The explanatory notes provide additional information with regard to the adjustments recorded, the methods used to determine fair value and significant assumptions or inputs. | | | | | | | | | | | | | | | | | | | | | | | | | February 22, 2022 | | February 23, 2022 | (In $ millions) | Predecessor | | Reorganization Adjustments | | Fresh Start Adjustments | | Successor | ASSETS | | | | | | | | Current assets | | | | | | | | Cash and cash equivalents | 262 | | 74 | (a) | — | | 336 | Restricted cash | 135 | | (50) | (b) | — | | 85 | Accounts receivable, net | 169 | | — | | — | | 169 | Amount due from related parties, net | 42 | | — | | — | | 42 | Asset held for sale - current | 63 | | — | | 11 | (k) | 74 | Other current assets | 194 | | (17) | (c) | 20 | (k) | 197 | Total current assets | 865 | | 7 | | 31 | | 903 | Non-current assets | | | | | | | | Investment in associated companies | 81 | | — | | (17) | (l) | 64 | Drilling units | 1,434 | | (175) | (d) | 316 | (m) | 1,575 | Restricted cash | 69 | | — | | — | | 69 | Deferred tax assets | 8 | | — | | 1 | (n) | 9 | Equipment | 11 | | — | | (2) | (o) | 9 | Asset held for sale - non-current | 345 | | — | | (34) | (m,p) | 311 | Other non-current assets | 13 | | — | | 26 | (p) | 39 | Total non-current assets | 1,961 | | (175) | | 290 | | 2,076 | Total assets | 2,826 | | (168) | | 321 | | 2,979 | LIABILITIES AND SHAREHOLDERS'S EQUITY | | | | | | | | Current liabilities | | | | | | | | Trade accounts payable | 53 | | — | | — | | 53 | Liabilities associated with asset held for sale - current | 64 | | — | | — | | 64 | Other current liabilities | 164 | | 52 | (e) | 17 | (q) | 233 | Total current liabilities | 281 | | 52 | | 17 | | 350 | Liabilities subject to compromise | 6,119 | | (6,119) | (f) | — | | — | Liabilities subject to compromise associated with asset held for sale | 118 | | (118) | (f) | — | | — | Non-current liabilities | | | | | | | | Long-term debt | — | | 951 | (g) | — | | 951 | Deferred tax liabilities | 7 | | — | | (1) | (r) | 6 | Liabilities associated with asset held for sale - non-current | 2 | | — | | — | | 2 | Other non-current liabilities | 108 | | — | | 63 | (s) | 171 | Total non-current liabilities | 117 | | 951 | | 62 | | 1,130 | SHAREHOLDERS' EQUITY | | | | | | | | Predecessor common shares of par value | 10 | | (10) | (h) | — | | — | Predecessor additional paid-in capital | 3,504 | | (3,504) | (h) | — | | — | Accumulated other comprehensive loss | (1) | | 1 | (h) | — | | — | Retained (deficit)/earnings | (7,322) | | 7,080 | (i) | 242 | (t) | — | Successor common shares of par value | — | | — | | — | | — | Successor additional paid-in capital | — | | 1,499 | (j) | — | | 1,499 | Total shareholders’ (deficit)/equity | (3,809) | | 5,066 | | 242 | | 1,499 | Total liabilities and shareholders' equity | 2,826 | | (168) | | 321 | | 2,979 |
* The total valuation of drilling units amounts to $1,882 million, of which $1,575 million relates to continuing operations and $307 million relates to discontinued operations. Reorganization Adjustments (a)Reflects the net cash receipts that occurred on the Effective Date as follows: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Receipt of cash from the issuance of the Term Loan Facility | 175 | Receipt of cash from the issuance of the Convertible Bond | 50 | Proceeds from the issuance of the Second Lien Facility | 683 | Settlement of the Prepetition Credit Agreement | (683) | Payment of the AOD cash out option | (116) | Payment of success-based advisor fees | (28) | Payment of the arrangement & financing fee for the Term Loan Facility | (5) | Transfer of cash to restricted cash for the professional fee escrow account funding | (2) | Change in cash and cash equivalents | 74 |
(b)Reflects the net restricted cash payments that occurred on the Effective Date as follows: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Payment of net scrap rig proceeds to holders of Prepetition Credit agreement claims | (45) | Return of cash collateral to SFL for the amended West Linus lease agreement | (7) | Cash transferred from unrestricted cash for the professional fee escrow account funding | 2 | Change in restricted cash | (50) |
(c)Reflects the change in other current assets for the following activities: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Expense of Predecessor Directors & Officers insurance policy | (17) | Expense of the Commitment Premium and other capitalized debt issuance costs | (24) | Recognition of the right-of-use asset associated with the modified West Linus bareboat lease | 24 | Change in other current assets | (17) |
(d)Reflects the change in drilling units for the derecognition of the West Linus of $175 million associated with modification of lease. (e)Reflects the change in other current liabilities: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Accrued liability due to holders of Prepetition Credit agreement claims for sold rig proceeds | 27 | Recognition of lease liability and other accrued liability associated with the amended West Linus lease | 25 | Change in other current liabilities | 52 |
