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fleet of 42 deep well drilling rigs, utilizing the most modern
equipment in the industry. In 1981, CDC placed orders for the
components needed to fabricate 42 rigs, at a total purchase price
of $263 million. During 1981 and 1982, CDC completed fabrication
of 22 drilling rigs. Drilling rigs are highly complex pieces of
equipment that require extensive and frequent maintenance to
remain operational. At its peak in 1981 and 1982, CDC had more
than 500 employees.
To fund the construction of its new rig fleet, CDC secured
purchase money financing from sellers of rig components, obtained
standard bank financing, and entered into sale-leaseback
arrangements. In 1981, CDC entered into transactions with
Metromedia, Inc. (Metromedia), and Atlantic Richfield Co. (ARCO).
CDC sold 10 of its new drilling rigs to Metromedia and ARCO and
then leased the rigs from the purchasers. These lease agreements
(safe harbor leases) were supported by letters of credit. Under
the terms of the safe harbor leases, CDC was required to maintain
its corporate existence and maintain insurance against
customarily insured losses and could not dispose of substantially
all of its assets.
In December 1981, CDC established a deposit account with
First National Bank of Seattle (Seattle-First), as required by
the letter of credit agreement related to the ARCO safe harbor
lease. As the tax benefits accrued to ARCO, the amount required
to secure the tax benefits declined, and funds were released to
CDC (or later placed in a cash collateral account).
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