Paragon Offshore eyes options after court denies bankruptcy plan

CHICAGO, Oct 28 (Reuters) - Paragon Offshore Plc said on Friday it was evaluating its options after a U.S. judge rejected the offshore rig contractor's plan to exit bankruptcy, an unusual setback for a corporate Chapter 11 proceeding.

In an oral ruling in U.S. Bankruptcy Court in the District of Delaware, Judge Christopher Sontchi said the plan was not feasible because it removes too much cash from the company during the current downturn.

The ruling does not preclude the company from a restructuring under a different plan, he said.

"The company continues to believe, but cannot provide any assurances, that a positive resolution of the company's restructuring process can be achieved," Paragon said in a statement following the ruling.

Houston-based Paragon, with rigs around the world, filed a pre-negotiated Chapter 11 in February with about $2.6 billion of long-term debt.

Paragon's secured lenders had said that the company faced a risk of a second Chapter 11 filing because of overly ambitious assumptions.

While oil prices have recently stabilized above $50 per barrel, Patrick Hughes of law firm Haynes and Boone said there are still more Chapter 11 filings for oil producers and service providers on the horizon.

(Reporting by Tracy Rucinski in Chicago and Jessica DiNapoli in New York; Editing by Jonathan Oatis)