Debt

9 Months Ended

Sep. 30, 2020

Debt

Debt

Note 7—Debt

Overview

Outstanding debt—The aggregate principal amounts and aggregate carrying amounts, net of debt-related balances, including unamortized discounts, premiums, issue costs and fair value adjustments of our debt, were as follows (in millions):

	Principal amount				Carrying amount
	September 30,		December 31,		September 30,		December 31,
	2020		2019		2020		2019
6.50% Senior Notes due November 2020	$	191	$	206	$	191	$	206
6.375% Senior Notes due December 2021		116		222		116		221
5.52% Senior Secured Notes due May 2022		134		200		133		198
3.80% Senior Notes due October 2022		37		190		37		189
0.50% Exchangeable Senior Bonds due January 2023		463		863		462		862
5.375% Senior Secured Notes due May 2023		504		525		498		518
9.00% Senior Notes due July 2023		—		714		—		701
5.875% Senior Secured Notes due January 2024		585		667		576		656
7.75% Senior Secured Notes due October 2024		390		420		383		412
6.25% Senior Secured Notes due December 2024		406		437		400		430
6.125% Senior Secured Notes due August 2025		468		534		460		525
7.25% Senior Notes due November 2025		543		750		535		737
7.50% Senior Notes due January 2026		569		750		565		743
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		238		—		277		—
11.50% Senior Guaranteed Notes due January 2027		687		—		1,139		—
6.875% Senior Secured Notes due February 2027		550		550		542		541
8.00% Senior Notes due February 2027		612		—		606		—
7.45% Notes due April 2027		52		88		51		86
8.00% Debentures due April 2027		22		57		22		57
7.00% Notes due June 2028		261		300		266		306
7.50% Notes due April 2031		396		588		394		585
6.80% Senior Notes due March 2038		610		1,000		605		991
7.35% Senior Notes due December 2041		177		300		176		297
Total debt		8,011		9,361		8,434		9,261
Less debt due within one year
6.50% Senior Notes due November 2020		191		206		191		206
5.52% Senior Secured Notes due May 2022		92		88		91		87
5.375% Senior Secured Notes due May 2023		31		16		29		14
5.875% Senior Secured Notes due January 2024		83		83		80		79
7.75% Senior Secured Notes due October 2024		60		60		58		58
6.25% Senior Secured Notes due December 2024		62		62		60		60
6.125% Senior Secured Notes due August 2025		66		66		64		64
2.50% Senior Guaranteed Exchangeable Bonds due January 2027		—		—		6		—
11.50% Senior Guaranteed Notes due January 2027		—		—		61		—
Total debt due within one year		585		581		640		568
Total long-term debt	$	7,426	$	8,780	$	7,794	$	8,693

Scheduled maturities—At September 30, 2020, the scheduled maturities of our debt, including the principal installments and other installments, representing the undiscounted projected interest payments of debt exchanged, were as follows (in millions):

	Principal		Other
	installments		installments		Total
Twelve months ending September 30,
2021	$	585	$	67	$	652
2022		561		76		637
2023		1,249		76		1,325
2024		608		77		685
2025		593		77		670
Thereafter		4,415		117		4,532
Total installments of debt	$	8,011	$	490		8,501
Total debt-related balances, net						(67)
Total carrying amount of debt					$	8,434

Secured Credit Facility—We have a $1.3 billion secured revolving credit facility, established under a bank credit agreement, as amended (the “Secured Credit Facility”), which is scheduled to expire on June 22, 2023.  The Secured Credit Facility is guaranteed by Transocean Ltd. and certain wholly owned subsidiaries.  We may borrow under the Secured Credit Facility at either (1) the reserve adjusted London interbank offered rate plus a margin (the “Secured Credit Facility Margin”), which ranges from 2.625 percent to 3.375 percent based on the credit rating of the Secured Credit Facility, or (2) the base rate specified in the credit agreement plus the Secured Credit Facility Margin, minus one percent per annum.  Throughout the term of the Secured Credit Facility, we pay a facility fee on the amount of the underlying commitment which ranges from 0.375 percent to 1.00 percent based on the credit rating of the Secured Credit Facility.  At September 30, 2020, based on the credit rating of the Secured Credit Facility on that date, the Secured Credit Facility Margin was 3.375 percent and the facility fee was 0.875 percent.  At September 30, 2020, we had no borrowings outstanding, $30 million of letters of credit issued, and we had $1.3 billion of available borrowing capacity under the Secured Credit Facility.  See Note 10—Contingencies.

