XML 25 R11.htm IDEA: XBRL DOCUMENT
v3.22.4

Chapter 11 Proceedings and Ability to Continue as a Going Concern | 12 Months Ended
--- | ---
Dec. 31, 2022
Reorganizations [Abstract] |
Chapter 11 Proceedings and Ability to Continue as Going Concern | CHAPTER 11 PROCEEDINGS Chapter 11 Cases and Emergence from Chapter 11 On the Petition Date, the Debtors filed voluntary petitions for reorganization under chapter 11 of the Bankruptcy Code in the Bankruptcy Court. The Debtors obtained joint administration of the Chapter 11 Cases under the caption In re Valaris plc, et al., Case No. 20-34114 (MI). On March 3, 2021, the Bankruptcy Court confirmed the Debtors' chapter 11 plan of reorganization. On the Effective Date, we successfully completed our financial restructuring and together with the Debtors emerged from the Chapter 11 Cases. Upon emergence from the Chapter 11 Cases, we eliminated $7.1 billion of debt and obtained a $520.0 million capital injection by issuing the first lien secured notes (the "First Lien Notes"). See “Note 8 - Debt" for additional information on the First Lien Notes. On the Effective Date, the Legacy Valaris Class A ordinary shares were cancelled and the Common Shares were issued. Also, former holders of Legacy Valaris' equity were issued Warrants to purchase Common Shares. Below is a summary of the terms of the plan of reorganization: •Appointed six new members to the Company's board of directors to replace all of the directors of Legacy Valaris, other than the director also serving as President and Chief Executive Officer at the Effective Date, who was re-appointed pursuant to the plan of reorganization. All but one of the seven directors became directors as of the Effective Date and one became a director on July 1, 2021. •Obligations under Legacy Valaris's outstanding senior notes (the "Senior Notes") were cancelled and the related indentures were cancelled, except to the limited extent expressly set forth in the plan of reorganization and the holders thereunder received the treatment as set forth in the plan of reorganization; •The Legacy Valaris revolving credit facility (the "Revolving Credit Facility") was terminated and the holders thereunder received the treatment as set forth in the plan of reorganization; •Holders of the Senior Notes received their pro rata share of (1) 38.48%, or 28.9 million, of Common Shares and (2) approximately 97.6% of the subscription rights to participate in the rights offering (the "Rights Offering") through which the Company offered $550.0 million of the First Lien Notes, which includes the backstop premium; •Holders of the Senior Notes who participated in the Rights Offering received their pro rata share of approximately 29.3%, or 22.0 million, of Common Shares, and senior noteholders who agreed to backstop the Rights Offering received their pro rata share of approximately 2.63%, or 2.0 million of Common Shares and approximately $48.8 million in First Lien Notes as a backstop premium; •Certain Revolving Credit Facility lenders ("RCF Lenders") who participated in the Rights Offering received their pro rata share of approximately 0.7%, or 0.5 million Common Shares, RCF Lenders who agreed to backstop the Rights Offering received their pro rata share of 0.07%, or 49,500 of Common Shares and approximately $1.2 million in First Lien Notes as a backstop premium; •Senior noteholders, solely with respect to Pride International LLC's 6.875% senior notes due 2020 and 7.875% senior notes due 2040, Ensco International 7.20% Debentures due 2027, and the 4.875% senior notes due 2022, 4.75% senior notes due 2024, 7.375% senior notes due 2025, 5.4% senior notes due 2042 and 5.85% senior notes due 2044, received an aggregate cash payment of $26.0 million in connection with settlement of certain alleged claims against the Company; •The two RCF Lenders who chose to participate in the Rights Offering received their pro rata share of (1) 5.3%, or 4.0 million Common Shares (2) approximately 2.427% of the First Lien Notes (and associated Common Shares), (3) $7.8 million in cash, and (4) their pro rata share of the backstop premium. The RCF Lenders who entered into the amended restructuring support agreement and elected not to participate in the Rights Offering received their pro rata share of (1) 22.980%, or 17.2 million of Common Shares and (2) $96.1 million in cash; •Holders of general unsecured claims are entitled to receive payment in full within ninety days after the later of (a) the Effective Date and (b) the date such claim comes due; •0.4 million Common Shares were issued and $5.0 million was paid to Daewoo Shipbuilding & Marine Engineering Co., Ltd (the "Shipyard"); •Legacy Valaris Class A ordinary shares were cancelled and holders received 5.6 million in Warrants exercisable for one Common Share per Warrant at initial exercise price of $131.88 per Warrant, in each case as may be adjusted from time to time pursuant to the applicable warrant agreement. The Warrants are exercisable for a period of seven years and will expire on April 29, 2028; •All equity-based awards of Legacy Valaris that were outstanding were