As filed with the Securities and Exchange Commission on July 7, 2021

Registration No. 333-257022​

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 9
TO

FORM S-1

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Valaris Limited*

(Exact name of registrant as specified in its charter)

1381

(Primary Standard Industrial
Classification Code Number)

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

Jonathan H. Baksht
Executive Vice President and Chief Financial Officer
Clarendon House, 2 Church Street
Hamilton, Bermuda, HM 11
(713) 789-1400

(Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies to:

Julian J. Seiguer
Michael W. Rigdon
Kirkland & Ellis LLP
609 Main Street, Suite 4700
Houston, Texas 77002
(713) 836-3600

Approximate date of commencement of proposed sale to the public: From time to time after this registration statement becomes effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: ☑

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. ☐

CALCULATION OF REGISTRATION FEE

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(1)

Pursuant to Rule 416 under the Securities Act of 1933, as amended, the common shares being registered hereunder include an indeterminate number of common shares that may be issued in connection with the anti-dilution provisions or shares splits, share dividends, recapitalizations or similar events.

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(2) 

Represents an aggregate of 17,880,853 Common Shares (as defined below) issued pursuant to the Plan (as defined below), and hereby registered for resale by the selling securityholders.

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(3) 

Estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(c) under the Securities Act and based on the average of the high and low prices per share of common shares on June 8, 2021 as quoted on the New York Stock Exchange.

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(4) 

Represents the sum of (i) $248,024,000 aggregate principal amount of Notes (as defined below), the initial aggregate principal amount of the Notes issued pursuant to the Plan (as defined herein), and (ii) an additional $312,734,443 aggregate principal amount of Notes that may be issued if interest on the Notes is paid-in-kind through maturity, in each case hereby registered for resale by the selling securityholders.

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(5) 

Pursuant to Rule 457(n) under the Securities Act, no separate fee is payable with respect to the guarantees of the Notes being registered.

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(6) 

The registrants previously paid a registration fee of $111,378.30 in connection with the initial filing of this Registration Statement.

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TABLE OF ADDITIONAL REGISTRANTS

*

Each additional registrant is a wholly-owned direct or indirect subsidiary of Valaris Limited. The address, including zip code, and telephone number, including area code, of each additional registrant’s principal executive offices is Clarendon House, 2 Church Street, Hamilton, Bermuda, HM 11, telephone (713) 789-1400. The primary standard industrial classification code number of each of the additional registrants is 1381. The name, address, including zip code, and telephone number, including area code, of the agent for service for each of the additional registrants is Jonathan H. Baksht, Valaris Limited, Clarendon House, 2 Church Street, Hamilton, Bermuda, HM 11, telephone (713) 789-1400.

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Each Registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until such Registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

The information in this preliminary prospectus is not complete and may be changed. The selling securityholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities, and it is not soliciting an offer to buy these securities, in any jurisdiction where the offer or sale is not permitted.

Subject to Completion, dated July 7, 2021

PROSPECTUS

Valaris Limited

17,880,853 Common Shares
$560,758,443 Senior Secured First Lien Notes due 2028

This prospectus relates to the resale, from time to time, of (i) 17,880,853 of our common shares, $0.01 par value per share (the “Common Shares”) and (ii) $560,758,443 Senior Secured First Lien Notes due 2028 (the “Notes”), in each case by the selling securityholders named in this prospectus or in a supplement hereto.

We are registering the offer and sale of the Common Shares and Notes to satisfy registration rights we have granted to the selling securityholders pursuant to the equity registration rights agreement, dated as of April 30, 2021 (the “Equity Registration Rights Agreement”) and the notes registration rights agreement dated as of April 30, 2021 (the “Notes Registration Rights Agreement” and, together with the Equity Registration Rights Agreement, the “Registration Rights Agreements”). We have agreed to bear all of the expenses incurred in connection with the registration of the Common Shares and Notes covered by this prospectus. The selling securityholders will pay or assume brokerage commissions and similar charges, if any, incurred in the sale of Common Shares and Notes.

We are not selling any Common Shares or Notes under this prospectus and will not receive any proceeds from the sale of Common Shares or Notes by the selling securityholders. The Common Shares and Notes to which this prospectus relates may be offered and sold from time to time directly by the selling securityholders or alternatively through underwriters, broker dealers or agents. The selling securityholders will determine at what price they may sell the Common Shares and Notes offered by this prospectus, and such sales may be made at fixed prices, at prevailing market prices at the time of the sale, at varying prices determined at the time of sale, or at negotiated prices. For additional information on the methods of sale that may be used by the selling securityholders, see the section entitled “Plan of Distribution.”

We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should carefully read this prospectus and any prospectus supplement or amendment before you invest. You also should read the documents we have referred you to in the “Where You Can Find More Information” section of this prospectus for information about us and our financial statements.

Our Common Shares and Warrants (as defined herein) are quoted on the New York Stock Exchange (“NYSE”) under the symbol VAL and VAL WS, respectively. On June 10, 2021, the last reported sale price of Common Shares and Warrants on NYSE was $28.18 per share and $2.31 per Warrant. The Notes are not listed on any national securities exchange, there is currently no established public trading market for the Notes, and there can be no assurance that a public trading market will develop.

We are a “smaller reporting company” as defined under the federal securities laws, and as such have elected to comply with certain reduced public company disclosure requirements.

Investing in our Common Shares and Notes involves a high degree of risk. Before buying any Common Shares or Notes, you should carefully read the discussion of material risks of investing in our Common Shares and Notes in “Risk Factors” beginning on page 6 hereof and the “Risk Factors” section in Valaris plc’s Annual Report on Form 10-K for the year ended December 31, 2020 and our other filings with the Securities and Exchange Commission (the “Commission”) that are incorporated into this prospectus.

Neither the Commission nor any state securities commission has approved or disapproved of these securities or passed upon the accuracy or adequacy of the disclosures in the prospectus. Any representation to the contrary is a criminal offense.

Prospectus dated                 , 2021

 

TABLE OF CONTENTS

 

 

EXPLANATORY NOTE

On August 19, 2020, Valaris plc (“Legacy Valaris”), a public limited company incorporated under the laws of England and Wales, and certain of its wholly owned direct and indirect subsidiaries (collectively, the “Debtors”), commenced voluntary cases (the “Chapter 11 Cases”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in the United States Bankruptcy Court for the Southern District of Texas (the “Bankruptcy Court”). The Chapter 11 Cases were jointly administered under the caption In re Valaris plc, et al. On February 5, 2021, the Debtors filed with the Bankruptcy Court the Debtors’ Fourth Amended Joint Chapter 11 Plan of Reorganization pursuant to Chapter 11 of the Bankruptcy Code (as amended, modified or supplemented from time to time, the “Plan”), and on March 3, 2021, the Bankruptcy Court entered an order confirming the Plan (the “Confirmation Order”).

In connection with the Chapter 11 Cases and the Plan, on and prior to the Effective Date (as defined below), the Company effectuated certain restructuring transactions, pursuant to which Valaris Limited, a Bermuda exempted company (“Valaris” and, together with the Debtors and non-Debtor subsidiaries, the “Company,” “we,” “us” or “our”) was formed and — through a series of transactions — Legacy Valaris transferred to a subsidiary of Valaris substantially all of the subsidiaries, and other assets, of Legacy Valaris. On April 30, 2021 (the “Effective Date”), the Plan became effective in accordance with its terms, the Debtors emerged from chapter 11 and Valaris became the new parent company. For more information on the events that occurred on the Effective Date, including the issuance of Common Shares and Notes, see our Current Report on Form 8-K that was filed with the Commission on April 30, 2021. In accordance with the Plan, Legacy Valaris will in due course be wound down and dissolved in accordance with applicable law.

On the Effective Date, Valaris entered into the Equity Registration Rights Agreement and the Notes Registration Rights Agreement with certain parties who received Common Shares and Notes under the Plan, respectively. Among other things, these agreements require Valaris to register for resale the Common Shares and Notes pursuant to Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”).

Valaris is filing the registration statement of which this prospectus forms a part pursuant to the foregoing registration obligations. The foregoing description of the Registration Rights Agreements is only a summary and does not purport to be complete, and such description is qualified in its entirety by reference to the full text of the Registration Rights Agreements, which are filed as exhibits to the registration statement of which this prospectus forms a part.

Unless otherwise expressly set forth or as the context otherwise indicates, all financial information and data and accompanying financial statements and corresponding notes, as of and prior to the Effective Date, contained or incorporated by reference herein reflect the actual historical consolidated results of operations and financial condition of Legacy Valaris for the periods presented and do not give effect to the Plan or any of the transactions contemplated thereby or the adoption of fresh start accounting, which Valaris adopted as of the Effective Date. Accordingly, such financial information may not be representative of Valaris’s performance or financial condition after the Effective Date. Except with respect to such historical financial information and data and accompanying financial statements and corresponding notes or as otherwise suggested by the context, all other information contained herein relates to Valaris following the Effective Date.

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement that we have filed with the Commission. This prospectus provides you with a general description of us and the Common Shares and Notes that may be offered by the selling securityholders. Because each of the selling securityholders may be deemed to be an “underwriter” within the meaning of the Securities Act, each time securities are offered by the selling securityholders pursuant to this prospectus, the selling securityholders may be required to provide you with this prospectus and, in certain cases, a prospectus supplement that will contain specific information about the selling securityholders and the terms of the securities being offered. The prospectus supplement may also add to, update or change the information contained in this prospectus. If there is any inconsistency between the information in this prospectus and any prospectus supplement, you should rely on the information in the prospectus supplement. Please carefully read this prospectus and any prospectus supplement, in addition to the information contained in the documents we refer to under the headings “Where You Can Find More Information” and “Incorporation of Certain Information by Reference.”

We have not, and the selling securityholders have not, authorized anyone to provide you with any information or to make any representations other than those contained or incorporated by reference in this prospectus or in any free writing prospectuses we have prepared. We and the selling securityholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. We are not, and the selling securityholders are not, making any offer to sell the Common Shares or Notes in any jurisdiction where the offer is not permitted. The information contained or incorporated by reference in this prospectus is accurate only as of the date on the cover of this prospectus or, in the case of information incorporated by reference, only as of the date of such information, regardless of the time of delivery of this prospectus or of any sale of the Common Shares or Notes. Our business, financial condition, results of operations and prospects may have changed since such dates.

