Note 3—Emergence from Bankruptcy Proceedings

By order entered on November 2, 2018, the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) confirmed the Company’s Modified Fourth Amended Joint Plan of Reorganization, dated October 31, 2018 (the “Plan of Reorganization”) that had been filed with the Bankruptcy Court in connection with the filing by the Company and certain of its subsidiaries (the “Initial Debtors”) of petitions (the “Bankruptcy Petitions”) on November 12, 2017 (the “Petition Date”) with the Bankruptcy Court seeking relief under Chapter 11 of Title 11 of the United States Code (the “Bankruptcy Code”). On November 19, 2018 (the “Plan Effective Date”), the Company and the Initial Debtors other than the Zonda Debtors (described below) (the “Debtors”) emerged from bankruptcy after successfully completing their reorganization pursuant to the Plan of Reorganization. The Company’s two subsidiaries involved in the arbitration with Samsung Heavy Industries Co. Ltd. (“SHI”) related to the Pacific Zonda, Pacific Drilling VIII Limited and Pacific Drilling Services, Inc. (together, the “Zonda Debtors”), filed a separate plan of reorganization that was confirmed by order of the Bankruptcy Court on January 30, 2019 (the “Zonda Plan”) and are not Debtors under the Plan of Reorganization.

During the bankruptcy proceedings, the Debtors operated as “debtors-in-possession” in accordance with applicable provisions of the Bankruptcy Code.

Upon emergence of the Company from bankruptcy on November 19, 2018 in accordance with the Plan of Reorganization:

The Company’s pre-petition 2013 senior secured revolving credit facility (the “2013 Revolving Credit Facility”) and a senior secured credit facility (the “SSCF”), and post-petition debtor-in-possession financing were repaid in full;

Holders of the Company’s loans under a 2018 senior secured institutional term loan facility (the “Term Loan B”), 2017 senior secured notes (the “2017 Notes”) and 2020 senior secured notes (the “2020 Notes”) received an aggregate of 24,416,442 common shares (or, approximately 32.6% of the outstanding shares) in exchange for their claims;

The Company issued an aggregate of 44,174,136 common shares (or, approximately 58.9% of the outstanding shares) to holders of Term Loan B, 2017 Notes and 2020 Notes who subscribed in the Company’s $460.0 million equity rights offering;

The Company issued 3,841,229 common shares (or, approximately 5.1% of the outstanding shares) to Quantum Pacific Gibraltar Limited (“QP”) in a $40.0 million private placement;

The Company issued 2,566,056 common shares (or, approximately 3.4% of the outstanding shares) to members of an ad hoc group of holders of the Term Loan B, 2017 Notes and 2020 Notes (the “Ad Hoc Group”) in payment of their fee for backstopping the equity rights offering;

The Company issued approximately 7.5 million common shares to Pacific Drilling Administrator Limited, a wholly owned subsidiary of the Company that serves as administrator of the Company’s 2018 Omnibus Stock Incentive Plan (the “2018 Stock Plan”), adopted by the board of directors, and which shares were reserved for issuance under the 2018 Stock Plan;

Existing holders of the Company’s common shares received no recovery and were diluted by the issuances of common shares under the Plan of Reorganization such that they held in the aggregate less than 0.003% of the Company’s common shares outstanding upon emergence from bankruptcy; and

The undisputed claims of other unsecured creditors such as clients, employees and vendors were paid in full in the ordinary course of business.

Prior to the issuance of the shares described above, the Company effected a 1-for-10,000 reverse stock split (the “Reverse Stock Split”).

As a result of the Reverse Stock Split and the issuances of common shares described above, the Company had issued and outstanding on the Plan Effective Date approximately 75.0 million common shares, and approximately 7.5 million shares were reserved for issuance pursuant to the 2018 Stock Plan.

In addition, pursuant to the Plan of Reorganization, on September 26, 2018 bankruptcy-remote subsidiaries of the Company issued, and on November 19, 2018 such subsidiaries merged with the Company and the Company assumed (the “Notes Assumption”):

$750.0 million in aggregate principal amount of 8.375% First Lien Notes due 2023, secured by first-priority liens on substantially all assets of the Debtors (the “First Lien Notes”); and

$273.6 million in aggregate principal amount of 11.0% / 12.0% Second Lien PIK Notes due 2024, secured by second-priority liens on substantially all assets of the Debtors (the “Second Lien PIK Notes”). Approximately $23.6 million aggregate principal amount was issued as a commitment fee to the Ad Hoc Group for their agreement to backstop the issuance of the Second Lien PIK Notes.

Concurrent with the Notes Assumption, all of the Company’s subsidiaries other than the Zonda Debtors, certain immaterial subsidiaries and PIDWAL guaranteed on a senior secured basis the First Lien Notes and Second Lien PIK Notes. If the Zonda Debtors are successful in their appeal of the Tribunal’s award, they will guarantee the First Lien Notes and Second Lien PIK Notes and the Revolving Credit Facility (see Note 23) upon their emergence from bankruptcy pursuant to the terms of the Zonda Plan. If the Zonda Debtors are unsuccessful in the appeal, the Company expects that the Zonda Debtors will be liquidated in accordance with the terms of the Zonda Plan and the Zonda Debtors would not guarantee the First Lien Notes, Second Lien PIK Notes or the Revolving Credit Facility. See Note 16 for further discussion.

We have classified all income, expenses, gains or losses that were incurred or realized as a result of the Chapter 11 proceedings as reorganization items in our consolidated statements of operations. The components of reorganization items are as follows:


	Successor				Predecessor
			Period From		Period From
	Year Ended		November 20, 2018		January 1, 2018		Year Ended
	December 31,		through		through		December 31,
	2019		December 31, 2018		November 19, 2018		2017
(in thousands)
Professional fees	$	1,975	$	1,300	$	82,787	$	6,447
Gain on the settlement of liabilities subject to compromise		—		—		(794,218)		—
Discharge of claims upon emergence from bankruptcy		—		—		(80)		—
Revision of estimated claims		—		—		—		27
Escrow interest income		—		—		(2,940)		—
Fresh start accounting adjustments		—		—		2,514,115		—
Total reorganization items	$	1,975	$	1,300	$	1,799,664	$	6,474