cancelled; •On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received Common Shares; •On the Effective Date, Valaris Limited entered into a registration rights agreement with certain parties who received First Lien Notes; and •There were no borrowings outstanding against our debtor-in-possession ("DIP") facility and there were no DIP claims that were not due and payable on, or that otherwise survived, the Effective Date. The DIP Credit Agreement terminated on the Effective Date. Management Incentive Plan In accordance with the plan of reorganization, Valaris Limited adopted the 2021 Management Incentive Plan (the “MIP”) as of the Effective Date and authorized and reserved 9.0 million Common Shares for issuance pursuant to equity incentive awards to be granted under the MIP, which may be in the form of incentive stock options, nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, dividend equivalents and cash awards or any combination thereof. See "Note 11 - Share Based Compensation" for more information on awards granted under the MIP after the Effective date. Liabilities Subject to Compromise The Debtors' pre-petition Senior Notes and related unpaid accrued interest as of the Petition Date were classified as Liabilities Subject to Compromise on our Consolidated Balance Sheets as of December 31, 2020 (Predecessor). The liabilities were reported at the amounts that were expected to be allowed as claims by the Bankruptcy Court. Liabilities subject to compromise at December 31, 2020 (Predecessor) consisted of the following (in millions):
6.875% Senior notes due 2020 |  | $ | 122.9 |
4.70% Senior notes due 2021 |  | 100.7 |
4.875% Senior notes due 2022 |  | 620.8 |
3.00% Exchangeable senior notes due 2024 |  | 849.5 |
4.50% Senior notes due 2024 |  | 303.4 |
4.75% Senior notes due 2024 |  | 318.6 |
8.00% Senior notes due 2024 |  | 292.3 |
5.20% Senior notes due 2025 |  | 333.7 |
7.375% Senior notes due 2025 |  | 360.8 |
7.75% Senior notes due 2026 |  | 1,000.0 |
7.20% Debentures due 2027 |  | 112.1 |
7.875% Senior notes due 2040 |  | 300.0 |
5.40% Senior notes due 2042 |  | 400.0 |
5.75% Senior notes due 2044 |  | 1,000.5 |
5.85% Senior notes due 2044 |  | 400.0 |
Amounts drawn under the Revolving Credit Facility |  | 581.0 |
Accrued Interest on Senior Notes and Revolving Credit Facility |  | 203.5 |
Rig holding costs(1) |  | 13.9 |
Total liabilities subject to compromise |  | $ | 7,313.7 |
(1) Represents the holding costs incurred to maintain VALARIS DS-13 and VALARIS DS-14 in the shipyard. All series of our senior notes, the 7.20% Debentures due 2027 and 2024 Convertible Notes together are referred to as the "Senior Notes". The contractual interest expense on the outstanding Senior Notes and the Revolving Credit Facility was in excess of recorded interest expense by $132.9 million and $140.7 million for the four months ended April 30, 2021 (Predecessor) and for the year ended December 31, 2020 (Predecessor), respectively. This excess contractual interest was not included as interest expense on our Consolidated Statements of Operations as we had discontinued accruing interest on the Predecessor's Senior Notes and Revolving Credit Facility subsequent to the Petition Date. The Predecessor discontinued making interest payments on the Senior Notes beginning in June 2020. Pre-petition Charges We have reported the backstop commitment fee and legal and other professional advisor fees incurred in relation to the Chapter 11 Cases, but prior to the Petition Date, as General and administrative expenses in our Consolidated Statements of Operations for the year ended December 31, 2020 (Predecessor) in the amount of $64.7 million. Reorganization Items Expenditures, gains and losses that are realized or incurred by the Debtors as of or subsequent to the Petition Date and as a direct result of the Chapter 11 Cases are reported as Reorganization items, net in our Consolidated Statements of Operations for the year ended December 31, 2022 (Successor), eight months ended December 31, 2021 (Successor), four months ended April 30, 2021 (Predecessor) and the year ended December 31, 2020 (Predecessor). These costs include legal and other professional advisory service fees pertaining to the Chapter 11 Cases, contract items related to rejecting and amending certain operating leases ("Contract items") and the effects of the emergence from bankruptcy, including the application of fresh start accounting. Additionally, Reorganization items, net for the year ended December 31, 2020 (Predecessor) included all adjustments made to the carrying amount of certain pre-petition liabilities reflecting claims that were expected to be allowed by the Bankruptcy Court and DIP facility fees. The components of reorganization items, net were as follows (in millions):
|  | Successor |  |  | Predecessor
|  | Year Ended December 31, 2022 |  | Eight Months Ended December 31, 2021 |  |  | Four Months Ended April 30, 2021 |  | Year Ended December 31, 2020
Professional fees |  | $ | 2.4 |  |  | $ | 17.2 |  |  |  | $ | 93.4 |  |  | $ | 66.8 |
DIP facility fees |  | — |  |  | — |  |  |  | — |  |  | 20.0 |
Contract items |  | — |  |  | (1.7) |  |  |  | 3.9 |  |  | 4.4 |