Persons outside the United States who come into possession of this prospectus must inform themselves about, and observe any restrictions relating to, the offer and sale of the Common Shares and Notes and the distribution of this prospectus outside the United States.

The Bermuda Monetary Authority has given its consent for the issue and free transferability of all of the Common Shares to and between persons resident and non-resident of Bermuda for exchange control purposes, provided such shares remain listed on an appointed stock exchange, which includes the New York Stock Exchange.

Approvals or permissions given by the Bermuda Monetary Authority do not constitute a guarantee by the Bermuda Monetary Authority as to Valaris’s performance or Valaris’s creditworthiness. Accordingly, in giving such consent or permissions, the Bermuda Monetary Authority shall not be liable for the financial soundness, performance or default of Valaris’s business or for the correctness of any opinions or statements expressed in this prospectus.

This prospectus contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond our control. See “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements.”

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the Commission a registration statement on Form S-l regarding our Common Shares and Notes. This prospectus does not contain all of the information found in the registration statement. For further information regarding us, the Common Shares and Notes offered by this prospectus, you may desire to review the full registration statement, including its exhibits and schedules, filed under the Securities Act. The Commission maintains a website on the internet at http://www.sec.gov. Our registration statement, of which this prospectus constitutes a part, can be downloaded from the Commission’s website.

We are subject to the informational requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and in accordance therewith, we file annual, quarterly and current reports, proxy statements and other information with the Commission. These reports and other information may be obtained from the Commission’s website as provided above. Our website is located at www.valaris.com and we make our periodic reports and other information filed with or furnished to the Commission available, free of charge, through our website, as soon as reasonably practicable after those reports and other information

 

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are electronically filed with or furnished to the Commission. Information on our website or any other website is not incorporated by reference into this prospectus and does not constitute a part of this prospectus.

We furnish or make available to our shareholders annual reports containing our audited financial statements and furnish or make available to our shareholders quarterly reports containing our unaudited interim financial information, including the information required by Form 10-Q, for the first three fiscal quarters of each fiscal year.

INCORPORATION OF CERTAIN INFORMATION BY REFERENCE

The Commission allows us to “incorporate by reference” into this prospectus the information we file with it, which means that we can disclose important information to you by referring you to those documents. Information incorporated by reference is considered to be part of this prospectus, except for any information that is superseded by information included directly in this prospectus. Any statement contained in this prospectus or any prospectus supplement or amendment or a document incorporated by reference in this prospectus or in any prospectus supplement or amendment will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in this prospectus or in any other subsequently filed document that is incorporated by reference in this prospectus modified or superseded the statement. Any statement so modified or superseded will not be deemed, except as so modified or superseded, to constitute a part of this prospectus.

We incorporate by reference the documents listed below (excluding any portions of such documents that have been “furnished” but not “filed” for purposes of the Exchange Act):

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our Annual Report on Form 10-K for the year ended December 31, 2020;

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•

our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021;

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•

our Current Reports on Form 8-K filed on February 8, 2021, March 5, 2021, April 30, 2021 and May 11, 2021, respectively; and

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•

the description of our Common Shares contained in our Form 8-A filed on April 30, 2021, including any amendment to that Form that we may file in the future for the purpose of updating the description of our Common Shares;

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We also incorporate by reference into this prospectus any future filings made by Valaris Limited with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act from the date of this prospectus until the completion or termination of the offering of the securities. These documents may include Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. We are not incorporating by reference any information furnished under Items 2.02 or 7.01 (or corresponding information furnished under Item 9.01 or included as an exhibit) in any past or future Current Report on Form 8-K that we may file with the SEC, unless otherwise specified in such Current Report.

You can obtain any of the filings incorporated by reference into this prospectus through us or from the Commission through the Commission’s website at http://www.sec.gov. We will provide a copy of any and all of the information that is incorporated by reference in this prospectus to any person, including a beneficial owner, to whom a prospectus is delivered, without charge, upon written or oral request. You may obtain a copy of these filings by writing or telephoning:

Valaris Limited
Clarendon House, 2 Church Street
Hamilton, Bermuda, HM 11
44 (0) 20 7659-4660

 

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RISK FACTORS

You should carefully consider all of the information set forth in this prospectus and the documents incorporated by reference herein, and in particular, the risks described under “Risk Factors” and elsewhere in this prospectus, any prospectus supplement or amendment, Legacy Valaris’s most recent Annual Report on Form 10-K and future filings incorporated by reference. The risks described herein and in any document incorporated by reference are not the only ones we face, but are considered to be the most material. There may be other unknown or unpredictable economic, business, competitive, regulatory or other factors that could have material adverse effects on our future results. If that occurs, the price of our Common Shares and Notes could decline materially and you could lose all or part of your investment. Past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods.

Investing in the Common Shares and Notes involves significant risks. Before making an investment decision, you should carefully consider the specific risk factors set forth below, together with the other information included elsewhere in this prospectus and in the documents incorporated by reference. If any of the risks discussed in this prospectus occur, our business, prospects, liquidity, financial condition and results of operations could be materially impaired, in which case the price of the Common Shares and Notes could decline significantly and you could lose all or part of your investment. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. See “Cautionary Statement Regarding Forward-Looking Statements.”

Risks Related to Our Common Shares

The price of our Common Shares may be volatile. This volatility may negatively affect the price of our Common Shares.

The market price of our Common Shares may be volatile and may fluctuate significantly in response to a number of factors, most of which we cannot control, including, among others:

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downward pressure on the trading price of our Common Shares by the large percentage of our issued and outstanding Common Shares eligible for resale upon effectiveness of this Registration Statement;

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COVID-19 and related public health measures implemented by governments worldwide and the occurrence or threat of other epidemic or pandemic diseases and any government response to such occurrence or threat;

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•

announcements concerning our competitors, the oil and gas industry or the economy in general;

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fluctuations in the demand and price of oil and natural gas;

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general and industry-specific economic conditions;

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expectations regarding future energy prices;

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the ability of the Organization of Petroleum Exporting Countries (“OPEC”) to reach further agreements to set and maintain production levels and pricing and to implement existing and future agreements;

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capital allocation decisions by our customers, including the relative economics of offshore development versus onshore prospects;

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the level of production by non-OPEC countries;

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the development and exploitation of alternative fuels or energy sources and increased demand for electric-powered vehicles;

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changes in financial estimates or recommendations by securities analysts or failure to meet analysts’ performance expectations;

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actions by shareholder activists that may not be in the best long-term interest of the Company;

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additions or departures of key members of management;

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any increased indebtedness we may incur in the future;

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speculation or reports by the press or investment community with respect to us or our industry in general;

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disruption to exploration and development activities due to hurricanes and other severe weather conditions and the risk thereof;

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natural disasters or incidents resulting from operating hazards inherent in offshore drilling, such as oil spills;

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the worldwide military or political environment, including the global macroeconomic effects of trade disputes and increased tariffs and sanctions and uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of terrorism;

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announcements by us or our competitors of significant contracts, acquisitions, dispositions, strategic partnerships, joint ventures or capital commitments;

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changes or proposed changes in laws or regulations affecting the oil and gas industry or enforcement of these laws and regulations, or announcements relating to these matters;

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laws and government regulations that limit, restrict or prohibit exploration and development of oil and natural gas in various jurisdictions, or materially increase the cost of such exploration and development (such as the current moratorium on oil and gas leasing and permitting in federal lands and waters);

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the worldwide military or political environment, including the global macroeconomic effects of trade disputes and increased tariffs and sanctions and uncertainty or instability resulting from an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East or geographic areas in which we operate, or acts of terrorism; and

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general market, political and economic conditions, including any such conditions and local conditions in the markets in which we operate.

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These and other factors may lower the market price for our Common Shares, regardless of our actual operating performance. In the event of a drop in the market price of our Common Shares, you could lose a substantial part or all of your investment in our Common Shares.

Broad market and industry factors may decrease the market price of our Common Shares, regardless of our actual operating performance. The stock market has experienced extreme price and volume fluctuations, including periods of sharp decline. In the past, following periods of volatility in the overall market and the market price of a company’s securities, securities class action litigation has often been instituted against these companies, including Valaris. Such litigation, if instituted against us in the future, could result in substantial costs and be a diversion of our management’s attention and resources.

Sales of our Common Shares by existing shareholders, or the perception that these sales may occur, especially by significant shareholders of the Company, may cause our share price to decline.

If our existing shareholders, in particular our significant shareholders, sell substantial amounts of our Common Shares in the public market, or are perceived by the public market as intending to sell, the trading price of our Common Shares could decline. Up to 17,880,853 of our Common Shares may be sold pursuant to this prospectus by the selling securityholders, which represent approximately 23.84% of our outstanding Common Shares as of July 6, 2021. In addition, sales of these Common Shares could impair our ability to raise capital, should we wish to do so. We cannot predict the timing or amount of future sales of our Common Shares by selling securityholders pursuant to this prospectus.

We are a Bermuda company and it may be difficult for you to enforce judgments against us or our directors and executive officers.

We are a Bermuda exempted company. As a result, the rights of holders of our common shares are governed by Bermuda law and our memorandum of association and bye-laws. The rights of shareholders

 

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under Bermuda law may differ from the rights of shareholders of companies incorporated in other jurisdictions. Some of our directors and some of the named experts referred to in this prospectus are not residents of the United States, and a substantial portion of our assets are located outside the United States. As a result, it may be difficult for investors to effect service of process on those persons in the United States or to enforce in the United States judgments obtained in U.S. courts against us or those persons based on the civil liability provisions of the U.S. securities laws. It is doubtful whether courts in Bermuda will enforce judgments obtained in other jurisdictions, including the United States, against us or our directors or officers under the securities laws of those jurisdictions or entertain actions in Bermuda against us or our directors or officers under the securities laws of other jurisdictions.

Our bye-laws restrict shareholders from bringing legal action against our officers and directors.

Our bye-laws contain a broad waiver by our shareholders of any claim or right of action, both individually and on our behalf, against any of our officers or directors. The waiver applies to any action taken by an officer or director, or the failure of an officer or director to take any action, in the performance of his or her duties, except with respect to any matter involving any fraud or dishonesty on the part of the officer or director. This waiver limits the right of shareholders to assert claims against our officers and directors unless the act or failure to act involves fraud or dishonesty.

Legislation enacted in Bermuda as to Economic Substance may affect our operations.

