Question
Houston-based Diamond Offshore Drilling has already filed for bankruptcy and more bankruptcies are expected in the oil and gas industry. There was a great deal
Houston-based Diamond Offshore Drilling has already filed for bankruptcy and more bankruptcies are expected in the oil and gas industry. There was a great deal of interest in investing in the oil and gas industry over the past 10 years. Investors loaned money to oil and gas companies at generally low interest rates with an expectation that there was such tremendous cash flow in the oil and gas industry that it would be easy for companies to repay those loans on a timely basis. That simply has not happened. Last month the price of a barrel of oil went negative as there was too much oil and not enough places to store it. The price of oil is still low, roughly $25 per barrel, and it's simply not high enough to repay the billions of dollars of debt that was invested in the industry over the last decade.
Please explain the difference between a Chapter 7 and a Chapter 11 bankruptcy and, as part of that explanation, highlight why a company like Diamond Offshore Drilling might prefer a Chapter 11 bankruptcy to a Chapter 7 bankruptcy.
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