Reorganization items (fees) |  | 2.4 |  |  | 15.5 |  |  |  | 97.3 |  |  | 91.2 |
Write-off of unamortized debt discounts, premiums and issuance costs |  | — |  |  | — |  |  |  | — |  |  | 447.9 |
Contract items |  | — |  |  | — |  |  |  | 0.5 |  |  | (11.5) |
Backstop premium |  | — |  |  | — |  |  |  | 30.0 |  |  | — |
Gain on settlement of liabilities subject to compromise |  | — |  |  | — |  |  |  | (6,139.0) |  |  | — |
Issuance of Common Shares for backstop premium |  | — |  |  | — |  |  |  | 29.1 |  |  | — |
Issuance of Common Shares to the Shipyard |  | — |  |  | — |  |  |  | 5.4 |  |  | — |
Write-off of unrecognized share-based compensation expense |  | — |  |  | — |  |  |  | 16.0 |  |  | — |
Impact of newbuild contract amendments |  | — |  |  | — |  |  |  | 350.7 |  |  | — |
Loss on fresh start adjustments |  | — |  |  | — |  |  |  | 9,194.6 |  |  | — |
Reorganization items (non-cash) |  | — |  |  | — |  |  |  | 3,487.3 |  |  | 436.4 |
Total reorganization items, net |  | $ | 2.4 |  |  | $ | 15.5 |  |  |  | $ | 3,584.6 |  |  | $ | 527.6 |
Reorganization items (fees) paid |  | $ | 2.4 |  |  | $ | 14.7 |  |  |  | $ | 59.0 |  |  | $ | 30.0 |
Reorganization items (fees) unpaid |  | $ | — |  |  | $ | 0.8 |  |  |  | $ | 38.3 |  |  | $ | 61.2 |
FRESH START ACCOUNTING Applicability of Fresh Start Accounting Upon emergence from bankruptcy, we qualified for and applied fresh start accounting, which resulted in the Company becoming a new entity for financial reporting purposes because (1) the holders of the then existing Class A ordinary shares of the Predecessor received less than 50 percent of the Common Shares of the Successor outstanding upon emergence and (2) the reorganization value of the Company’s assets immediately prior to confirmation of the plan of reorganization was less than the total of all post-petition liabilities and allowed claims. The reorganization value derived from the range of enterprise values associated with the plan of reorganization was allocated to the Company’s identifiable tangible and intangible assets and liabilities based on their fair values (except for deferred income taxes). The amount of deferred income taxes recorded was determined in accordance with the applicable income tax accounting standard. The April 30, 2021 fair values of the Company’s assets and liabilities differ materially from their recorded values as reflected on the historical balance sheets. Reorganization Value The reorganization value represents the fair value of the Successor's total assets and was derived from the enterprise value associated with the plan of reorganization, which represents the estimated fair value of an entity's long-term debt and equity less unrestricted cash upon emergence from chapter 11. As set forth in the disclosure statement and approved by the Bankruptcy Court, third-party valuation advisors estimated the enterprise value to be between $1,860.0 million and $3,145.0 million. The enterprise value range of the reorganized Debtors was determined primarily by using a discounted cash flow analysis. The value agreed in the plan of reorganization is indicative of an enterprise value at the low end of this range, or $1,860.0 million. The following table reconciles the enterprise value to the estimated fair value of Successor Common Shares as of the Effective Date (in millions, except per share value):
| April 30, 2021
Enterprise Value | $ | 1,860.0 |
Plus: Cash and cash equivalents | 607.6 |
Less: Fair value of debt | (544.8) |
Less: Warrants | (16.4) |
Less: Noncontrolling interest | 1.1 |
Less: Pension and other post-retirement benefits liabilities | (189.0) |
Less: Adjustments not contemplated in Enterprise Value | (639.0) |
Fair value of Successor Common Shares | $ | 1,079.5 |
Shares issued upon emergence | 75.0 |
Per share value | $ | 14.39 |
The following table reconciles the enterprise value to the reorganization value as of the Effective Date (in millions):
| April 30, 2021
Enterprise Value | $ | 1,860.0 |
Plus: Cash and cash equivalents | 607.6 |
Plus: Non-interest bearing current liabilities | 346.0 |
Less: Adjustments not contemplated in Enterprise Value | (218.0) |
Reorganization value of Successor assets | $ | 2,595.6 |
Adjustments not contemplated in Enterprise Value represent certain obligations of the Successor that were either not contemplated or contemplated in a different amount in the forecasted cash flows of the enterprise valuation performed by third-party valuation advisors that, had they incorporated those anticipated cash flows into their analysis, the resulting valuation would have been different. For the reconciliation of Reorganization value of Successor assets, this item includes certain tax balances, contract liabilities, as well as an adjustment for the fair value of pension obligations. The reconciliation to Successor Common Share value includes these same reconciling items as well as other current and non-current liabilities of the Successor at the emergence. The enterprise value and corresponding implied equity value are dependent upon achieving the future financial results set forth in the valuation