of the governing indenture at the applicable exchange rate of 162.1626 Transocean Ltd. shares per $1,000 note.  As part of the transaction governing the exchange, we delivered 34.6 million Transocean Ltd. shares and additional immaterial cash consideration to such exchanging holder.  The director’s beneficial ownership of our shares resulting from these transactions did not change.

In July 2023, the holders of the remaining outstanding $25 million aggregate principal amount of 2.50% Senior Guaranteed Exchangeable Bonds exchanged such bonds under the terms of the governing indenture at the applicable exchange rate of 162.1626 Transocean Ltd. shares per $1,000 note.  As part of the transaction, we delivered 4.0 million Transocean Ltd. shares.

Subsequent events—In October 2023, holders of $60 million and $41 million aggregate principal amount of the 4.00% Senior Guaranteed Exchangeable Bonds and the 4.625% Senior Guaranteed Exchangeable Bonds, respectively, exchanged such bonds under the terms of the governing indenture at the applicable exchange rate of 190.4762 and 290.6618 Transocean Ltd. shares, respectively, per $1,000 note.  As part of the transactions, we delivered an aggregate 26.5 million Transocean Ltd. shares, including an aggregate 3.1 million additional shares to such holders.

Debt issuance

Senior secured notes—In January 2023, we issued $525 million aggregate principal amount of 8.375% senior secured notes due February 2028 (the “8.375% Senior Secured Notes”), and we received $516 million aggregate cash proceeds, net of issue costs.  The 8.375% Senior Secured Notes are fully and unconditionally, jointly and severally, guaranteed by Transocean Ltd., Transocean Inc. and the subsidiary owner of the ultra-deepwater floater Deepwater Titan.  The 8.375% Senior Secured Notes are secured by the assets and earnings associated with the collateral rig and the equity of the wholly owned subsidiary that owns or operates the collateral rig.  Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.  We may redeem all or a portion of the 8.375% Senior Secured Notes on or prior to February 1, 2025 at a price equal to 100 percent of the aggregate principal amount plus a make whole premium, and subsequently, at specified redemption prices.

In January 2023, we issued $1.175 billion aggregate principal amount of 8.75% senior secured notes due February 2030 (the “8.75% Senior Secured Notes”), and we received $1.148 billion aggregate cash proceeds, net of issue costs.  The 8.75% Senior Secured Notes are fully and unconditionally guaranteed on an unsecured basis by Transocean Ltd. and on a limited senior secured basis by certain of our wholly owned subsidiaries.  The 8.75% Senior Secured Notes are secured by a lien on the ultra-deepwater floaters Deepwater Pontus, Deepwater Proteus and Deepwater Thalassa and the harsh environment floaters Transocean Enabler and Transocean Encourage, together with certain related assets.  Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.  We may redeem all or a portion of the 8.75% Senior Secured Notes on or prior to February 15, 2026 at a price equal to 100 percent of the aggregate principal amount plus a make whole premium, and subsequently, at specified redemption prices.

Subsequent event—In October 2023, we issued $325 million aggregate principal amount of 8.00% senior secured notes due September 2028 (the “8.00% Senior Secured Notes”), and we received $319 million aggregate cash proceeds, net of issue costs.  The 8.00% Senior Secured Notes are fully and unconditionally, jointly and severally, guaranteed by Transocean Ltd., Transocean Inc. and the subsidiary owner of the ultra-deepwater floater Deepwater Aquila.  The 8.00% Senior Secured Notes are secured by the assets and earnings associated with the collateral rig and the equity of the wholly owned subsidiary that owns the collateral rig.  Additionally, we are required to maintain certain balances in a restricted cash account to satisfy debt service requirements.  We may redeem all or a portion of the 8.00% Senior Secured Notes on or prior to September 30, 2025 at a price equal to 100 percent of the aggregate principal amount plus a make-whole premium, and subsequently, at specified redemption prices.

Senior guaranteed exchangeable bonds—In September 2022, we issued $300 million aggregate principal amount of 4.625% Senior Guaranteed Exchangeable Bonds in connection with exchange and purchase agreements.  Pursuant to the exchange and purchase agreements, we exchanged (the “2022 Private Exchange”) (a) $73 million aggregate principal amount of the 0.50% Exchangeable Senior Bonds for (i) $73 million aggregate principal amount of 4.625% Senior Guaranteed Exchangeable Bonds and (ii) 6.7 million warrants to purchase Transocean Ltd. shares, and (b) $43 million aggregate principal amount of the 7.25% senior notes due November 2025 for $39 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds.  Additionally, we sold $188 million aggregate principal amount of the 4.625% Senior Guaranteed Exchangeable Bonds and issued 15.5 million warrants to purchase Transocean Ltd. shares for aggregate cash proceeds of $188 million, net of issue costs.  In the three and nine months ended September 30, 2022, as a result of the 2022 Private Exchange, we recognized a gain of $6 million ($0.01 per diluted share), with no tax effect, associated with the retirement of debt.  See Note 10—Equity.

Early debt retirement

During the nine months ended September 30, 2023 and 2022, we retired certain notes, as a result of repayments, redemptions or private exchanges, for which the aggregate principal amounts, cash payments and recognized gain or loss were as follows (in millions):

	Nine months ended September 30,
	2023		2022
	Redeemed		Redeemed		Exchanged		Total
5.52% Senior Secured Notes due May 2022	$	—	$	18	$	—	$	18
3.80% Senior Notes due October 2022		—		27		—		27
0.50% Exchangeable Senior Bonds due January 2023		—		18		73		91
5.375% Senior Secured Notes due May 2023		243		—		—		—
5.875% Senior Secured Notes due January 2024		311		—		—		—
7.75% Senior Secured Notes due October 2024		240		—		—		—
6.25% Senior Secured Notes due December 2024		250		—		—		—
6.125% Senior Secured Notes due August 2025		336		—		—		—
7.25% Senior Notes due November 2025		—		5		43		48
Aggregate principal amount of debt retired	$	1,380	$	68	$	116	$	184
Aggregate cash payment	$	1,402	$	67	$	—	$	67
Aggregate principal amount of debt issued in exchanges	$	—	$	—	$	112	$	112
Aggregate fair value of warrants issued in exchanges	$	—	$	—	$	5	$	5
Aggregate net gain, three-month period	$	—	$	1	$	6	$	7
Aggregate net gain (loss), nine-month period	$	(32)	$	1	$	6	$	7