Interest rate adjustments—The interest rates for certain of our notes are subject to adjustment from time to time upon a change to the credit rating of our non-credit enhanced senior unsecured long-term debt.  As of September 30, 2020, the interest rate in effect for the 6.375% senior notes due December 2021 (the 6.375% Senior Notes”), 3.80% senior notes due October 2022 (the “3.80% Senior Notes”) and the 7.35% senior notes due December 2041 was 8.375 percent, 5.80 percent and 9.35 percent, respectively.

Exchangeable bonds—The 0.50% exchangeable senior bonds due January 30, 2023 (the “0.50% Exchangeable Bonds”) may be converted at any time prior to the close of business on the business day immediately preceding the maturity date at a current exchange rate of 97.29756 Transocean Ltd. shares per $1,000 note, which implies a conversion price of $10.28 per share, subject to adjustment upon the occurrence of certain events.

Debt issuances

Guaranteed senior unsecured notes—On January 17, 2020, we issued $750 million aggregate principal amount of 8.00% senior unsecured notes due February 2027 (the “Existing 2027 Guaranteed Notes”), and we received aggregate cash proceeds of $743 million, net of issue costs.  The Existing 2027 Guaranteed Notes are fully and unconditionally guaranteed by Transocean Ltd. and certain wholly owned subsidiaries of Transocean Inc.  Such notes rank equal in right of payment to all of our existing and future unsecured unsubordinated obligations.  The Existing 2027 Guaranteed Notes are structurally subordinated to the 2.50% senior guaranteed exchangeable bonds due January 2027 (the “Senior Guaranteed Exchangeable Bonds”) and the 11.50% senior guaranteed notes due January 2027 (the “11.50% Senior Guaranteed Notes”) and are structurally senior to the outstanding legacy unsecured debt securities that were issued prior to 2016 by Transocean Inc. and guaranteed by Transocean Ltd. (collectively, the “Legacy Unsecured Notes”) and the 0.50% Exchangeable Bonds, in each case to the extent of the value of the assets of the subsidiaries guaranteeing the notes.  We may redeem all or a portion of the Existing 2027 Guaranteed Notes on or prior to February 1, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision, and subsequently, at specified redemption prices.  The indenture that governs the Existing 2027 Guaranteed Notes contains covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, engage in certain sale and lease back transactions covering any of our drilling units, allow our subsidiaries to incur certain additional debt, and consolidate, merge or enter into a scheme of arrangement qualifying as an amalgamation.