utilizing assumptions regarding future day rates, utilization, operating costs and capital requirements as of the emergence date. All estimates, assumptions, valuations and financial projections, including the fair value adjustments, the enterprise value and equity value projections, are inherently subject to significant uncertainties and the resolution of contingencies beyond our control. Accordingly, there is no assurance that the estimates, assumptions, valuations or financial projections will be realized, and actual results could vary materially. Valuation Process The fair values of the Company's principal assets and liabilities including property, plant and equipment as well as our 50% equity interest in ARO and our Notes Receivable from ARO, options to purchase VALARIS DS-13 and VALARIS DS-14 (the "Newbuild Drillships"), the First Lien Notes, pensions and Warrants were estimated with the assistance of third-party valuation advisors. Property, Plant and Equipment The valuation of the Company’s drilling rigs was estimated by using an income approach or estimated sales price. These valuations were based on unobservable inputs that require significant judgments for which there is limited information, including, in the case of an income approach, assumptions regarding future day rates, utilization, operating costs, reactivation costs and capital requirements. In developing these assumptions, forecasted day rates and utilization took into account current market conditions and our anticipated business outlook. The cash flows were discounted at our weighted average cost of capital, which was derived from a blend of our after-tax cost of debt and our cost of equity, and computed using public share price information for similar offshore drilling market participants, certain U.S. Treasury rates and certain risk premiums specific to the Company. Our remaining property and equipment, including owned real estate and other equipment, was valued using a cost approach, in which the estimated replacement cost of the assets was adjusted for physical depreciation and obsolescence, where applicable, to arrive at estimated fair value. The estimated fair value of our property and equipment includes an adjustment to reconcile to our reorganization value. Notes Receivable from ARO The fair value of the Notes Receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the Notes Receivable from ARO using a discount rate based on a comparable yield with a country-specific risk premium. Investment in ARO We estimated the fair value of the equity investment in ARO primarily by applying an income approach, using projected discounted cash flows of the underlying assets, a risk-adjusted discount rate and an estimated effective income tax rate. Options to Purchase Newbuild Drillships The fair value of the options to purchase Newbuild Drillships was estimated using an option pricing model utilizing the estimated fair value of a newbuild rig, estimated purchase price upon exercise of the options, the holding period, equity volatility and the risk-free rate. First Lien Notes The fair value of the First Lien Notes was determined to approximate the par value based on third-party valuation advisors’ analysis of the Company’s collateral coverage, financial metrics, and interest rate for the First Lien Notes relative to market rates of recent placements of a similar term for industry participants with similar credit risk. Pensions Our pension and other postretirement benefit liabilities and costs are based upon actuarial computations that reflect our assumptions about future events, including long-term asset returns, interest rates, annual compensation increases, mortality rates and other factors. Upon emergence, our pension and other post retirement plans were remeasured as of the Effective Date. Key assumptions at the Effective Date included (1) a weighted average discount rate of 2.81% to determine pension benefit obligations and (2) an expected long-term rate of return on pension plan assets of 6.03% to determine net periodic pension cost. Warrants The fair value of the Warrants was determined using an option pricing model considering the contractual terms of the Warrant issuance. The key market data assumptions for the option pricing model are the estimated volatility and the risk-free rate. The volatility assumption was estimated using market data for offshore drilling market participants with consideration for differences in leverage. The risk-free rate assumption was based on U.S. Treasury Constant Maturity rates with a comparable term. Condensed Consolidated Balance Sheet The adjustments included in the following Condensed Consolidated Balance Sheet reflect the effects of the transactions contemplated by the plan of reorganization and executed by the Company on the Effective Date (reflected in the column “Reorganization Adjustments”), and fair value and other required accounting adjustments resulting from the adoption of fresh start accounting (reflected in the column “Fresh Start Accounting Adjustments”). The explanatory notes provide additional information with regard to the adjustments recorded.