(f)Liabilities subject to compromise were settled as follows in accordance with the Plan: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Senior under-secured external debt | 5,662 | Accounts payable and other liabilities | 35 | Accrued interest on external debt | 34 | Amounts due to SFL Corporation Ltd under leases for the West Taurus and West Linus | 506 | Total liabilities subject to compromise | 6,237 | Attributable to: | | Continuing operations | 6,119 | Discontinued operations | 118 | | | Payment of the AOD cash out option | (116) | Issuance of the Second Lien Facility | (717) | Premium associated with the Term Loan Facility | (9) | Debt issuance costs | (30) | Payment of the rig sale proceeds | (45) | Amounts due to Prepetition Credit agreement claims for sold rig proceeds not yet paid | (27) | Issuance of Shares to holders of Prepetition Credit Agreement claims | (1,244) | Issuance of Shares to the Rights Offering Participants | (187) | Issuance of Shares associated with the Equity Commitment Premium | (64) | Derecognition of West Linus rig and return of cash collateral | (182) | Reversal of the release of certain general unsecured operating accruals | (35) | Pre-tax gain on settlement of liabilities subject to compromise | 3,581 |
(g)Reflects the changes in long-term debt for the following activities: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Issuance of the Term Loan Facility | 175 | Issuance of the Second Lien Facility | 683 | Issuance of the Convertible Bond | 50 | Record the premium on the Term Loan Facility and Second Lien Facility | 43 | Change in long-term debt | 951 |
(h)Reflects the cancellation of the Predecessor’s common shares, additional paid in capital, and accumulated other comprehensive income. (i)Reflects the cumulative net impact on retained loss as follows: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Pre-tax gain on settlement of liabilities subject to compromise | 3,581 | Release of general unsecured operating accruals | 35 | Payment of success fees recognized on the Effective Date | (28) | Expense of Predecessor Directors & Officers insurance policy | (17) | Impact to net income | 3,571 | Cancellation of Predecessor common shares and additional paid in capital | 3,513 | Issuance of Shares to Predecessor equity holders | (4) | Net impact to retained loss | 7,080 | | | | | | |
(j)Reflects the reorganization adjustments made to the Successor additional paid-in capital: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Fair value of Shares issued to holders of Prepetition Credit Agreement claims | 1,456 | Fair value of Shares issued to Predecessor equity holders | 4 | Fair value of the conversion option on the Convertible Bond | 39 | Successor additional paid-in capital | 1,499 |
Fresh Start Adjustments (k)Reflects the fair value adjustment to other current assets for the following: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Record fair value adjustment for favorable drilling and management service contracts | 68 | Write-off of current portion of deferred mobilization costs held at amortized cost | (15) | Off-market right-of-use asset adjustment for the West Hercules and West Linus | (22) | Change in other current assets | 31 | Attributable to: | | Continuing operations | 20 | Discontinued operations | 11 |
(l)Reflects the fair value adjustment to the investments in PES of $14 million and in Sonadrill of $3 million. (m)Reflects the fair value adjustment to drilling units and the elimination of accumulated depreciation. | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Total Fresh start adjustments | 279 | Attributable to: | | Continuing operations | 316 | Discontinued operations | (37) |
(n)Reflects the fair value adjustment to deferred tax assets of $1 million for favorable management contracts. (o)Reflects the fair value adjustment to equipment and the elimination of accumulated depreciation. (p)Reflects fair value adjustment to other non-current assets for the following: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Record fair value adjustment for favorable drilling and management service contracts | 42 | Write-off of non-current portion of historical favorable contracts held at amortized cost | (9) | Write-off of non-current portion of deferred mobilization costs held at amortized cost | (4) | Change in other non-current assets | 29 | Attributable to: | | Continuing operations | 26 | Discontinued operations | 3 |
(q)Reflects the fair value adjustment to other current liabilities for the following: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Record fair value adjustment for unfavorable drilling contracts | 18 | Write-off of current portion of historical unfavorable contracts held at amortized cost | (1) | Change in other current liabilities | 17 |
(r)Reflects the fair value adjustment to deferred tax liabilities of $1 million to write-off previously recognized Fresh Start balances. (s)Reflects the fair value adjustment to other non-current liabilities for the following: | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Record fair value adjustment for unfavorable drilling contracts | 67 | Write-off of non-current portion of historical unfavorable contracts held at amortized cost | (4) | Change in other non-current liabilities | 63 |
(t)Reflects the cumulative impact of the Fresh Start accounting adjustments discussed above. | | | | | | (In $ millions) | February 22, 2022 (Predecessor) | Total Fresh start adjustments | 242 | Attributable to: | | Continuing operations | 266 | Discontinued operations | (24) |
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