Senior guaranteed exchangeable bonds—On August 14, 2020, we issued $238 million aggregate principal amount of Senior Guaranteed Exchangeable Bonds in non-cash private exchanges for $397 million aggregate principal amount of the 0.50% Exchangeable Bonds (collectively, the “August 2020 Private Exchange”).  In the three and nine months ended September 30, 2020, as a result of the August 2020 Private Exchange, we recognized a gain of $72 million ($0.12 per diluted share), with no tax effect, associated with the restructuring of debt (see “—Debt restructuring and retirement”).  The Senior Guaranteed Exchangeable Bonds are fully and unconditionally guaranteed by Transocean Ltd. and certain wholly owned indirect subsidiaries of Transocean Inc.  Such notes rank equal in right of payment to all of our existing and future unsecured unsubordinated obligations and are structurally senior to the Legacy Unsecured Notes, the 0.50% Exchangeable Bonds and the 7.25% senior notes due November 2025 (the “Existing 2025 Guaranteed Notes”), the 7.50% Senior Notes due 2026 (the “Existing 2026 Guaranteed Notes” and, collectively with the Existing 2025 Guaranteed Notes and the Existing 2027 Guaranteed Notes, the “Existing Guaranteed Notes”) to the extent of the value of the assets of the subsidiaries guaranteeing the notes.  We may redeem all or a portion of the Senior Guaranteed Exchangeable Bonds (i) on or after August 14, 2022, if certain conditions related to the price of our shares have been satisfied, at a price equal to 100 percent of the aggregate principal amount and (ii) on or after August 14, 2023, at specified redemption prices.  The indenture that governs the Senior Guaranteed Exchangeable Bonds contains covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, engage in certain sale and lease back transactions covering any of our drilling units, allow our subsidiaries to incur certain additional debt, and consolidate, merge or enter into a scheme of arrangement qualifying as an amalgamation.  The indenture that governs the Senior Guaranteed Exchangeable Bonds also requires such bonds to be repurchased upon the occurrence of certain fundamental changes and events, at specified prices depending on the particular fundamental change or event, which include changes and events related to certain (i) change of control events applicable to Transocean Ltd. or Transocean Inc., (ii) the failure of our shares to be listed or quoted on a national securities exchange and (iii) specified tax matters.

The Senior Guaranteed Exchangeable Bonds may be converted at any time prior to the close of business on the second business day immediately preceding the maturity date or redemption date at an initial exchange rate of 162.1626 Transocean Ltd. shares per

$1,000 note, which implies an initial conversion price of $6.17 per share, subject to adjustment upon the occurrence of certain events.  We recorded the conversion feature of the Senior Guaranteed Exchangeable Bonds, measured at its estimated fair value of $46 million, to additional paid-in capital.  We estimated the fair value by employing a binomial lattice model and by using significant other observable inputs, representative of a Level 2 fair value measurement, including the expected volatility of the market price for our shares.  Perestroika AS, an entity affiliated with one of our directors that beneficially owns approximately 10 percent of our shares, exchanged $356 million aggregate principal amount of the 0.50% Exchangeable Bonds for $213 million aggregate principal amount of Senior Guaranteed Exchangeable Bonds.  Perestroika AS has certain registration rights related to its shares and shares that may be issued in connection with any exchange of its Senior Guaranteed Exchangeable Bonds.

Priority guaranteed senior unsecured notes—On September 11, 2020, we issued $687 million aggregate principal amount of 11.50% senior guaranteed notes due January 2027 (the “11.50% Senior Guaranteed Notes”) in non-cash exchange offers, pursuant to an exchange offer memorandum, dated August 10, 2020, as supplemented, for an aggregate principal amount of $1.51 billion of several series of our existing debt securities that were validly tendered and accepted for purchase (the “September 2020 Exchange Offers” and, together with the August 2020 Private Exchange, the “Exchange Transactions”).  In the three and nine months ended September 30, 2020, as a result of the September 2020 Exchange Offers, we recognized a gain of $356 million ($0.58 per diluted share), with no tax effect, associated with the restructuring of debt (see “—Debt restructuring and retirement”).  The 11.50% Senior Guaranteed Notes are fully and unconditionally guaranteed by Transocean Ltd. and certain wholly owned indirect subsidiaries of Transocean Inc.  Such notes rank equal in right of payment to all of our existing and future unsecured unsubordinated obligations and are structurally senior to the Legacy Unsecured Notes, the 0.50% Exchangeable Bonds and the Existing Guaranteed Notes to the extent of the value of the assets of the subsidiaries guaranteeing the notes.  We may redeem all or a portion of the 11.50% Senior Guaranteed Notes prior to July 30, 2023 at a price equal to 100 percent of the aggregate principal amount plus a make-whole provision, and subsequently, at specified redemption prices.  We may also use the net cash proceeds of certain equity offerings by Transocean Ltd. to redeem, on one or more occasions prior to July 30, 2023, up to a maximum of 40 percent of the original aggregate principal amount of the 11.50% Senior Guaranteed Notes, subject to certain adjustments, at a redemption price equal to 111.50 percent of the aggregate principal amount.  The indenture that governs the 11.50% Senior Guaranteed Notes contains covenants that, among other things, limit our ability to incur certain liens on our drilling units without equally and ratably securing the notes, engage in certain sale and lease back transactions covering any of our drilling units, allow our subsidiaries to incur certain additional debt, make certain internal transfers of our drilling units and consolidate, merge or enter into a scheme of arrangement qualifying as an amalgamation.  See Note 10—Contingencies and Note 12—Subsequent Events.

