CGG: CGG Holding (U.S.) Inc. / CGG S.A.

Bankruptcy Feature: An interesting background feature.

Corporate History & Current Operations CGG S.A. was formed in 1931 under French law (with the original name Compagnie Generale de Geophysique) to develop and market geophysical techniques to analyze underground geological resources. The Company soon developed seismic techniques that could be adapted to oil and gas exploration and production, and the Company eventually grew through a series of acquisitions.

CGG S.A. changed its name to Compagnie Generale de Geophysique – Veritas in 2007 after its acquisition of Veritas, with the CGG S.A. name subsequently adopted in 2013.CGG S.A. is a publicly traded “societe anonyme” organized under the laws of the Republic of France.

CGG S.A.’s common stock trades on both the New York Stock Exchange and Euronext Paris. CGG S.A. is the direct or indirect parent for each of the affiliated Debtors in the U.S. Bankruptcy Court proceedings. CGG Holding (U.S.) is a holding company with no material assets other than its equity interests in the U.S. subsidiaries and certain miscellaneous intellectual property; it does not have any employees. CGG Holding (U.S.) does, however, serve as the cash pooling entity for its U.S. subsidiaries.

Today’s CGG S.A. and its Debtor and non-debtor subsidiaries (collectively, CGG or the Group) is a global geophysical and geoscience services company serving customers principally in the oil and gas exploration and production industry.

CGG is a fully integrated geoscience company, capable of providing its clients with a wide range of data acquisition, processing and interpretation services, as well as related imaging and interpretation software that can be used in all aspects of their activities, ranging from initial exploration of potential fields to the conclusion of oil and gas production.

CGG is also a global manufacturer of geophysical equipment, with more than 50 locations and nearly 6,000 employees worldwide. CGG’s global operations are organized under three distinct reporting segments:

(1) “Data Acquisition,” through which the Group performs geophysical acquisition of seismic and mining data by land, air and sea;

(2) “Equipment Manufacturing,” through which the Group manufactures market-leading geophysical equipment under the “Sercel” name;

(3) A broad-ranging geology, geophysicsand reservoir services business, through which the Group, among other things, processes and interprets seismic and other data and offers geoscience and petroleum engineering consulting. Included within this category are a number of discrete business lines, including,

(a) the subsurface imaging and reservoir business and

(b) the multi-client library business.

Financial Challenges Like others within and related to the energy industry, CGG predictably points to recent oiland gas price declines. According to documents filed with the Court, “The precipitous drop in oil and gas prices since 2013 (the price of Brent decreasing from $110.80 per barrel at the end of 2013 to a low of $37.28 per barrel at the end of 2015) and the failure of those prices to rebound significantly since that time is well known, as are the dramatic and severe negative consequences that those changes have wrought for the industry as a whole….

The Group has suffered the effects of this adverse market.” To address its mounting challenges, on June 2, 2017, CGG announced an agreement in principle on a financial restructuring plan that meets the Company’s objectives of

(i) full equitization of the existing unsecured debt,

(ii) extension of the maturity of the secured debt and

(iii) financial flexibility

to confront various business scenarios through, inter alia, additional new money and has garnered the support of the majority of its secured lenders, the majority of the holders of its senior notes and DNCA (one of CGG’s largest shareholders).

On June 14, 2017, CGG officially launched necessary “legal processes” to implement a comprehensive pre-arranged restructuring, a Sauvegarde (safeguard) proceeding in France and Chapter 11 and Chapter 15 filings in the U.S. Jean-Georges Malcor, C.E.O. of CGG notes, “CGG has accomplished a major step today for its comprehensive financial restructuring plan. The…restructuring plan meets our objectives of substantially reducing the debt on our balance sheet while preserving the integrity of the CGG Group. We expect that our financial restructuring can move forward quickly to strengthen our balance sheet and to position the company well for the future.”

Under the terms of the proposed restructuring agreements, upon emergence, approximately $1.95 billion in debt will be eliminated from CGG’s balance sheet through full equitization of the principal amount of unsecured debt and the maturity of $0.8 billion of existing secured debt will be extended.

The restructuring plan further calls for up to $500 million of new money to be raised, split between the following:

(i) A $125 million right issue with warrants to be opened to existing shareholders (backstopped by DNCA in cash for $80 million, and potentially other significant shareholders in cash or senior noteholders by way of set-off);

(ii) A $375 million issue of new second lien senior notes with penny warrants to be provided by eligible unsecured senior noteholders under the terms of a Private Placement Agreement (PPA).

The PPA provides that the second lien bond offering will be fully backstopped by the ad hoc committee of senior noteholders.

Bankruptcy Filings To implement this restructuring, CGG Holding (U.S.) and 13 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in Manhattan on June 15, 2017. Concurrent with the Chapter 11 filing, CGG, S.A. also filed its Chapter 15 proceeding in the same court. That petition indicates that CGG also initiated its Sauvegarde before the Tribunal de Commerce de Paris (Commercial Court of Paris) France.

CGG’s E.V.P., general secretary and group general counsel, Beatrice Place-Faget, is the foreign representative for that proceeding. The Company explains, “Through careful coordination between, and with input from, the Group’s various advisors, management developed a two-prong strategy for a possible in-court restructuring. Specifically, the Group and its advisors determined that, if circumstances required an in-court process, CGG S.A.–as the obligor for most of the Group’s principal indebtedness–would commence a Safeguard Proceeding in France and each of the Debtors–as the guarantors under much of that same indebtedness–would commence chapter 11 cases in the U.S.

In addition, the parties determined that CGG S.A. would commence a chapter 15 case in the U.S. to recognize the Safeguard Proceeding and to aid in implementation of the overall restructuring.

Finally, certain of the Debtors who are not organized under U.S. law would commence proceedings in their own jurisdictions to recognize the chapter 11 filings.”

According to a corporate release, CGG’s restructuring plan is expected to be implemented by the end of February 2018, assuming the applicable conditions are satisfied or waived.

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