| As of April 30, 2021
| Predecessor |  | Reorganization Adjustments |  | Fresh Start Accounting Adjustments |  | Successor
ASSETS
CURRENT ASSETS |  |  |  |  |  |  |
Cash and cash equivalents | $ | 280.2 |  |  | $ | 327.4 |  | (a) | $ | — |  |  | $ | 607.6 |
Restricted cash | 45.7 |  |  | 42.7 |  | (b) | — |  |  | 88.4 |
Accounts receivable, net | 425.9 |  |  | — |  |  | — |  |  | 425.9 |
Other current assets | 370.1 |  |  | 1.5 |  | (c) | (281.1) |  | (o) | 90.5 |
Total current assets | 1,121.9 |  |  | 371.6 |  |  | (281.1) |  |  | 1,212.4 |
PROPERTY AND EQUIPMENT, NET | 10,026.4 |  |  | (417.6) |  | (d) | (8,699.7) |  | (p) | 909.1 |
LONG-TERM NOTES RECEIVABLE FROM ARO | 442.7 |  |  | — |  |  | (214.4) |  | (q) | 228.3 |
INVESTMENT IN ARO | 123.9 |  |  | — |  |  | (43.4) |  | (r) | 80.5 |
OTHER ASSETS | 166.4 |  |  | (10.0) |  | (e) | 8.9 |  | (s) | 165.3 |
| $ | 11,881.3 |  |  | $ | (56.0) |  |  | $ | (9,229.7) |  |  | $ | 2,595.6 |
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES |  |  |  |  |  |  |
Accounts payable - trade | $ | 161.5 |  |  | $ | 13.1 |  | (f) | $ | (0.5) |  | (t) | $ | 174.1 |
Accrued liabilities and other | 290.7 |  |  | (12.4) |  | (g) | (61.8) |  | (u) | 216.5 |
Total current liabilities | 452.2 |  |  | 0.7 |  |  | (62.3) |  |  | 390.6 |
LONG-TERM DEBT | — |  |  | 544.8 |  | (h) | — |  |  | 544.8 |
OTHER LIABILITIES | 706.2 |  |  | (55.2) |  | (i) | (85.6) |  | (v) | 565.4 |
Total liabilities not subject to compromise | 1,158.4 |  |  | 490.3 |  |  | (147.9) |  |  | 1,500.8 |
LIABILITIES SUBJECT TO COMPROMISE | 7,313.7 |  |  | (7,313.7) |  | (j) | — |  |  | — |
COMMITMENTS AND CONTINGENCIES |  |  |  |  |  |  |
VALARIS SHAREHOLDERS' EQUITY |  |  |  |  |  |  |
Predecessor Class A ordinary shares | 82.5 |  |  | (82.5) |  | (k) | — |  |  | — |
Predecessor Class B ordinary shares | 0.1 |  |  | (0.1) |  | (k) | — |  |  | — |
Successor common shares | — |  |  | 0.8 |  | (l) | — |  |  | 0.8 |
Successor stock warrants | — |  |  | 16.4 |  | (m) | — |  |  | 16.4 |
Predecessor additional paid-in capital | 8,644.0 |  |  | (8,644.0) |  | (k) | — |  |  | — |
Successor additional paid-in capital | — |  |  | 1,078.7 |  | (l) | — |  |  | 1,078.7 |
Retained deficit | (5,147.4) |  |  | 14,322.6 |  | (n) | (9,175.2) |  | (w) | — |
Accumulated other comprehensive loss | (93.4) |  |  | — |  |  | 93.4 |  | (x) | — |
Predecessor treasury shares | (75.5) |  |  | 75.5 |  | (k) | — |  |  | — |
Total Valaris shareholders' equity | 3,410.3 |  |  | 6,767.4 |  |  | (9,081.8) |  |  | 1,095.9 |
NONCONTROLLING INTERESTS | (1.1) |  |  | — |  |  | — |  |  | (1.1) |
Total equity | 3,409.2 |  |  | 6,767.4 |  |  | (9,081.8) |  |  | 1,094.8 |
| $ | 11,881.3 |  |  | $ | (56.0) |  |  | $ | (9,229.7) |  |  | $ | 2,595.6 |
Reorganization Adjustments (a) Cash Represents the reorganization adjustments (in millions):
Receipt of cash for First Lien Notes | $ | 500.0 |
Loan proceeds from backstop lenders | 20.0 |
Funds received for liquidation of rabbi trust related to certain employee benefits | 17.6 |
Payments to Predecessor creditors | (129.9) |
Transfer of funds for payment of certain professional fees to escrow account | (42.7) |
Payment for certain professional services fees | (29.0) |
Various other | (8.6) |
| $ | 327.4 |
(b) Restricted cash Reflects the reorganization adjustment to record the transfer of cash for payment of certain professional fees to restricted cash, which will be held in escrow until billings from professionals have been received and reconciled at which time the funds in the account will be released. (c) Other current asset Reflects certain prepayments incurred upon emergence. (d) Property and Equipment, net Reflects the reorganization adjustment to remove $417.6 million of work-in-process related to the Newbuild Drillships. These values have been removed from property and equipment, net, based on the terms of the amended agreements with the Shipyard. As a result of the option to take delivery, we removed the historical work-in-process balances from the balance sheet. (e) Other assets Represents the reorganization adjustments (in millions):
Liquidation of rabbi trust related to certain employee benefits | $ | (17.6) |
Elimination of right-of-use asset associated with Newbuild Drillships | (5.5) |
Fair value of options to purchase Newbuild Drillships | 13.1 |
| $ | (10.0) |
Our supplemental executive retirement plans (the "SERP") are non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERP was frozen to the entry of new participants in November 2019 and to future compensation deferrals as of January 1, 2020. Upon emergence, assets previously held in a rabbi trust maintained for the SERP were liquidated and the SERP was amended. In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical right-of-use asset associated with the berthing locations of Newbuild Drillships. Additionally, upon effectiveness of the plan of reorganization, the amended agreement with the Shipyard provides the Company with the option to purchase the Newbuild Drillships. The reorganization adjustments include an asset that reflects the fair value of the option to purchase the Newbuild Drillships and embedded feature related to the ability, under the amended agreements with the Shipyard, for the equity issued pursuant to this arrangement to be put to the Company for $8.0 million of consideration for each rig, should we choose to take delivery. (f) Accounts payable - trade Reflects the following reorganization adjustments (in millions):
