Fresh Start Accounting (Tables)

6 Months Ended

Jun. 30, 2021

Fresh Start Balance Sheet [Abstract]

Schedule of Reconciles Enterprise Value to Estimated Fair Value of Successor's Equity

The following table reconciles the enterprise value to the estimated fair value of the Successor’s equity as of the Effective Date (in thousands):

	April 23,
	2021
Enterprise value	$	1,130,000
Plus: Cash and cash equivalents		79,982
Plus: Deferred tax assets and uncertain tax positions		10,810
Less: Fair value of debt		(285,982	)
Fair value of Successor equity	$	934,810

Schedule of Reconciles Enterprise Value to Reorganization Value of Successors Equity

The following table reconciles enterprise value to the reorganization value of the Successor (i.e., value of the reconstituted entity) as of the Effective Date (in thousands):

	April 23,
	2021
Enterprise value	$	1,130,000
Plus: Cash and cash equivalents		79,982
Plus: Non-interest bearing current liabilities		225,637
Plus: Non-interest bearing non-current liabilities		276,418
Plus: Deferred tax assets and uncertain tax positions		10,810
Reorganization value of Successor assets	$	1,722,847

Schedule of Effects on Consolidated Balance Sheet Due to Reorganization and Fresh Start Accounting Adjustments

The following illustrates the effects on the Company’s consolidated balance sheet due to the reorganization and fresh start accounting adjustments. The explanatory notes following the table below provide further details on the adjustments, including the assumptions and methods used to determine fair value for its assets, liabilities, and warrants. Unless otherwise indicated, dollar amounts are stated in thousands.

	April 23, 2021
				Transaction Accounting
	Predecessor			Reorganization Adjustments				Fresh Start Adjustments				Successor
ASSETS
Current assets:
Cash and cash equivalents	$	333,699		$	(253,717	)	(a)	$	—			$	79,982
Restricted cash		3,274			32,173		(b)		—				35,447
Accounts receivable		134,104			—				802		(r)		134,906
Less: allowance for credit losses		(5,555	)		—				—				(5,555	)
Accounts receivable, net		128,549			—				802				129,351
Prepaid expenses and other current assets		108,594			(15,484	)	(c)		(34,455	)	(s)		58,655
Assets held for sale		1,000			—				—				1,000
Total current assets		575,116			(237,028	)			(33,653	)			304,435
Drilling and other property and equipment, net of
accumulated depreciation		3,892,150			182,985		(d)		(2,720,485	)	(t)		1,354,650
Other assets		179,783			(112,454	)	(e)		(10,282	)	(u)		57,047
Deferred tax asset		—			—				6,716		(r)		6,716
Total assets	$	4,647,049		$	(166,497	)		$	(2,757,704	)		$	1,722,848
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	66,397		$	(996	)	(f)	$	—			$	65,401
Accrued liabilities		246,141			(67,125	)	(g)		(55,961	)	(v)		123,055
Short-term debt		442,034			(442,034	)	(h)		—
Finance lease right-of-use liabilities, current		—			15,148		(i)		—				15,148
Taxes payable		22,034			—				—				22,034
Total current liabilities		776,606			(495,007	)			(55,961	)			225,638
Deferred tax liability		23,060			3,869		(j)		(34,447	)	(w)		—
									7,518		(r)
Other liabilities		217,434			(90,098	)	(k)		(9,837	)	(x)		117,499
Finance lease right-of-use liabilities, noncurrent		—			158,919		(l)		—				158,919
Long-term debt		—			285,982		(m)		—				285,982
Total liabilities not subject to compromise		1,017,100			(136,335	)			(92,727	)			788,038
Liabilities subject to compromise		2,044,877			(2,044,877	)	(n)		—				—
Stockholders’ equity:
Predecessor preferred stock		—			—				—				—
Predecessor common stock		1,453			(1,453	)	(o)		—				—
Predecessor additional paid-in capital		2,029,978			(2,029,978	)	(o)		—				—
Predecessor treasury stock		(206,163	)		206,163		(o)		—				—
Successor preferred stock		—			—				—				—
Successor common stock		—			10		(p)		—				10
Successor additional paid-in capital		—			934,800		(p)		—				934,800
Successor treasury stock		—			—				—				—
Accumulated deficit		(240,196	)		2,905,173		(q)		(2,664,977	)	(y)		—
Total stockholders’ equity		1,585,072			2,014,715				(2,664,977	)			934,810
Total liabilities and stockholders’ equity	$	4,647,049		$	(166,497	)		$	(2,757,704	)		$	1,722,848