Pursuant to the Economic Substance Act 2018 (as amended) of Bermuda (the “ES Act”) that came into force on January 1, 2019, a registered entity other than an entity which is resident for tax purposes in certain jurisdictions outside Bermuda (“non-resident entity”) that carries on as a business any one or more of the “relevant activities” referred to in the ES Act must comply with economic substance requirements. The ES Act may require in-scope Bermuda entities which are engaged in such “relevant activities” to be directed and managed in Bermuda, have an adequate level of qualified employees in Bermuda, incur an adequate level of annual expenditure in Bermuda, maintain physical offices and premises in Bermuda or perform core income-generating activities in Bermuda. The list of “relevant activities” includes carrying on any one or more of: banking, insurance, fund management, financing, leasing, headquarters, shipping, distribution and service centre, intellectual property and holding entities. The ES Act could affect the manner in which we operate our business, which could adversely affect our business, financial condition and results of operations.

The exercise of all or any number of outstanding warrants or the issuance of stock-based awards may dilute your holding of our Common Shares.

On the Effective Date, we issued 75,000,000 Common Shares and 5,645,161 Warrants to purchase 5,645,161 Common Shares at an exercise price of $131.88 per share, exercisable for a seven-year period commencing on the Effective Date. Additionally, on May 3, 2021, Valaris’s board of directors approved and ratified the Valaris Limited 2021 Management Incentive Plan (the “MIP”) and reserved 8,960,573 of our Common Shares for issuance under awards to be made under the MIP primarily for employees and directors. Granting equity awards in the future and any sale of our Common Shares underlying outstanding Warrants could have an adverse effect on the market for our Common Shares, including the price that an investor could obtain for their Common Shares.

Risks Related to Our Notes

Valaris’s ability to pay any cash interest payments due on the Notes or principal payments due upon maturity or certain other events depends on many factors beyond its control.

Valaris’s ability to pay its operating and capital expenses and make payments due on its indebtedness, including the Notes, depends on Valaris’s future performance, which will be affected by financial, business, economic, legislative and other factors, many of which are beyond Valaris’s control. The Notes contain payment-in-kind interest provisions, which reduce the cash needed to pay interest while increasing the principal amount of Notes that ultimately must be retired with a cash payment. Valaris’s business may not generate sufficient cash flow from operations in the future, which could result in Valaris being unable to pay

 

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interest in cash or repay indebtedness, including the Notes, or to fund other liquidity needs. A range of economic, competitive, business and industry factors will affect Valaris’s future financial performance, and many of these factors, such as the economic and financial condition of Valaris’s industry, the global economy and initiatives of its competitors, are beyond Valaris’s control. If Valaris does not generate enough cash flow from operations to satisfy its debt obligations, Valaris may have to undertake alternative financing plans, such as:

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selling assets;

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reducing or delaying capital investments;

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seeking to raise additional capital; or

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restructuring or refinancing all or a portion of our indebtedness, including the Notes, at or before maturity.

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Valaris cannot assure you that it will be able to accomplish any of these alternatives on terms acceptable to Valaris, or at all. In addition, the terms of existing or future debt agreements may restrict Valaris from adopting any of these alternatives. The failure to generate sufficient cash flow or to achieve any of these alternatives could materially adversely affect the value of the Notes and Valaris’s ability to pay the amounts due under the Notes.

The indenture governing the Notes contains operating and financial restrictions that restrict Valaris’s business and financing activities and could limit our growth.

The primary restrictive covenants contained in the indenture under which the Notes were issued limit Valaris’s ability and the ability of certain of its subsidiaries to, among other things:

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incur additional indebtedness;

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sell or convey assets;

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make loans to or investments in others;

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enter into mergers;

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make certain payments;

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incur liens; and

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pay dividends.

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We may also be prevented from taking advantage of business opportunities that arise because of the limitations that the restrictive covenants imposed on us by the indenture.

Many of the covenants contained in the indenture governing the Notes will be suspended if the Notes are rated investment grade by any two rating agencies and no default has occurred and is continuing.

Many of the covenants in the Indenture governing the Notes will be suspended if the Notes are rated investment grade by any two of the following: Fitch, Standard & Poor’s or Moody’s; provided that, at such time no default has occurred and is continuing. The covenants restrict, among other things, Valaris’s ability to pay dividends, incur debt and to enter into certain other transactions. There can be no assurance that the Notes will ever be rated investment grade. However, suspension of these covenants would allow Valaris to engage in certain transactions that would not be permitted while these covenants were in force, and the effects of any such transactions will be permitted to remain in place even if the covenants are reinstated. The suspended covenants will be reinstated if the Notes are subsequently downgraded below investment grade.

An active trading market may not develop for the Notes.

There has been no trading market for the Notes, and Valaris does not intend to apply to list the Notes on any securities exchange or to arrange for quotation on any automated dealer quotation system. In addition, the liquidity of the trading market in the Notes, and the market price quoted for the Notes, may be adversely affected by changes in the overall market for this type of security and by changes in Valaris’s

 

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financial performance or prospects or in the prospects for companies in Valaris’s industry generally. As a result, an active trading market may not develop for the Notes. If an active trading market does not develop or is not maintained, the market price and liquidity of the Notes may be adversely affected. In that case, you may not be able to sell your Notes at a particular time or you may not be able to sell your Notes at a favorable price.

Valaris’s subsidiaries that are not guarantors of the Notes have no obligation, except in the circumstances described herein, to pay amounts due under the Notes.

The Notes are guaranteed by certain of Valaris’s subsidiaries. Except for such guarantors of the Notes and pledges of equity in certain guarantors directly owned by certain non-guarantors, Valaris’s subsidiaries have no obligation, contingent or otherwise (except in the circumstances described herein), to pay amounts due under the Notes or to make any funds available to pay those amounts, whether by dividend, distribution, loan or other payment. The Notes and guarantees are structurally subordinated to all existing and future indebtedness and other obligations of any non-guarantor subsidiary, other than indebtedness and other liabilities owed to Valaris by such non-guarantor subsidiaries and, in the case of certain non-guarantors, the pledge of equity in certain guarantors directly owned by such non-guarantors. In the event of insolvency, liquidation, reorganization, dissolution or other winding up of any non-guarantor subsidiary, all of that subsidiary’s creditors (including trade creditors) would be entitled to payment in full out of that subsidiary’s assets (other than, with respect to certain non-guarantors, the pledges of the equity in certain guarantors directly owned by them) before the holders of the Notes would be entitled to any payment. As a result, your ability to make a claim against Valaris’s non-guarantor subsidiaries may be limited.

Valaris may in the future have additional non-guarantor subsidiaries and your ability to make a claim against such subsidiaries may also be limited. In addition, the indenture governing the Notes permits all of these non-guarantor subsidiaries to incur additional indebtedness and does not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

In addition, any of Valaris’s subsidiaries that provide guarantees of the Notes will be automatically released from those guarantees upon the occurrence of certain events, including (i) a sale or other disposition of such guarantor that results in such guarantor no longer being a restricted subsidiary under the indenture or (ii) upon the dissolution or liquidation of such guarantor.

If any guarantee is released, no holder of the Notes will have a claim as a creditor against that subsidiary, and the indebtedness and other liabilities, including trade payables, if any, whether secured or unsecured, of that subsidiary will be effectively senior to the claim of any holders of the Notes. See “Description of the Notes — Notes Guarantee.”

A guarantee and any lien granted by a subsidiary could be voided if it constitutes a fraudulent transfer or fraudulent conveyance under federal bankruptcy law, similar state law or the insolvency laws of foreign jurisdictions, which would prevent the holders of the Notes from relying on that subsidiary to satisfy claims.

Under U.S. bankruptcy law and comparable provisions of state fraudulent transfer laws and the insolvency laws of foreign jurisdictions, Valaris’s guarantees of (including for all purposes of the discussion under this caption, liens granted by Valaris’s subsidiaries to secure) the Notes can be voided, or claims under the guarantees may be subordinated to all other debts of that subsidiary if, among other things, the subsidiary, at the time it incurred the indebtedness evidenced by its guarantee or, in some jurisdictions, when payments become due under the guarantee, received less than reasonably equivalent value or fair consideration for the incurrence of the guarantee and:

•

was insolvent or rendered insolvent by reason of such incurrence of the obligations under the guarantee;

​

•

was engaged in a business or transaction for which the subsidiary’s remaining assets constituted unreasonably small capital; or

​

•

intended to incur, or believed that it would incur, debts beyond its ability to pay those debts as they mature.

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The guarantees of the Notes may also be voided, without regard to the above factors, if a court finds that the subsidiary entered into the guarantee with the actual intent to hinder, delay or defraud its other creditors.

A court would likely find that a subsidiary did not receive reasonably equivalent value or fair consideration for its guarantee if the guarantor did not substantially benefit directly or indirectly from the issuance of the guarantee. If a court were to void a guarantee, you would no longer have a claim against that subsidiary. Sufficient funds to repay the Notes may not be available from other sources, including the remaining subsidiaries providing guarantees, if any. In addition, the court might direct you to repay any amounts that you already received from the subsidiary.

The measures of insolvency for purposes of fraudulent transfer laws vary depending upon the governing law. Generally, a subsidiary would be considered insolvent if:

•

the sum of its debts, including contingent liabilities, were greater than the fair saleable value of all its assets;

​

•

the present fair saleable value of its assets is less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

​

•

it could not pay its debts as they become due.

​

The indenture governing the Notes contains a provision intended to limit the guarantors’ liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. Valaris cannot assure you that this provision will protect the guarantees from fraudulent transfer challenges or, if it does, that the remaining amount due and collectible under the guarantees would suffice, if necessary, to pay the Notes in full when due. Such provision may not be sufficient to protect the guarantees from being voided under fraudulent transfer laws.

A financial failure by Valaris or its subsidiaries may result in the assets of any or all of those entities becoming subject to the claims of all creditors of those entities.

A financial failure by Valaris or its subsidiaries could affect payment of the Notes if a bankruptcy court were to substantively consolidate Valaris and its subsidiaries. If a bankruptcy court substantively consolidated Valaris and its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities. This would expose holders of Notes not only to the impairments that would arise from its bankruptcy alone, but also to potential dilution of the amount ultimately recoverable if there was additional debt at its subsidiaries that was substantively consolidated because of the larger creditor base. Furthermore, forced restructuring of the Notes could occur through the “cramdown” provisions of the Bankruptcy Code. Under these provisions, the Notes could be restructured over your objections as to their general terms, including principal amount, interest rate and maturity.