Professional fees incurred upon emergence | $ | 26.1 |
Payment of professional fees incurred prior to emergence | (12.6) |
Payment of certain accounts payable incurred prior to emergence | (0.4) |
| $ | 13.1 |
(g) Accrued liabilities and other Reflects the following reorganization adjustments (in millions):
Elimination of lease liabilities associated with Newbuild Drillships | $ | (5.0) |
Elimination of accrued post-petition holding costs associated with Newbuild Drillships | (4.1) |
Payment of certain accrued liabilities incurred prior to emergence | (3.3) |
| $ | (12.4) |
In accordance with the amended agreement with the Shipyard, our leases were terminated and we have eliminated the historical lease liability associated with the berthing locations of Newbuild Drillships. Accrued post-petition holding costs have also been eliminated as a result of the amendments made effective upon emergence. Additionally, reorganization adjustments to accrued liabilities and other includes an amount primarily related to payment of professional fees incurred prior to emergence. (h) Long-term debt Reflects the reorganization adjustment to record the issuance of the $550.0 million aggregate principal amount of First Lien Notes and debt issuance costs of $5.2 million. (i) Other liabilities Reflects the following reorganization adjustments (in millions):
Elimination of construction contract intangible liabilities associated with Newbuild Drillships | $ | (49.9) |
Elimination of accrued post-petition holding costs associated with Newbuild Drillships | (4.7) |
Elimination of lease liabilities associated with Newbuild Drillships | (0.6) |
| $ | (55.2) |
The reorganization adjustments to other liabilities primarily relate to the elimination of construction contract intangible liabilities associated with the Newbuild Drillships. These construction contract intangible liabilities were recorded in purchase accounting for the original contracting entity. As the amended contract is structured as an option whereby we have the right, not the obligation to take delivery of the rigs, there is no longer an intangible liability associated with the contracts. We have eliminated the historical lease liability associated with the berthing locations of Newbuild Drillships and accrued post-petition holding costs as described in (g) above. (j) Liabilities subject to compromise Reflects the following reorganization adjustments (in millions):
Settlement of liabilities subject to compromise | $ | 7,313.7 |
Issuance of common stock to Predecessor creditors | (721.0) |
Issuance of common stock to backstop parties | (323.8) |
Payments to Predecessor creditors | (129.9) |
Gain on settlement of liabilities subject to compromise | $ | 6,139.0 |
(k) Predecessor ordinary shares, additional paid-in capital and treasury shares Represents the cancellation of the Predecessor's ordinary shares of $82.6 million, additional paid-in capital of $8,644.0 million and treasury stock of $75.5 million. (l) Successor common shares and additional paid-in capital Represents par value of 75.0 million new Common Shares of $0.8 million and capital in excess of par value of $1,078.7 million. (m) Successor stock warrants On the Effective Date and pursuant to the plan of reorganization, Valaris Limited issued an aggregate of 5.6 million Warrants exercisable for up to an aggregate of 5.6 million Common Shares to former holders of Legacy Valaris's equity interests. The fair value of the Warrants as of the Effective Date was $16.4 million. (n) Retained deficit Represents the reorganization adjustments to total equity as follows (in millions):
Gain on settlement of liabilities subject to compromise | $ | (6,139.0) |
Issuance of Common Shares for backstop premium | 29.1 |
Issuance of Common Shares to the Shipyard | 5.4 |
Write-off of unrecognized share-based compensation expense | 16.0 |
Professional fees and success fees | 35.9 |
Backstop premium | 30.0 |
Impact of newbuild contract amendments | 350.7 |
Reorganization items, net | (5,671.9) |
Cancellation of Predecessor common shares | (82.6) |
Cancellation of Predecessor treasury shares | 75.5 |
Cancellation of Predecessor additional paid in capital | (7,856.4) |
Cancellation of equity component of Predecessor convertible notes | (220.0) |
Cancellation of Predecessor cash and equity compensation plans | (583.6) |
Fair value of Warrants | 16.4 |
| $ | (14,322.6) |
Fresh Start Adjustments (o) Other current assets Reflects the fresh start adjustments to record the estimated fair value of other current assets as follows (in millions):
Elimination of materials and supplies | $ | (260.8) |
Elimination of historical deferred contract drilling expenses | (20.3) |
| $ | (281.1) |