Reorganization Adjustments

(a) Reflects the net cash payments that occurred on the Effective Date as follows:

	April 23, 2021
Funding of professional fee escrow account	$	(35,003	)
Payment of non-retained professional fees		(14,087	)
Payment of Predecessor revolving credit facility, including accrued interest		(479,627	)
Proceeds from Exit Facilities		200,000
Receipt of cash from the issuance of Exit Notes through primary Private Placement and primary Rights Offering		75,000
Change in cash and cash equivalents	$	(253,717	)

(b) Reflects the change in restricted cash for the following activities:

	April 23, 2021
Funding of professional fee escrow account	$	35,003
Payment of key employee incentive plan holdback escrow account		(1,697	)
Payment of pre-petition trade claims		(1,133	)
Change in restricted cash	$	32,173

(c) Reflects the changes in prepaid expenses and other current assets for the following activities:

	April 23, 2021
Reduction of prepaid expense for success fees	$	(1,095	)
Reclassification of debt issuance costs to other assets and long-term debt		(10,328	)
Reclassification of payment-in-kind upfront fee related to the Exit RCF to other assets		(3,478	)
Write-off of Predecessor directors and officers tail insurance policy		(583	)
Change in prepaid expenses and other current assets	$	(15,484	)

(d) As a result of an amendment that became effective on the Effective Date, the BOP leases were recharacterized from operating leases to finance leases pursuant to ASC Topic 842, Leases (or ASC 842). The impact of the recharacterization resulted in the reclassification of the ROU asset of $116.2 million from “Other assets” into “Drilling and other property and equipment.” The value of the BOP ROU assets and the corresponding finance lease liabilities after the amendment were increased by an adjustment of $66.8 million in accordance with the modification guidance of ASC 842.

(e) Reflects the changes in other assets for the following activities:

	April 23, 2021
Reclassification of BOP lease asset to drilling and other property and equipment	$	(116,242	)
Reclassification of payment-in-kind upfront fee related to the Exit RCF from prepaid expenses and other current assets		3,478
Record debt issuance costs related to the Exit RCF		6,659
Write-off of Predecessor directors and officers tail insurance policy		(6,349	)
Change in other assets	$	(112,454	)

(f) Reflects the $1.0 million reduction in accounts payable for the payment of pre-petition trade claims and associated post-petition interest related to general unsecured claims.

(g) Reflects the changes in accrued liabilities for the following activities:

	April 23, 2021
Record accrued liability related to success fees	$	10,699
Record accrued liability related to a bonus accrual under the amended BOP services agreement		831
Reclassification of BOP short-term lease liability into a finance lease		(17,225	)
Payment of non-retained professional fees		(8,762	)
Payment of key employee incentive plan holdback awards		(1,697	)
Payment of accrued interest related to Predecessor revolving credit facility		(37,593	)
Reclassification of payment-in-kind upfront fee into the Exit RCF		(3,478	)
Reclassification of backstop commitment premium to payment-in-kind Exit Notes		(9,900	)
Change in accrued liabilities	$	(67,125	)

(h) Reflects the changes in short-term debt for the following activities:

	April 23, 2021
Record Predecessor revolving credit facility cash paydown of principal	$	(242,034	)
Reflects payment in full of the borrowings outstanding under the Predecessor RCF on the Effective Date		(200,000	)
Change in short-term debt	$	(442,034	)

(i) Reflects the reclassification of the current BOP operating lease liability to a finance lease of $17.2 million, net of the modification pursuant to ASC 842 of the current BOP finance lease liability of $2.1 million.

(j) Reflects the adjustment to deferred taxes of $3.9 million due to the step plan adjustments recorded as a result of the Plan.

(k) Reflects the reclassification of the non-current BOP operating lease liability to a finance lease of $(90.1) million.

(l) Reflects the reclassification of the non-current BOP operating lease liability to a finance lease of $90.1 million and the modification of the non-current BOP finance lease liability of $68.8 million pursuant to ASC 842.