There are circumstances other than repayment or discharge of the Notes under which the guarantee of a subsidiary guarantor will be automatically released with respect to the Notes.

Under various circumstances, the guarantee of a subsidiary guarantor may be released without your consent, including:

•

if Valaris exercises its legal defeasance option or its covenant defeasance option as described in the indenture;

​

•

upon the dissolution or liquidation of such subsidiary guarantor, if immediately after giving effect thereto, Valaris will be in compliance with certain covenants under the indenture governing the Notes; and

​

•

if such subsidiary guarantor is designated as an unrestricted subsidiary as defined in the indenture.

​

In addition, a guarantee will be automatically released in connection with a sale, transfer or disposition of the capital stock of a subsidiary guarantor, if as a result of such sale, transfer or disposition, such

 

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subsidiary guarantor is no longer a restricted subsidiary and, immediately after giving effect thereto, Valaris will be in compliance with certain covenants under the indenture governing the Notes.

If a bankruptcy petition were filed by or against Valaris or a subsidiary guarantor, holders of the Notes may receive a lesser amount for their claim than they would have been entitled to receive under the indenture governing the Notes.

If a bankruptcy petition were filed by or against Valaris or a guarantor under the Bankruptcy Code, the claim by any holder of the Notes for the principal amount of the Notes may be limited to an amount equal to the sum of:

•

the original issue price for the Notes; and

​

•

that portion of the original issue discount that does not constitute “unmatured interest” for purposes of the Bankruptcy Code.

​

Any original issue discount that was not amortized as of the date of the bankruptcy filing would constitute unmatured interest. Accordingly, the holders of the Notes under these circumstances may receive a lesser amount than they would be entitled to receive under the terms of the indenture governing the Notes, even if sufficient funds are available.

Interest on the Notes may be paid in PIK interest rather than cash, which will increase the amount of Valaris’s indebtedness.

Valaris will be entitled to pay PIK interest on the Notes at its option. As a result, Valaris cannot assure you that it will make cash interest payments on the Notes. The payment of interest through PIK interest will increase the amount of Valaris’s indebtedness and increase the risks associated with its level of indebtedness.

The collateral securing the Notes and related guarantees may be diluted under certain circumstances.

The indenture governing the Notes permits Valaris to incur additional secured indebtedness, including additional notes (including Notes used to pay PIK interest), parity lien obligations and other priority lien obligations, including bank financing, subject to Valaris’s compliance with the applicable restrictive covenants. See “Description of the Notes — Certain Covenants — Limitation on Indebtedness” and “Description of the Notes — Certain Covenants — Limitation on Liens.”

Any additional notes issued under the indenture governing the Notes would be guaranteed by the same subsidiary guarantors and would have the same liens and security interests, with the same priority, as the Notes. As a result, the collateral securing the Notes would be shared by any additional notes Valaris may issue under the indenture governing the Notes, and an issuance of such additional notes would dilute the value of the collateral compared to the aggregate principal amount of Notes outstanding. In addition, the indenture governing the Notes and Valaris’s other security documents permit it and certain of its subsidiaries to incur additional priority lien debt and parity lien obligations, in some (but not all) instances limited to a threshold amount, by issuing additional debt securities under one or more new indentures or by borrowing additional amounts under different instruments. Any additional priority lien debt or parity lien obligations secured by the same collateral would dilute the value of the noteholders’ rights to the collateral.

The collateral securing the Notes and related guarantees may be released under certain circumstances.

Under the terms of the indenture and the other documents governing the obligations with respect to the Notes (the “Notes Documents”), Valaris and the Guarantors (as defined below) will be entitled to the release of the collateral from the liens securing the Notes under one or more circumstances, including:

•

upon full and final payment of any such obligations;

​

•

to the extent that proceeds continue to constitute collateral, in the event that collateral is sold, transferred, disbursed or otherwise disposed of in accordance with the Notes Documents;

​

•

upon Valaris’ exercise of legal defeasance, covenant defeasance or discharge under the indenture;

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•

with respect to vessels, certain specified events permitting release of the mortgage with respect to such vessels under the indenture;

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•

with the consent of the requisite holders under the indenture;

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•

with respect to equity interests in restricted subsidiaries that incur permitted indebtedness, if such equity interests shall secure such other indebtedness and the same is permitted under the terms of the indenture; and

​

•

as provided in the intercreditor agreement.

​

The collateral agency agreement also provides for release of the collateral from the liens securing the Notes under the above described circumstances (but including additional requirements for release in relation to all of the documents governing the indebtedness that is secured by first-priority liens on the collateral, in addition to the indenture). Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the indenture governing the Notes, the lien on any pledged equity interests issued by such Guarantor and on any assets of such Guarantor will automatically terminate.

Subject to its compliance with the applicable restrictive covenants, the Company may also transfer and contribute to a wholly-owned unrestricted subsidiary (the “Unrestricted Floater Subsidiary”) all or substantially all of certain vessels owned by the Company and/or the equity interests in one or more subsidiaries that owns and/or operates such vessels. The Company may enter into one or more unsecured revolving credit facilities with the Unrestricted Floater Subsidiary, providing for borrowing capacity not to exceed $350 million in principal amount in the aggregate for all such facilities (and additional amounts necessary to pay interest on such facilities). If the revolving credit facilities are incurred, the Notes will be structurally subordinated to such facilities.

The realizable value of the collateral may not be sufficient to pay the Notes and other future parity obligations in full after repayment of all priority lien obligations.

Certain of Valaris’s offshore rigs constitute a substantial portion of the value of the collateral securing the Notes and priority lien obligations. The offshore contract drilling industry is currently in a period characterized by low demand for drilling services and excess rig supply. Such over-supply of offshore rigs continues to contribute to depressed demand for Valaris’s rigs. Further declines in demand for Valaris’s rigs may cause the value of the collateral to decline.

Under the indenture governing the Notes, Valaris could incur a substantial amount of additional priority lien obligations and parity lien obligations, and debt secured by collateral not including the collateral securing the Notes. Incurring additional obligations could make it more difficult for Valaris to pay the Notes, parity and priority lien obligations in full. For example, in the event of a default or liquidation, there may not be sufficient realizable value of the collateral to first repay all priority lien obligations outstanding at such time and then repay the Notes and any other outstanding parity lien obligations.

Valaris will in most cases have control over the collateral, and the sale of particular assets by it could reduce the pool of assets securing the Notes.

The security documents relating to the collateral allow Valaris to remain in possession and retain exclusive control over the collateral (other than as set forth in the applicable collateral documents), to operate the collateral, to alter the collateral and to collect, invest and dispose of any income thereon. To the extent Valaris sells or takes actions that reduce the value of the collateral, it will reduce the pool of assets securing the Notes and the related guarantees.

The rights of holders of Notes to the collateral securing the Notes may be adversely affected by the failure to record or perfect liens on the collateral and other issues generally associated with the realization of liens on the collateral.

Applicable law requires that a lien on certain tangible and intangible assets can only be properly perfected and its priority retained through certain actions undertaken by the secured party. The liens on the collateral securing the Notes may not be perfected with respect to the claims of the Notes if the collateral

 

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agent is not able to take the actions necessary to perfect any of these liens. Moreover, applicable law requires that certain property and rights acquired after the grant of a general security interest can only be perfected at the time such property and rights are acquired and identified and additional steps to perfect such property and rights are taken. Furthermore, even though it may constitute an event of default under the indenture governing the Notes, a third-party creditor could gain priority over one or more liens on the collateral securing the Notes by recording an intervening lien or liens. In addition, the lien of the collateral agent will be subject to practical challenges generally associated with the realization of liens on collateral. For example, the collateral agent may need to obtain the consent of third parties and make additional filings. If the collateral agent is unable to obtain these consents or make these filings, the liens may be invalid and the holders of the Notes will not be entitled to the collateral or any recovery with respect thereto. Valaris cannot assure you that the collateral agent will be able to obtain any such consent or make any such filing. Valaris also cannot assure you that the consents of any third parties will be given when required to facilitate a foreclosure on such assets. Accordingly, the collateral agent may not have the ability to foreclose upon those assets and the value of the collateral may significantly decrease.

Rights of holders of Notes in the collateral may be adversely affected by bankruptcy proceedings. The value of the collateral securing the Notes may not be sufficient for a bankruptcy court to grant post-petition interest on the Notes and should the obligations under the Notes and any other priority lien obligations or parity lien obligations, equal or exceed the value at foreclosure of the collateral securing such obligations, the holders of the Notes will be deemed to have an unsecured claim.

The right of the collateral agent to repossess and dispose of the collateral upon acceleration is likely to be significantly impaired by federal bankruptcy law if bankruptcy proceedings are commenced in the United States by or against Valaris prior to or possibly even after the collateral agent has repossessed and disposed of the collateral.

Under the Bankruptcy Code, a secured creditor, such as the collateral agent acting for the holders of the Notes, is prohibited from repossessing its security from a debtor, such as us, in a bankruptcy case, or from disposing of security repossessed from a debtor, without bankruptcy court approval. Moreover, bankruptcy law permits the debtor to continue to retain and to use collateral, and the proceeds, products, rents or profits of the collateral, even though the debtor is in default under the applicable debt instruments, provided that the secured creditor is given “adequate protection.” The meaning of the term “adequate protection” may vary according to circumstances, but it is intended in general to protect the value of the secured creditors’ interest in the collateral. Adequate protection may include cash payments or the granting of additional security such as replacement liens, if and at such time as the court in its discretion determines, for any diminution in the value of the collateral as a result of the stay of repossession or disposition or any use of the collateral by the debtor during the pendency of the bankruptcy case. Generally, adequate protection payments, in the form of interest or otherwise, are not required to be paid by a debtor to a secured creditor unless the bankruptcy court determines that the value of the secured creditor’s interest in the collateral is declining during the pendency of the bankruptcy case. In view of the lack of a precise definition of the term “adequate protection” and the broad discretionary powers of a bankruptcy court, it is impossible to predict (1) how long payments under the Notes could be delayed following commencement of a bankruptcy case, (2) whether or when the collateral agent would repossess or dispose of the collateral or (3) whether or to what extent holders of the Notes would be compensated for any delay in payment of loss of value of the collateral through the requirements of “adequate protection.”