Primarily reflects the fresh start adjustment to eliminate the historical balance for materials and supplies as the result of a change in accounting policies upon emergence. Historically, we recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed. Upon emergence from bankruptcy, we elected to change our accounting policies related to materials and supplies whereby materials and supplies will be expensed as a period cost when received. Additionally, a customer arrangement provides that we take title to their materials and supplies for the duration of the contract and return or pay cash for them at the termination of the contract. Together with our policy change on materials and supplies, we elected to record these assets and the obligation to our customer on a net basis as opposed to a gross basis. The fresh start adjustment for the elimination of historical deferred contract drilling expenses primarily relates to deferred mobilization costs, deferred contract preparation costs and deferred certification costs. Costs incurred for mobilization and contract preparation prior to the commencement of drilling services are deferred and subsequently amortized over the term of the related drilling contract. Additionally, we must obtain certifications from various regulatory bodies in order to operate our drilling rigs and must maintain such certifications through periodic inspections and surveys. The costs incurred in connection with maintaining such certifications, including inspections, tests, surveys and drydock, as well as remedial structural work and other compliance costs, are deferred and amortized on a straight-line basis over the corresponding certification periods. These deferred costs have no future economic benefit and are eliminated from the fresh start financial statements. (p) Property and equipment, net Reflects the fresh start adjustments to historical amounts to record the estimated fair value of property and equipment. Furthermore, upon emergence from bankruptcy, we elected to change our accounting policies and have identified the significant components of our drilling rigs and ascribed useful lives based on the expected time until the next required overhaul or the end of the expected economic lives of the components. Prior to emergence, we recorded our drilling rigs as a single asset with a useful life ascribed by the expected useful life of that asset. (q) Notes Receivable from ARO Reflects the fresh start adjustment to record the estimated fair value of the Notes Receivable from ARO. The fair value of the Notes Receivable from ARO was estimated using an income approach to value the forecasted cash flows attributed to the Notes Receivable from ARO using a discount rate based on comparable yield with a country-specific risk premium. (r) Investment in ARO Reflects the fresh start adjustment to record the estimated fair value of the equity investment in ARO. (s) Other assets Reflects the fresh start adjustments to record the estimated fair value of other assets as follows (in millions):
Deferred tax impacts of certain fresh start adjustments | $ | 21.1 |
Fair value of contracts with customers | 8.5 |
Fair value adjustments to right-of-use assets | 0.4 |
Elimination of historical deferred contract drilling expenses | (16.5) |
Elimination of other deferred costs | (4.6) |
| $ | 8.9 |
The fresh start adjustment for deferred income tax assets represents the estimated incremental deferred income taxes, which reflects the tax effect of the differences between the estimated fair value of certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities. The fresh start adjustment to record the estimated fair value of contracts with customers represents the intangible assets recognized for firm customer contracts in place at the Effective Date that have favorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date. The intangible assets are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. The fresh start adjustment to right-of-use assets reflects the remeasuring of our operating leases as of the emergence date. Certain operating leases had unfavorable terms as of the emergence date, and as a result the right-of-use asset for such leases does not equal the lease liability upon emergence. The fresh start adjustment to eliminate historical deferred contract drilling expenses reflects the noncurrent portion of historical deferred contract drilling expenses described in (o) above as well as the elimination of customer contract intangibles previously recorded in purchase accounting for a 2019 transaction. The fresh start adjustments to eliminate other deferred costs reflect non-operational deferred costs that have no future economic benefit. (t) Accounts payable - trade The fresh start adjustment to accounts payable trade reflects the write off of certain deferred amounts related to our operating leases. This value was eliminated through the remeasurement of our leases as of the emergence date. (u) Accrued liabilities and other Reflects the fresh start adjustments to record the estimated fair value of current liabilities as follows (in millions):
Elimination of customer payable balance | $ | (36.8) |
Elimination of historical deferred revenues | (25.9) |
Fair value of contracts with customers | 0.5 |
Fair value adjustment to lease liabilities | 0.4 |