Senior secured notes—On February 1, 2019, we issued $550 million aggregate principal amount of 6.875% senior secured notes due February 2027 (the “6.875% Senior Secured Notes”), and we received aggregate cash proceeds of $539 million, net of discount and issue costs.  The 6.875% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floater Deepwater Poseidon and the equity of the wholly owned subsidiaries that own or operate the collateral rig.  Additionally, we were required to deposit $19 million in restricted cash accounts to satisfy debt service requirements.

On May 24, 2019, we issued $525 million aggregate principal amount of 5.375% senior secured notes due May 2023 (the 5.375% Senior Secured Notes”), and we received aggregate cash proceeds of $517 million, net of discount and issue costs.  The 5.375% Senior Secured Notes are secured by the assets and earnings associated with the ultra-deepwater floaters Transocean Endurance and Transocean Equinox and the equity of the wholly owned subsidiaries that own or operate the collateral rigs.  Additionally, we were required to deposit $14 million in restricted cash accounts to satisfy debt service.

Debt restructuring and retirement

During the nine months ended September 30, 2020 and 2019, we restructured or retired certain notes as a result of redemptions, exchange offers, private exchanges, tender offers and open market repurchases.  We recorded the Exchange Transactions completed in August 2020 and September 2020 under ASC 470-60, Troubled Debt Restructuring by Debtors.

The aggregate principal amounts, cash payments and recognized gain or loss for such transactions were as follows (in millions):

	Nine months ended September 30,
	2020								2019
	Exchanged		Redeemed		Repurchased		Total		Tendered		Repurchased		Total
6.50% Senior Notes due November 2020	$	—	$	—	$	15	$	15	$	57	$	21	$	78
6.375% Senior Notes due December 2021		37		—		68		105		63		41		104
3.80% Senior Notes due October 2022		136		—		16		152		190		22		212
0.50% Exchangeable Senior Bonds due January 2023		397		—		4		401		—		—		—
5.375% Senior Secured Notes due May 2023		—		—		21		21		—		—		—
9.00% Senior Notes due July 2023		—		714		—		714		200		297		497
7.25% Senior Notes due November 2025		207		—		—		207		—		—		—
7.50% Senior Notes due January 2026		181		—		—		181		—		—		—
8.00% Senior Notes due February 2027		138		—		—		138		—		—		—
7.45% Notes due April 2027		35		—		—		35		—		—		—
8.00% Debentures due April 2027		35		—		—		35		—		—		—
7.00% Notes due June 2028		39		—		—		39		—		—		—
7.50% Notes due April 2031		192		—		—		192		—		—		—
6.80% Senior Notes due March 2038		390		—		—		390		—		—		—
7.35% Senior Notes due December 2041		123		—		—		123		—		—		—
Aggregate principal amount restructured or retired	$	1,910	$	714	$	124	$	2,748	$	510	$	381	$	891
Aggregate cash payment	$	9	$	767	$	91	$	867	$	522	$	395	$	917
Aggregate principal amount of debt issued in exchanges	$	925	$	—	$	—	$	925	$	—	$	—	$	—
Aggregate net gain (loss), three months ended September 30,	$	428	$	—	$	21	$	449	$	—	$	(12)	$	(12)
Aggregate net gain (loss), nine months ended September 30,	$	428	$	(65)	$	33	$	396	$	(18)	$	(21)	$	(39)