Furthermore, in the event the bankruptcy court determines that the value of the collateral is not sufficient to repay all amounts due under any priority lien obligations and on the parity lien obligations, the holders of the Notes would have secured claims only to the extent of the value (if any) of the collateral available to them and unsecured claims equal to the amount that the obligations under the Notes exceed such value of the collateral, rendering the claims of the holders of the Notes “undersecured.” Federal bankruptcy laws do not permit the payment or accrual of interest, costs and attorneys’ fees for “undersecured claims” during the debtor’s bankruptcy case. Upon a finding by a bankruptcy court that the Notes are undersecured, the claims in the bankruptcy proceeding with respect to the Notes would be bifurcated between a secured claim and an unsecured claim, and the unsecured claim would not be entitled to the benefits of security in the collateral. In addition, based on such a finding of under-collateralization, the unsecured portion of the Notes would not be entitled to receive “adequate protection” under U.S. bankruptcy laws.

 

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Finally, if any payments of post-petition interest were made at the time of such a finding of under-collateralization, such payments could be re-characterized by the bankruptcy court as a reduction of the principal amount of the secured claim with respect to the Notes.

Additionally, the collateral agent’s ability to foreclose on the collateral on the noteholders’ behalf may be subject to the consent of third parties, prior liens and practical problems associated with the realization of the collateral agent’s lien on the collateral. The debtor or trustee in a bankruptcy case may seek to void an alleged lien on the collateral for the benefit of the bankruptcy estate, and it may be able to successfully do so if the lien is not properly perfected or was perfected within a specified period of time (generally 90 days) prior to the initiation of such proceeding. If the lien is avoided, a creditor may hold no lien and be treated as holding a general unsecured claim in the bankruptcy case. It is impossible to predict what recovery (if any) would be available for such an unsecured claim if Valaris became a debtor in a bankruptcy case.

In addition, a bankruptcy court may decide to substantively consolidate Valaris and some or all of its subsidiaries in the bankruptcy proceeding. If a bankruptcy court substantively consolidated Valaris and some or all of its subsidiaries, the assets of each entity would become subject to the claims of creditors of all entities that are so consolidated. Such a ruling would expose holders of Notes not only to the usual impairments arising from bankruptcy, but also to potential dilution of the amount ultimately recoverable because of the larger creditor base. Furthermore, a forced restructuring of the Notes could occur through the “cramdown” provisions of the U.S. Bankruptcy Code. Under those provisions, the Notes could be restructured over holders’ objections as to their general terms, including with respect to interest rate and maturity.

Any future pledge of collateral may be avoidable in bankruptcy.

Any future pledge of collateral in favor of the collateral agent, including pursuant to security documents, may be avoidable by the pledgor (a debtor in possession) or by its trustee in bankruptcy as a preferential transfer under U.S. law if certain events or circumstances exist or occur, including, among others, if:

•

the pledgor is insolvent at the time of the pledge;

​

•

the pledge permits the holder of the Notes to receive a greater recovery than if the pledge had not been given; and

​

•

a bankruptcy proceeding in respect of the pledgor is commenced within 90 days following the pledge, or, in certain circumstances, a longer period.

​

The value of the collateral may not be sufficient to satisfy all the obligations secured by such collateral. As a result, holders of the Notes may not receive full payment on their Notes following an acceleration of the Notes.

In the event of a foreclosure, the proceeds from the sale of all of such collateral may not be sufficient to satisfy the amounts outstanding under the Notes (and other obligations similarly secured, if any).

The value of the collateral in the event of liquidation will depend upon market and economic conditions, the availability of buyers and similar factors. In addition, the collateral does not include certain categories of assets. Some of these may be material to us and such exclusion could have a material adverse effect on the value of the collateral. By its nature, some or all of the collateral may not have a readily ascertainable market value or may not be saleable or, if saleable, there may be substantial delays in its liquidation. To the extent that liens, security interests and other rights granted to other parties encumber assets owned by us, those parties have or may exercise rights and remedies with respect to the property subject to their liens that could adversely affect the value of that collateral and the ability of the trustee under the indenture governing the Notes or the holders thereof to realize or foreclose on that collateral. Consequently, liquidating the collateral securing the Notes may not produce proceeds in an amount sufficient to pay any amounts due under the Notes after also satisfying the obligations to pay any other creditors with claims on the collateral. If the proceeds of any sale of collateral are not sufficient to repay all amounts due on the Notes, the holders of the Notes (to the extent not repaid from the proceeds of the sale of the collateral securing the Notes) would have only an unsecured, unsubordinated claim against our and the guarantors’ remaining assets. Bankruptcy laws and other laws relating to foreclosure and sale also could substantially delay or

 

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prevent the ability of the collateral agent or any holder of the Notes to obtain the benefit of any collateral securing the Notes. Such delays could have a material adverse effect on the value of the collateral.

Foreclosing on the collateral located outside the United States may be difficult due to the laws of certain jurisdictions.

The drilling rigs, which comprise part of the collateral, are registered under flags outside of the United States and will operate in international waters, and substantially all of our other assets are located outside of the United States. If we default under the Notes, the holders of the Notes may in certain circumstances be able to direct the trustee, subject to the applicable security documents, to bring a foreclosure action against us. We cannot assure you that these assets will be located in a jurisdiction having effective or favorable foreclosure procedures and lien priorities. Any foreclosure proceedings could be subject to lengthy delays and procedural hurdles resulting in increased custodial costs, deterioration in the condition of such assets and substantial reduction of the value of such collateral. In addition, some jurisdictions may not provide a legal remedy for the enforcement of a security interest in these assets.

Foreclosing on the rigs may be difficult because they are not easily transported.

The rigs are mobile and may be located and/or operated in international waters outside the jurisdiction of any court. This may make it difficult for a successful foreclosure action to be brought because it may be difficult for the collateral agent or officials of the applicable government or agency to physically seize the rigs and engage in a foreclosure sale. Moreover, the respective laws of each jurisdiction where a drilling rig is actually located at the time that the collateral agent may seek to enforce the mortgage will govern the foreclosure proceedings and distribution of proceeds. Such laws may vary significantly from jurisdiction to jurisdiction. Furthermore, all or some of those laws and procedures may be less favorable to mortgagees than those in other jurisdictions and may be less favorable than those applicable in the United States. The costs of enforcement in foreign jurisdictions, particularly if proceedings are ongoing simultaneously against drilling rigs in different jurisdictions, can be high and can include fees based on the face amount of the mortgages being enforced. Foreign court proceedings can also be slow and have unexpected procedural hurdles. In addition, some jurisdictions may not provide a legal remedy for the enforcement of mortgages on the rigs, and in certain circumstances, the rigs may be located in international waters outside the jurisdiction of any country. Consequently, the collateral agent may be unable to enforce any one or more of the mortgages covering the rigs that are located outside the United States.

Maritime liens may arise and take priority over the liens securing the Notes.

The laws of certain jurisdictions in which we may operate may give rise to the existence of maritime liens which may take priority over the rig mortgage and other liens securing the Notes and the guarantees. Such liens may arise in support of, among other things, claims by unpaid ship builders or ship repairers remaining in possession of the rigs, claims for salvage, claims for damage caused by a collision, claims for seamen’s wages and other employment benefits and claims for pilotage, claims for personal injury related to the operation of the rig, as well as potentially claims for necessary goods and services supplied to the rigs. This list should not be regarded as definitive or exhaustive, as the categories of claims giving rise to maritime liens, and the ranking of such liens, vary from one jurisdiction to another. Maritime liens can attach without any court action, notice, registration or documentation, and accordingly their existence cannot necessarily be identified.

We operate in countries that may expose the collateral to risk of loss or damage due to war, local economic instabilities, corruption, political disruption and civil disturbance.

A primary component of our business strategy is to operate in global oil and natural gas producing areas. The collateral could be damaged or lost due to a number of risks inherent in any business that operates globally, including:

•

war, piracy and acts of terrorism;

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•

potential seizure, expropriation or nationalization of assets;

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•

damage to our equipment or violence directed at our employees; and

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•

limitations on insurance coverage, such as war risk and named windstorm coverage in certain areas.

​

The collateral is be subject to casualty risks.

We intend to maintain insurance or otherwise insure against hazards in a manner appropriate and customary for our business. There are, however, certain losses that may be either uninsurable or not economically insurable, in whole or in part. Insurance proceeds may not compensate us fully for our losses. If there is a complete or partial loss of any of the collateral, the insurance proceeds may not be sufficient to satisfy all of the secured obligations, including the Notes and the related guarantees.

We may not be able to finance a change of control offer as required by the indenture that governs the Notes offered hereby.

Under the indenture that governs the Notes offered hereby, upon the occurrence of a Change of Control (as defined in the indenture), we may be required to offer to repurchase all of the Notes then outstanding at 101% of the principal amount, plus any accrued and unpaid interest to, but not including, the repurchase date. We may not be able to repurchase the Notes upon a Change of Control because we may not have sufficient financial resources to purchase all of the Notes that would be tendered. Our failure to repurchase the Notes upon a Change of Control would cause a default under the indenture that governs the Notes offered hereby. We may require additional financing from third parties to fund any such purchases or to repay such borrowings, and we may be unable to obtain financing on satisfactory terms or at all. Further, our ability to repurchase the Notes may be limited by law. In order to avoid the obligations to repurchase the Notes and events of default and potential breaches of the agreements governing our existing indebtedness, we may have to avoid certain change of control transactions that would otherwise be beneficial to us.

Risks Related to Our Emergence from Bankruptcy

We recently emerged from bankruptcy, which may adversely affect our business and relationships.

It is possible that our having filed for bankruptcy and our recent emergence from the Chapter 11 Cases may adversely affect our business and relationships with our vendors, suppliers, service providers, customers, employees and other third parties. Many risks exist as a result of the Chapter 11 Cases and our emergence, including the following: we may have difficulty obtaining acceptable and sufficient financing to execute our business plan; key suppliers, vendors and customers, may among other things, renegotiate the terms of our agreements, attempt to terminate their relationship with us or require financial assurances from us; our ability to renew existing contracts and obtain new contracts on reasonably acceptable terms and conditions may be adversely affected; our ability to attract, motivate and retain key employees and executives may be adversely affected; and competitors may take business away from us, and our ability to compete for new business and attract and retain customers may be negatively impacted.

The occurrence of one or more of these events could have a material and adverse effect on our operations, financial condition and reputation. We cannot assure you that having been subject to bankruptcy protection will not adversely affect our operations in the future.

Our actual financial results after emergence from bankruptcy may not be comparable to our projections filed with the Bankruptcy Court in the course of the Chapter 11 Cases.