| $ | (61.8) |
The fresh start adjustment to eliminate the customer payable balance is related to the change in accounting policy to present the balance on a net basis. The fresh start adjustment to eliminate historical deferred revenues is primarily related to amounts previously received for the reimbursement for capital upgrades, upfront contract deferral fees and mobilization. Such amounts are deferred and subsequently amortized over the term of the related drilling contract. The deferred revenue does not represent any future performance obligations and is therefore eliminated as a fresh start accounting adjustment. The fresh start adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts in place at the Effective Date that have unfavorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the adjustment are (1) the contracted day rate for each contract, (2) the remaining term of each contract, (3) the rig class and (4) the market conditions for each respective rig class at the emergence date. The intangible liabilities are computed based on the present value of the difference in cash inflows over the remaining contract term as compared to a hypothetical contract with the same remaining term at an estimated current market day rate using a risk-adjusted discount rate and an estimated effective income tax rate. This balance will be amortized to operating revenues over the respective remaining contract terms on a straight-line basis. The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date. (v) Other liabilities Reflects the fresh start adjustments to record the estimated fair value of other liabilities as follows (in millions):
Adjustment to fair value of pension and other post-retirement plan liabilities | $ | (82.7) |
Elimination of historical deferred revenue | (5.9) |
Deferred tax impacts of certain fresh start adjustments | 1.7 |
Fair value adjustments to lease liabilities | 1.1 |
Fair value adjustments to other liabilities | 0.2 |
| $ | (85.6) |
The fresh start adjustment to fair value pension and other post-retirement plan liabilities results from the remeasurement of the pension and other post-retirement benefit plans at the emergence date. The fresh start adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (u) above. The fresh start adjustment for deferred income tax liabilities represents the estimated incremental deferred taxes, which reflects the tax effect of the differences between the estimated fair value certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities. The fresh start adjustment to lease liabilities reflects the remeasuring of our operating leases as of the Effective Date. (w) Retained Deficit Reflects the fresh start adjustments to retained deficit as follows (in millions):
Fair value adjustments to prepaid and other current assets | $ | (281.1) |
Fair value adjustments to property | (8,699.7) |
Fair value of intangible assets | 8.5 |
Fair value adjustment to investment in ARO | (43.4) |
Fair value adjustment to note receivable from ARO | (214.4) |
Fair value adjustments to other assets | (20.7) |
Fair value adjustments to other current liability | 62.8 |
Fair value of intangible liabilities | (0.5) |
Fair value adjustment to other liabilities | 87.3 |
Elimination of Predecessor accumulated other comprehensive loss | (93.4) |
Total fresh start adjustments included in reorganization items, net | $ | (9,194.6) |
Tax impact of fresh start adjustments | 19.4 |
| $ | (9,175.2) |
(x) Accumulated other comprehensive loss Reflects the fresh start adjustments for the elimination of Predecessor accumulated other comprehensive loss through Reorganization items, net.

X
- Definition The entire disclosure for the description and amounts of reorganization under Chapter 11 of the US Bankruptcy Code. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -SubTopic 10 -Section 50 -Paragraph 2 -Subparagraph (a) -URI https://asc.fasb.org/extlink&oid=124433192&loc=d3e56015-112765 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -SubTopic 10 -Section 50 -Paragraph 7 -Subparagraph (c)(2) -URI https://asc.fasb.org/extlink&oid=124433192&loc=SL2890621-112765 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -URI https://asc.fasb.org/topic&trid=2209115 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -SubTopic 10 -Section 50 -Paragraph 7 -Subparagraph (c) -URI https://asc.fasb.org/extlink&oid=124433192&loc=SL2890621-112765 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -SubTopic 10 -Section 50 -Paragraph 7 -Subparagraph (c)(3) -URI https://asc.fasb.org/extlink&oid=124433192&loc=SL2890621-112765 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 852 -SubTopic 10 -Section 50 -Paragraph 7 -Subparagraph (c)(1) -URI https://asc.fasb.org/extlink&oid=124433192&loc=SL2890621-112765 + Details
Name: | us-gaap_ReorganizationUnderChapter11OfUSBankruptcyCodeDisclosureTextBlock
Namespace Prefix: | us-gaap_
Data Type: | dtr-types:textBlockItemType
Balance Type: | na
Period Type: | duration

X
- References No definition available. + Details
Name: | us-gaap_ReorganizationsAbstract
Namespace Prefix: | us-gaap_
Data Type: | xbrli:stringItemType
Balance Type: | na
Period Type: | duration