(m) Reflects the changes in long-term debt for the following activities:

	April 23, 2021
Borrowings drawn under the Exit Facilities	$	200,000
Record payment-in-kind upfront fee related to the Exit RCF		3,478
Issuance of Exit Notes for cash		75,000
Record 1% premium associated with Exit Notes		749
Record backstop commitment premium to payment-in-kind Exit Notes		10,424
Record debt issuance costs related to Exit Term Loans and Exit Notes		(3,669	)
Change in long-term debt	$	285,982

(n) Liabilities subject to compromise were settled as follows in accordance with the Plan:

	April 23, 2021
Senior Notes Claims	$	2,044,877
Total settled liabilities subject to compromise		2,044,877
Issuance of New Diamond Common Shares to holders of Senior Notes Claims		(639,965	)
Issuance of New Diamond Common Shares to participants of the Rights Offering and Private Placements		(274,271	)
Record 1% premium associated with Exit Notes		(749	)
Pre-tax gain on settlement of liabilities subject to compromise	$	1,129,892

(o) Reflects the cancelation of the Predecessor’s common stock, treasury stock and related components of the Predecessor’s additional paid-in capital.

(p) The following reconciles reorganization adjustments made to the Successor’s common stock and Successor’s additional paid-in capital:

	April 23, 2021
Fair value of New Diamond Common Shares issued to holders of Senior Notes Claims	$	914,236
Fair value of Emergence Warrants issued to Predecessor equity holders		20,574
Total change in Successor common stock and additional paid-in capital		934,810
Less: Par value of Successor common stock		(10	)
Successor additional paid-in capital	$	934,800

(q) Reflects the cumulative net impact of the effects on accumulated deficit as follows:

	April 23, 2021
Success fee recognized on the Effective Date	$	(17,120	)
Pre-tax gain on settlement of liabilities subject to compromise		1,129,892
Backstop commitment expense to record difference between accrued termination fee and issuance of payment-in-kind Exit Notes upon emergence		(524	)
Write-off of Predecessor directors and officers tail insurance policy		(6,932	)
Other emergence effects		(137	)
Expense related to bonus accrual under BOP services agreement		(831	)
Cancellation of Predecessor common stock, additional paid-in capital and treasury stock		1,825,268
Issuance of Emergence Warrants to Predecessor equity holders		(20,574	)
Change in deferred tax as a result of step plan adjustments		(3,869	)
Change in accumulated deficit	$	2,905,173

Fresh Start Adjustments

(r) Reclassification of a net debit in the “Deferred tax liability” account to “Deferred tax asset” after the adjustment pursuant to ASC 740 based on the impact of the tax effects of the reorganization and the fair value ascribed to the enterprise upon emergence, with a portion classified to “Accounts receivable” based on the expected amount to be received from the amended tax return.

(s) Reflects the write-off of current deferred contract assets of $(27.3) million, as there is no future benefit to be recognized by the Successor, and the fair value adjustment of $(7.2) million to rig spare parts and supplies.

(t) Reflects the fair value adjustment to “Drilling and other property and equipment” and the elimination of accumulated depreciation of $(2,712.1) million. In addition, the adjustment reflects the fair value adjustment of $(8.4) million to the BOP finance lease assets by setting the ROU assets equal to the ROU liabilities less the prepaid amounts. Refer to the valuation procedures set forth above with respect to valuing the rigs and related equipment.

(u) Reflects the fair value adjustments to “Other assets” for the following:

	April 23, 2021
Write-off of long-term contract assets	$	(10,029	)
Fair value adjustment to set asset equal to ROU liability for other operating leases		(1,998	)
Fair value adjustment to true-up other operating leases to reflect the IBR at the Effective Date		1,745
Change in other assets	$	(10,282	)

(v) Reflects the write-off of current deferred contract liabilities of $(56.4) million as there is no future obligation to be performed by the Successor and the fair value adjustment of $0.4 million to current other lease liabilities because of the impact of applying the IBR at the Effective Date at emergence.

(w) Reflects the adjustment to deferred taxes of $(34.4) million pursuant to ASC 740 based on the impact of the tax effects of the reorganization, inclusive of the Successor company’s tax basis, and the fair value ascribed to the enterprise upon emergence.

(x) Reflects the write-off of non-current deferred contract liabilities of $(11.1) million as there is no future obligation to be performed by the Successor and the fair value adjustment of $1.3 million to non-current other lease liabilities.

(y) Reflects the cumulative effect of the fresh start accounting adjustments discussed above.