In connection with the Disclosure Statement we filed with the Bankruptcy Court, and the hearing to consider confirmation of the Plan, we prepared projected financial information to demonstrate to the Bankruptcy Court the feasibility of the Plan and our ability to continue operations upon our emergence from the Chapter 11 Cases. Those projections were prepared solely for the purpose of the Chapter 11 Cases and have not been and will not be updated and should not be relied upon by investors. At the time they were prepared, the projections reflected numerous assumptions concerning our anticipated future performance with respect to then prevailing and anticipated market and economic conditions that were and remain beyond our control and that may not materialize. We have not reviewed the projections or the assumptions on which they were based after our emergence. Projections are inherently subject to substantial and numerous uncertainties and to a wide variety of significant business, economic and competitive risks, and the

 

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assumptions underlying the projections or valuation estimates may prove to be wrong in material respects. Actual results may vary significantly from those contemplated by the projections. As a result, investors should not rely on these projections.

Our historical financial information will not be indicative of future financial performance as a result of the implementation of the Plan and the transactions contemplated thereby, as well as our application of fresh start accounting following emergence.

Our capital structure was significantly impacted by the Plan. Under fresh start accounting rules that became applicable to us upon the Effective Date, assets and liabilities will be adjusted to fair values and our accumulated deficit will be reset to zero. Accordingly, because fresh start accounting rules apply, our financial condition and results of operations following emergence from the Chapter 11 Cases will not be comparable to the financial condition and results of operations reflected in our historical financial statements from before April 30, 2021.

The Warrants Valaris issued pursuant to the Plan are exercisable for Common Shares, and the exercise of such equity instruments would have a dilutive effect to Valaris’s shareholders.

On the Effective Date and pursuant to the Plan, Valaris issued 5,645,161 Warrants to the former holders of Legacy Valaris’s equity interests outstanding prior to the Effective Date. The Warrants are 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 until 5:01 p.m., Eastern Time, on April 29, 2028. The exercise of these Warrants into Common Shares would have a dilutive effect to the holdings of Valaris’s existing shareholders.

 

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GUARANTEE OF REGISTERED SECURITIES

Financial Information about Guarantors, Issuers of Guaranteed Securities, Affiliates Whose Securities Collateralize a Registrant’s Securities and Consolidated Subsidiaries

As described herein, the Notes issued by Valaris have been fully and unconditionally guaranteed, jointly and severally, on a senior secured basis, by certain of the direct and indirect subsidiaries (the “Guarantors”) of Valaris under the indenture governing the Notes (the “Guarantees”). The Notes and Guarantees are secured by liens on the collateral, including, among other things, subject to certain agreed security principles, (i) first-priority perfected liens on 100% of the equity interests of each restricted subsidiary directly owned by Valaris or any Guarantor and (ii) a first-priority perfected lien on substantially all assets of Valaris and each Guarantor, in each case subject to certain exceptions and limitations (collectively, the “Collateral”). We are providing the following information about the Guarantors and the Collateral in compliance with Rules 13-01 and 13-02 of Regulation S-X.

Note Guarantees

The Guarantees are joint and several senior secured obligations of each Guarantor and rank equally in right of payment with existing and future senior indebtedness of such Guarantor and effectively senior to such Guarantor’s existing and future indebtedness (i) that is not secured by a lien on the Collateral securing the Notes, or (ii) that is secured by a lien on the Collateral securing the Notes ranking junior to the liens securing the Notes. The Guarantees rank effectively junior to such Guarantor’s existing and future secured indebtedness (i) that is secured by a lien on the Collateral that is senior or prior to the lien securing the Notes, or (ii) that is secured by liens on assets that are not part of the Collateral, to the extent of the value of such assets. The Guarantees rank equally with such Guarantor’s existing and future indebtedness that is secured by first-priority liens on the Collateral and senior in right of payment to any existing and future subordinated indebtedness of such Guarantor. The Guarantees are structurally subordinated to all existing and future indebtedness and other liabilities of any non-Guarantors, including trade payables (other than indebtedness and liabilities owed to such Guarantor).

Under the indenture governing the Notes, a Guarantor may be automatically and unconditionally released and relieved of its obligations under its guarantee under certain circumstances, including: (1) in connection with any sale, transfer or other disposition (including by merger, consolidation, distribution, dividend or otherwise) of all or substantially all of the assets of such Guarantor to a person that is not the Company or a restricted subsidiary, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the indenture, (2) in connection with any sale, transfer or other disposition (including by merger, consolidation, amalgamation, distribution, dividend or otherwise) of all of the capital stock of any Guarantor, if such sale, transfer or other disposition is conducted in accordance with the applicable terms of the indenture, (3) upon Valaris’s exercise of legal defeasance, covenant defeasance or discharge under the indenture, (4) unless an event of default has occurred and is continuing, upon the dissolution or liquidation of a Guarantor in accordance with the indenture, and (5) if such Guarantor is properly designated as an unrestricted subsidiary, in each case in accordance with the provisions of the indenture governing the Notes. See “Description of Notes — Guarantees.”

Valaris conducts its operations primarily through its subsidiaries. As a result, its ability to pay principal and interest on the Notes is dependent on the cash flow generated by its subsidiaries and their ability to make such cash available to Valaris by dividend or otherwise. The Guarantors’ earnings will depend on their financial and operating performance, which will be affected by general economic, industry, financial, competitive, operating, legislative, regulatory and other factors beyond Valaris’s control. Any payments of dividends, distributions, loans or advances to Valaris by the Guarantors could also be subject to restrictions on dividends under applicable local law in the jurisdictions in which the Guarantors operate. In the event that Valaris does not receive distributions from the Guarantors, or to the extent that the earnings from, or other available assets of, the Guarantors are insufficient, Valaris may be unable to make payments on the Notes.

Pledged Securities of Affiliates

Pursuant to the terms of the Notes collateral documents, the collateral agent under the indenture governing the Notes may pursue remedies, or pursue foreclosure proceedings on the Collateral (including

 

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the equity of the Guarantors and other direct subsidiaries of Valaris and the Guarantors), following an event of default under the indenture governing the Notes. The collateral agent’s ability to exercise such remedies is limited by the intercreditor agreement for so long as any priority lien debt is outstanding.

The combined value of the affiliates whose securities are pledged as Collateral constitutes substantially all of the Company’s value, including assets, liabilities and results of operations. As such, the assets, liabilities and results of operations of the combined affiliates whose securities are pledged as Collateral are not materially different than the corresponding amounts presented in the consolidated financial statements of the Company. The value of the pledged equity is subject to fluctuations based on factors that include, among other things, general economic conditions and the ability to realize on the Collateral as part of a going concern and in an orderly fashion to available and willing buyers and outside of distressed circumstances. There is no trading market for the pledged equity interests.

Under the terms of the Notes Documents, Valaris and the Guarantors will be entitled to the release of the Collateral from the liens securing the Notes under one or more circumstances, including (1) upon full and final payment of any such obligations; (2) to the extent that proceeds continue to constitute Collateral, in the event that Collateral is sold, transferred, disbursed or otherwise disposed of in accordance with the Notes Documents; (3) upon Valaris’s exercise of legal defeasance, covenant defeasance or discharge under the indenture; (4) with respect to vessels, certain specified events permitting release of the mortgage with respect to such vessels under the indenture; (5) with the consent of the requisite holders under the indenture; (6) with respect to equity interests in restricted subsidiaries that incur permitted indebtedness, if such equity interests shall secure such other indebtedness and the same is permitted under the terms of the indenture; and (7) as provided in the intercreditor agreement. The collateral agency agreement also provides for release of the Collateral from the liens securing the Notes under the above described circumstances (but including additional requirements for release in relation to all of the documents governing the indebtedness that is secured by first-priority liens on the Collateral, in addition to the indenture). Upon the release of any subsidiary from its guarantee, if any, in accordance with the terms of the indenture governing the Notes, the lien on any pledged equity interests issued by such Guarantor and on any assets of such Guarantor will automatically terminate.

Summarized Financial Information

The summarized financial information below reflects the combined accounts of the Guarantors and Valaris (collectively, the “Obligors”), for the dates and periods indicated. The financial information is presented on a combined basis and intercompany balances and transactions between entities in the Obligor group have been eliminated.

Summarized Balance Sheet Information

 

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Summarized Statement of Operations Information

 

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Statements contained or incorporated by reference in this prospectus that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Exchange Act. Forward-looking statements include words or phrases such as “anticipate,” “believe,” “estimate,” “expect,” “intend,” “likely,” “plan,” “project,” “could,” “may,” “might,” “should,” “will” and similar words and specifically include statements regarding expected financial performance; the effects of the Chapter 11 Cases; expected utilization, day rates, revenues, operating expenses, cash flows, contract terms, contract backlog, capital expenditures, insurance, financing and funding; the effect, impact, potential duration and other implications of the COVID-19 pandemic; the offshore drilling market, including supply and demand, customer drilling programs, stacking of rigs, effects of new rigs on the market and effects of declines in commodity prices; expected work commitments, awards and contracts; the timing of availability, delivery, mobilization, contract commencement or relocation or other movement of rigs and the timing thereof; future rig construction (including work in progress and completion thereof), enhancement, upgrade or repair and timing and cost thereof; the suitability of rigs for future contracts; performance of our joint venture with Saudi Arabian Oil Company (“Saudi Aramco”); expected divestitures of assets; general market, business and industry conditions, trends and outlook; future operations; the impact of increasing regulatory complexity; the outcome of tax disputes, assessments and settlements; synergies and expected additional cost savings; dividends; expense management; and the likely outcome of litigation, legal proceedings, investigations or insurance or other claims or contract disputes and the timing thereof.

