The ultimate fate of Transocean (RIG) shareholders may be determined in the next two months. That determination may have little to do with the economy or supply and demand in the off-shore drilling market. Instead, it will depend on legal analysis of a few indenture provisions.

Exchange Transactions

This is the situation Transocean finds itself in after entering into exchange transactions to reduce its outstanding debt amount and extend its debt maturities in an effort to stave off bankruptcy. In response to the exchange offer, Whitebox Advisors LLC and other owners of Transocean’s so-called “priority guarantee notes,” which are structurally senior to the company’s other unsecured notes, have sued Transocean to challenge the consummation of the exchange offer, arguing that the exchange offer, and the reorganization necessary for it, constitute a default under the indentures governing the priority guarantee notes.

Transocean has requested that the court hear its motion for summary judgment prior to December 1, 2020, which is the date that the cure period for the alleged default would expire. The challenging funds own more than 25% of one of the series of notes, the threshold for accelerating upon an Event of Default. These funds have delivered Transocean a notice that would automatically accelerate if the alleged default is not cured by December 1st, which is the end of the cure period. As a practical matter, Transocean cannot cure the alleged default as that would require undoing the exchange transaction. As such, Transocean’s only hope of avoiding bankruptcy at this stage is either (i) to win summary judgment from the court denying Whitebox’s claim that the transaction constituted a default or (ii) settle with the funds, in each case prior to December 1st.

The Alleged Default

The actual claim of default is quite interesting. Whitebox