Such statements are subject to numerous risks, uncertainties and assumptions that may cause actual results to vary materially from those indicated, particularly in light of difficult market conditions, our projected negative cash flows in 2021 and highly leveraged balance sheet, including:

•

the ongoing COVID-19 pandemic, the related public health measures implemented by governments worldwide, the duration and severity of the outbreak and its impact on global oil demand, the volatility in prices for oil and natural gas and the extent of disruptions to our operations;

​

•

downtime or temporary shut down of operations of our rigs as a result of an outbreak of COVID-19 on one or more of our rigs;

​

•

disruptions to the operations and business, as a result of the spread of COVID-19, of our key customers, suppliers and other counterparties, including impacts affecting our supply chain and logistics;

​

•

disputes over production levels among members of the Organization of Petroleum Exporting Countries and other oil and gas producing nations, which could result in increased volatility in prices for oil and natural gas that could affect the markets for our services;

​

•

decreases in levels of drilling activity and capital expenditures by our customers, whether as a result of the global capital markets and liquidity, prices of oil and natural gas or otherwise, which may cause us to idle or stack additional rigs;

​

•

delays in contract commencement dates or cancellation, suspension, renegotiation or termination (with or without cause, including due to impacts of the COVID-19 pandemic) of drilling contracts or drilling programs as a result of general and industry-specific economic conditions, mechanical difficulties, performance or other reasons;

​

•

the occurrence of cybersecurity incidents, attacks or other breaches to our information technology systems, including our rig operating systems;

​

•

potential additional asset impairments;

​

•

the adequacy of sources of liquidity for us and our customers;

​

•

the reaction of our customers, prospective customers, suppliers and service providers to the Chapter 11 Cases and the related increased performance and credit risks associated with our constrained liquidity position and capital structure;

​

 

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•

our customers, in response to reduced oil price expectations, cancelling or shortening the duration of our drilling contracts, cancelling future drilling programs and seeking pricing and other contract concessions from us;

​

•

our ability to attract and retain skilled personnel on commercially reasonable terms, whether due to labor regulations, unionization, or otherwise, or to retain employees as a result of the imposition of further public health measures due to the COVID-19 pandemic, our financial condition generally or as a result of the Chapter 11 Cases;

​

•

internal control risk due to significant employee reductions;

​

•

changes in worldwide rig supply and demand, competition or technology, including as a result of delivery of newbuild drilling rigs and governmental policies that could reduce demand for hydrocarbons, including mandating or incentivizing the conversion from internal combustion engine powered vehicles to electric-powered vehicles;

​

•

downtime and other risks associated with offshore rig operations, including rig or equipment failure, damage and other unplanned repairs, the limited availability of transport vessels, hazards, self-imposed drilling limitations and other delays due to severe storms and hurricanes and the limited availability or high cost of insurance coverage for certain offshore perils, such as hurricanes in the Gulf of Mexico or associated removal of wreckage or debris;

​

•

governmental action, terrorism, cyber-attacks, piracy, military action and political and economic uncertainties, including civil unrest, political demonstrations, mass strikes, or an escalation or additional outbreak of armed hostilities or other crises in oil or natural gas producing areas of the Middle East, North Africa, West Africa or other geographic areas, which may result in expropriation, nationalization, confiscation or deprivation or destruction of our assets; or suspension and/or termination of contracts based on force majeure events or adverse environmental safety events;

​

•

risks inherent to shipyard rig construction, repair, modification or upgrades, unexpected delays in equipment delivery, engineering, design or commissioning issues following delivery, or changes in the commencement, completion or service dates;

​

•

our ability to enter into, and the terms of, future drilling contracts, including contracts for our newbuild rigs and acquired rigs, for rigs currently idled and for rigs whose contracts are expiring;

​

•

any failure to execute definitive contracts following announcements of letters of intent, letters of award or other expected work commitments;

​

•

the outcome of litigation, legal proceedings, investigations or other claims or contract disputes, including any inability to collect receivables or resolve significant contractual or day rate disputes, and any renegotiation, nullification, cancellation or breach of contracts with customers or other parties;

​

•

governmental regulatory, legislative and permitting requirements affecting drilling operations, including limitations on drilling locations (such as the Gulf of Mexico during hurricane season), limitations on new leases under the current moratorium on oil and gas leasing in U.S. federal lands and waters, and regulatory measures to limit or reduce greenhouse gas emissions;

​

•

potential impacts on our business resulting from climate-change or greenhouse gas legislation or regulations, and the impact on our business from climate-change related physical changes or changes in weather patterns;

​

•

new and future regulatory, legislative or permitting requirements, future lease sales, changes in laws, rules and regulations that have or may impose increased financial responsibility, additional oil spill abatement contingency plan capability requirements and other governmental actions that may result in claims of force majeure or otherwise adversely affect our existing drilling contracts, operations or financial results;

​

•

environmental or other liabilities, risks, damages or losses, whether related to storms, hurricanes or other weather-related events (including wreckage or debris removal), collisions, groundings, blowouts, fires, explosions, other accidents, terrorism, cyber-attacks or otherwise, for which insurance coverage and contractual indemnities may be insufficient, unenforceable or otherwise unavailable;

​

 

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•

tax matters, including our effective tax rates, tax positions, results of audits, changes in tax laws, treaties and regulations, tax assessments and liabilities for taxes;

​

•

our ability to realize the expected benefits of our joint venture with Saudi Aramco, including our ability to fund any required capital contributions or to enforce any payment obligations of the joint venture pursuant to outstanding shareholder notes receivable;

​

•

activism by our securityholders;

​

•

economic volatility and political, legal and tax uncertainties following the U.K. exit from the European Union; and

​

•

adverse changes in foreign currency exchange rates, including their effect on the fair value measurement of any derivative instruments that we may enter into.

​

In addition to the numerous risks, uncertainties and assumptions described above, you should also carefully read and consider “Item 1A. Risk Factors” in Part I and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II of our Annual Report on Form 10-K. Each forward-looking statement speaks only as of the date of the particular statement, and we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. You should consider these risks and uncertainties when you are evaluating an investment in the Common Shares and Notes.

 

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USE OF PROCEEDS

All of the Common Shares and Notes covered by this prospectus are being sold by the selling securityholders. See “Selling Securityholders.” We will not receive any proceeds from these sales of our Common Shares or Notes. We will pay all reasonable costs, fees and expenses incurred in effecting the registration of the Common Shares and Notes covered by this prospectus, including, without limitation, the SEC registration fee with respect to the Common Shares and Notes covered by this prospectus, reasonable fees and expenses of counsel, auditors and accountants and reasonable fees and expenses of underwriters to the extent customarily paid by issuers or sellers of securities.

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited condensed consolidated pro forma information (the “Pro Forma Financial Statements”) is based on the historical Consolidated Financial Statements of the Company. The Unaudited Pro Forma Balance Sheet summarizes the impact of the reorganization, implementation of the Plan and “fresh start” accounting as if the effective date of emergence from bankruptcy had occurred on March 31, 2021. The estimated reorganization value is allocated to the assets and liabilities based upon their estimated fair values. The estimated fair values of certain assets and liabilities, including our drilling rigs and rig related equipment, long-term notes receivable from ARO, equity method investment, pension obligations, deferred taxes and contingencies require significant judgments and estimates and the Pro Forma Balance Sheet reflects those estimates reasonably determined at July 7 , 2021. The Unaudited Pro Forma Statements of Operations for the year ended December 31, 2020 and for the three months ended March 31, 2021 summarize the impact of the reorganization, implementation of the Plan and “fresh start” accounting as if the effective date of emergence from bankruptcy had occurred on January 1, 2020, the beginning of the most recently completed fiscal year. Our historical financial statements will not be comparable to our financial statements after emergence from chapter 11 due to the effects of the Plan and the adoption and application of Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 852, Reorganizations (“ASC Topic 852”) under accounting principles generally accepted in the United States of America (“GAAP”). The Pro Forma Financial Information has been prepared in accordance with Article 11 of Regulation S-X as amended by the final rule, Release No. 33-10786 “Amendments to Financial Disclosures about Acquired and Disposed Businesses.” You should read the Pro Forma Financial Statements in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Risk Factors,” and our consolidated financial statements and related notes and other financial information included elsewhere or incorporated by reference in this prospectus.

We have prepared the Pro Forma Financial Statements for informational and illustrative purposes only and they do not purport to represent what the results of operations or financial condition would have been had the respective transactions actually occurred on the dates indicated, nor do we purport to project the results of operations or financial condition for any future period or as of any future date. The actual results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. See “Risk Factors.” Additionally, the value of shares may vary materially from the fair value of equity determined under GAAP.

Restructuring Support Agreement

On August 18, 2020, the Debtors entered into the Restructuring Support Agreement (the “RSA”) with certain senior note holders (the “Consenting Noteholders”). On February 5, 2021, the Debtors entered into the Amended RSA (the “Amended RSA”) with the Consenting Noteholders and certain holders of 100% of our commitments under our former revolving credit facility. Below is a summary of the treatment that the stakeholders of the Company received under the plan of reorganization pursuant to the terms of the Amended RSA:

•

Holders of the Company’s outstanding senior notes (“Senior Notes”) received their pro rata share of (1) approximately 39% of new common stock issued after consummation of the restructuring (the “New Equity”) and (2) approximately 97.6% of the subscription rights to participate in the rights offering (the “Rights Offering”) through which the Company offered $550 million of “Notes”, which includes the Backstop Premium (as defined below);

​

•

Holders of the Senior Notes who participated in the Rights Offering received their pro rata share of approximately 29.3% of the New Equity, together with the RCF Lenders (as defined below) who received their pro rata share of approximately 0.7% of the New Equity; and senior noteholders who agreed to backstop the Rights Offering received their pro rata share of approximately 2.63% of the New Equity, together with 0.07% of the New Equity reserved for RCF Lenders, approximately $48.8 million in Notes reserved for the holders of the Senior Notes and approximately $1.2 million in Notes reserved for the RCF Lenders (the “Backstop Premium”);

​

•

Senior noteholders, solely with respect to Pride International LLC’s (“Pride”) 6.875% senior notes due 2020 and 7.875% senior notes due 2040, Ensco International 7.20% Debentures due 2027, and the

​

 

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Company’s 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 million in connection with settlement of certain alleged claims against the Company;

•

Lenders under the revolving credit facility (“RCF Lenders”) were provided an option to select between two alternative treatments: (1) the ability to participate on a pro rata basis in up to 14% of the Rights Offering plus a recovery of up to 30.8% of the New Equity and up to $45.0 million in cash, or (2) a pro rata recovery of up to 27.8% of the New Equity and up to $116.2 million in cash. Following the results of that election, the two RCF Lenders who chose to participate in the Rights Offering received their pro rata share of (1) approximately 5.3% of the New Equity, (2) approximately 2.4% of the Notes (and associated New Equity), (3) approximately $7.8 million in cash, and (iv) their pro rata share of the Backstop Premium. The RCF Lenders who entered into the Amended RSA and elected not to participate in the Rights Offering received their pro rata share of (1) approximately 23.0% of the New Equity, and (2) approximately $96.1 million in cash;

​

•

Holders of general unsecured claims will receive payment in full or reinstatement pursuant to the Bankruptcy Code (excluding claims against the entities party to, or guaranteeing, the new build contracts to be rejected by the Company, which shall receive their liquidation value unless otherwise agreed. See discussion of new build contracts below.); and

​

•

Holders of our existing Class A ordinary shares have each received their pro rata share of 7-year Warrants to purchase up to 7% of New Equity (subject to dilution), with a strike price set at a price per share equal to the value at which the senior noteholders would receive a 100% recovery on their claims including accrued interest up to the Petition Date, as applicable.

​

Backstop Commitment Agreement

On August 18, 2020, the Company entered into a Backstop Commitment Agreement (the “Initial BCA”) with the initial Backstop Parties (as defined by the Plan). The Initial BCA was amended on September 10, 2020, January 22, 2021 and February 5, 2021 (as so amended, the “Amended BCA”). Pursuant to the Amended BCA, each of the Backstop Parties purchased its pro-rata portion (based on an adjusted claims value) of (1) $187.5 million of the Notes held back for purchase by the Backstop Parties, (the “Holdback Notes”), (2) all of the Notes offered to Backstop Parties as part of the $312.5 million Notes offered to all claim holders (the “General Rights Offering”) and (3) the Notes not purchased by non-Backstop Parties in the General Rights Offering. Pursuant to the Amended BCA, certain holders of claims related to the revolving credit facility were entitled to, among other things, 2.427% of the Holdback Notes and the Notes (together with certain stapled participation equity) offered in the General Rights Offering, as well as a portion of the equity premium payable to all Backstop Parties consisting of 2.7% of New Equity and Backstop Premium payable in $50.0 million in Notes.

In each instance, 30% of the new shares issued and outstanding immediately after the Effective Date (subject to dilution by the Warrants and the Management Incentive Plan) were allocated proportionally to purchasers of the Notes for no additional consideration. Additionally, in exchange for providing the backstop commitments, the Company agreed to pay the Backstop Parties a Backstop Premium in an aggregate amount equal to $50.0 million payable in Notes on the Effective Date, in addition to 2.7% of New Equity. Further, the Debtors paid a commitment fee of $20.0 million, in cash prior to the August 19, 2020 (the “Petition Date”), which was loaned back to the reorganized company upon emergence. Therefore, upon emergence the Debtors received $520 million in cash in exchange for a $550 million note, which includes the Backstop Premium.

New Build Contract Amendment

We entered into amended agreements with the shipyard on February 26, 2021 that became effective upon our emergence from bankruptcy. The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023. Under the amended agreements, the purchase price for the rigs are estimated to be approximately $119.1 million for the VALARIS DS-13 and $218.3 million for the VALARIS DS-14, assuming a December 31, 2023 delivery date. Delivery can be requested any time prior to December 31,

 

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2023 with a downward purchase price adjustment based on predetermined terms. If the Company elects not to purchase the rigs, the Company has no further obligations to the shipyard. The amended agreements remove any Company guarantee.

Pursuant to the amended agreements, the delivery dates were extended, the guarantee was released, we transferred title of certain equipment to the shipyard and issued 375,000 shares of New Equity to the shipyard. The equity issued pursuant to this arrangement can be put to the Company for $8 million of consideration, included in the purchase price above, for each rig, should we choose to take delivery.

 

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VALARIS LIMITED (DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MARCH 31, 2021
(In millions)

The accompanying notes are an integral part to these unaudited pro forma condensed consolidated financial statements.

 

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VALARIS LIMITED (DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2021
(In millions, except per share amounts)

The accompanying notes are an integral part to these unaudited pro forma condensed consolidated financial statements.

 

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VALARIS LIMITED (DEBTOR-IN-POSSESSION)
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2020
(In millions, except per share amounts)

The accompanying notes are an integral part to these unaudited pro forma condensed consolidated financial statements.

 

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Note 1 — Balance Sheet Pro Forma Adjustments

Reorganization Adjustments

(a)

Cash

​

Reflects the following cash pro forma adjustments (in millions):

​

(b)

Other current assets

​

Primarily reflects the pro forma adjustment to record the funding of certain professional fees, which will be held in escrow until billings from professionals have been received.

(c)

Property & Equipment, net

​

Reflects the following pro forma adjustment to remove $418 million of work-in-process related to the VALARIS DS-13 and VALARIS DS-14 (the “newbuild rigs”). These values have been removed from property & equipment, net, based on the terms of the amended agreements with Daewoo Shipbuilding & Marine Engineering Co., Ltd (the “Shipyard”). The amendments provide for, among other things, an option construct whereby the Company has the right, but not the obligation, to take delivery of either or both rigs on or before December 31, 2023. As a result of the option to take delivery, we removed the historical newbuild rig values from the balance sheet.

(d)

Other assets

​

Reflects the following pro forma adjustments (in millions):

Our Valaris supplemental executive retirement plans (the “SERPs”) were non-qualified plans that provided eligible employees an opportunity to defer a portion of their compensation for use after retirement. The SERPs were 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 SERPs were amended.

We previously considered the newbuild rigs’ stacking locations as leased locations. However, under the amended agreements, these arrangements are no longer considered leases. Additionally, upon effectiveness of the Plan, the amended agreement provides the Company with the options to purchase the newbuild rigs.

 

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(e)

Accrued liabilities and other

​

Reflects the following pro forma adjustments (in millions):

The pro forma adjustments for accrued liabilities primarily relate to payment of professional fees incurred prior to or as a result of emergence. Additionally, in accordance with the amended agreement with the Shipyard, we have eliminated the historical lease liability associated with the berthing location of VALARIS DS-13 and VALARIS DS-14. Additionally, accrued holding costs have been eliminated as a result of the amendments executed upon emergence.

(f)

Long-term debt

​

Reflects the pro forma adjustment to record the issuance of the $550 million aggregate principal amount of Notes and debt issuance costs of $25 million.

(g)

Other liabilities

​

Reflects the following pro forma adjustments (in millions):

The pro forma adjustments to other liabilities primarily relate to the elimination of construction contract intangibles associated with the newbuild rigs. These construction contract intangible liabilities were associated with the previous contact that has now been amended. As the amended contract is structured as an option whereby we have the right, not the obligation to take delivery of the rig, there is no longer an intangible liability associated with the contract and it has been eliminated from the pro forma financial statements.

The pro forma adjustments reflect a liability 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 million of consideration for each rig, should we choose to take delivery.

(h)

Liabilities subject to compromise

​

Reflects the following pro forma adjustments (in millions):

 

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(i)

Total equity

​

Represents the pro forma adjustments to total equity as follows (in millions):

Fresh Start Adjustments

(j)

Other current assets

​

Reflects the pro forma adjustments to record the estimated fair value of other current assets as follows (in millions):

Primarily reflects the pro forma adjustment to eliminate the Valaris historical balance for materials and supplies as the result of a change in accounting policy upon emergence. Historically, Valaris recognized materials and supplies on the balance sheet when purchased and subsequently expensed items when consumed. However, upon emergence, Valaris implemented a change in the policy and going forward materials and supplies will be expensed as a period cost when received for use.

The pro forma adjustment for the elimination of historical deferred contract drilling expenses primarily relates to deferred mobilization costs and deferred contract preparation 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. These deferred costs have no future economic benefit to Valaris and are eliminated from the pro forma financial statements.

(k)

Property and equipment, net

​

Reflects the pro forma adjustments to historical amounts to record the estimated fair value of property and equipment. We estimated the fair value of the rigs and equipment primarily by applying an income approach, using projected discounted cash flows, a risk-adjusted discount rate and an estimated effective income tax rate. The fair value of our property and equipment includes an adjustment to reconcile to our reorganization value.

(l)

Long-term notes receivable from ARO

​

Reflects the pro forma adjustment to record the estimated fair value of the long-term notes receivable from Saudi Aramco Rowan Offshore Drilling Company (“ARO”). We estimated the fair value of the notes primarily by applying an income approach, using projected discounted cash flows of the interest income and principal payments and a risk-adjusted discount rate.

(m)

Investment in ARO

​

Reflects the pro forma adjustment to record the estimated fair value of the equity investment in ARO. We estimated the fair value of the equity investment in ARO primarily by applying an income approach,

 

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using projected discounted cash flows of the underlying assets of ARO, a risk-adjusted discount rate and an estimated effective income tax rate.

(n)

Other assets

​

Reflects the pro forma adjustments to record the estimated fair value of other assets as follows (in millions):

The pro forma adjustment to eliminate historical deferred contract drilling expenses reflects the noncurrent portion of historical deferred contract drilling expenses described in (j) above.

The pro forma adjustment to record the estimated fair value of contracts with customers represents the intangible assets recognized for firm customer contracts in place at the pro forma balance sheet date that have favorable contract terms as compared to current market day rates for comparable drilling rigs. The various factors considered in the pro forma 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 pro forma balance sheet 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 on a straight-line basis.

The pro forma 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 certain assets and liabilities recorded under fresh start accounting and the carryover tax basis of those assets and liabilities.

(o)

Accrued liabilities and other

​

Reflects the pro forma adjustments to record the estimated fair value of current liabilities as follows (in millions):

The pro forma adjustment to eliminate the customer payable balance is related to the change in accounting policy for a contract with a customer whereby we will record a net amount receivable from or payable to the customer for amounts due at the end of the contract as opposed to on a gross basis.

The pro forma 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 future performance obligations of Valaris and are eliminated from the pro forma financial statements.

The pro forma adjustment for deferred income tax liabilities represents the estimated incremental deferred income 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.

 

35

 

(p)

Other liabilities

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Reflects the pro forma adjustments to record the estimated fair value of other liabilities as follows (in millions):

The pro forma 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 pro forma adjustment to eliminate deferred revenues reflects the noncurrent portion of deferred revenues described in (o) above.

The pro forma adjustment for deferred income tax liabilities represents the estimated incremental deferred income 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 pro forma adjustment to record the estimated fair value of contracts with customers reflects the intangible liabilities recognized for firm customer contracts that have unfavorable contract terms as compared to current market day rates for comparable assets. The various factors considered in the pro forma 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 pro forma balance sheet 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.

(q)

Total equity

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The pro forma adjustment represents the impact of fresh start adjustments.

Note 2 — Statements Of Operations Pro Forma Adjustments

Reorganization Adjustments

(a)

Contract drilling expense

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Represents the pro forma adjustments to contract drilling expense as follows (in millions):