Nobody likes to receive unexpected bills. Imagine the shock of Bourbon Corporation's CEO, Chairman, Founder, and de facto controlling shareholder, Jacques de Chateauvieux, when he opened his mail last month and received a pile of letters of demand from the Chinese finance company ICBC Leasing. Mr de Chateauvieux was on the record that his company had been engaged in "amicable negotiations" to reschedule his company's debts to ICBC in light of the offshore industry crisis. Now the pile of payment claims on his desk showed that the situation was clearly no longer "amicable."
Whereas most of us have to deal with the shock of credit card bills which perhaps run into the thousands upon our return from our holidays, poor Mr de Chateauvieux found himself on the receiving end of what he described as "a series of letters" sent on July 18, claiming US$800 million from Bourbon, relating to the sale and leaseback of 46 offshore support vessels from Bourbon's fleet of 483.
ICBC Leasing was demanding the immediate payment of all outstanding rental payments on these vessels up to 2026. That's right, in the middle of an industry downturn where most OSV players are struggling to generate any operating cashflow whatsoever, the Chinese lender is expecting Bourbon to pay seven years of bareboat charter hire up front, and in cash!
Pandemonium followed in Marseille and Paris. There was a hasty meeting of the board of directors of Bourbon, which issued a very vague press release on Monday, July 22, suspending the trading of the company's shares on the Euronext stock exchange with immediate effect. Shareholders should perhaps have taken heed of the warning Offshore Accounts had given a few weeks back, when it was obvious that any restructuring plan for the company might see their equity wiped out.
ICBC's aggressive claim for immediate repayment has pretty much ensured that this will occur, only a few weeks after Mr de Chateauvieux had reappointed himself as CEO of Bourbon. At the time, his appointment as CEO seemed likely to cement his control over the restructuring process, and to ensure that the plan he proposed would be recommended by management to the board and the shareholders, over that of the proposal from other creditors, including ICBC, who had offered to swap $1.4 billion of debt for nearly all of the equity in Bourbon.
As Offshore Accounts highlighted then, the proposal from the creditors would have wiped out a significant chunk of the personal wealth of Mr de Chateauvieux and his brother, but set Bourbon on a clear path to survival. Now it seems that the Chinese finance house, one of Bourbon's largest lenders, has gone nuclear to protect its interests.
On top of the $800 million that ICBC was demanding from Bourbon, it also transpires that Bourbon Corporation has given other parent guarantees to two other Chinese finance companies, Minsheng Leasing and the Export-Import Bank of China. The Bourbon directors stated that they were "examining available options" and that they intended, "to pursue discussions with its creditors with the objective to take all appropriate measures to protect its interests and those of its personnel."
It soon became obvious that there were few options to manage ICBC's massive demand. Bourbon rushed to court to try to obtain protection from its creditors, and filed a request for what is known as a "sauvegarde" procedure. Unfortunately, the Commercial Court of Marseilles denied the company's application. The court determined that the guarantees ICBC Leasing were drawing upon were valid, and that Bourbon was, legally speaking, insolvent as a result of the ICBC Leasing claims. The French court rejected the company's request for the "sauvegarde" procedure on July 24.
That left Bourbon out of options. On Thursday, July 25, Bourbon Corporation announced that it had requested the initiation of reorganisation proceedings (what the French legal code calls "redressement judiciaire") in the Commercial Court of Marseilles. The description Bourbon gives on its website about the redressement judiciaire is as follows: "The reorganisation proceedings are a collective procedure that freezes the liabilities existing at the beginning of the procedure during the observation period which can last up to 18 months. The purpose of this procedure is to enable the debtor to present a plan for the continuation of his activities by reorganising his debt – which may be spread over a maximum period of 10 years – and to ensure his [sic] recovery."
Bourbon has been at pains to stress that the reorganisation proceedings will only concern the holding company and not the operating companies, "which will be able to continue their normal operations and continue to meet the needs of customers. Bourbon Corporation's aim is to preserve the group's operating activities in order to actively participate in the emerging recovery of a profoundly changing market. Bourbon is thus continuing the radical transformation of its business model, with the deployment of the #bourboninmotion strategic action plan."
But none of this talk of strategic plans and uninterrupted operations hides the profound threat the ICBC claim makes to the integrity and to the continued survival of Bourbon. The only motion Bourbon appears to be in at the moment is towards uncertainty and possible breakup, as creditors assert themselves.
In 2013 and 2014 when Bourbon announced the ten-year sale and leaseback deals with ICBC, it stated that the sale and leaseback deals for the 46 vessels were worth over US$1.4 billion, and the company described them as a key part of its "transforming for beyond" programme. The same release in December 2014 also highlighted that Bourbon had sold an additional eight vessels to Minsheng Leasing for $202 million, and six ships to Standard Chartered Bank for another $151 million under similar sale and leaseback deals.
As soon as the downturn bit in 2015, Bourbon faced struggles to service the bareboat commitments – hence the fact that ICBC is now claiming charter hire up until 2026, not 2023 or 2024, as originally negotiated. The industry press claimed that the original deal contained a provision for Bourbon to pay ICBC an annual charter fee of about eight per cent of the vessel price. The Minsheng deal called for Bourbon to pay the lenders over nine per cent back on the purchase price annually for ten years, an average bareboat rate of just under US$7,000 per vessel, in addition to opex. Following the downturn in 2015, that has been almost impossible to achieve.
Since prices for PSVs in 2014 were two or three times higher than they are now, it is clear that it would be impossible for Bourbon to service the debt, and that there is no equity left in the leased units. The sale of the PSV Olympus under judicial auction in Gibraltar in April of this year valued the five-year old, high specification vessel at 20 per cent of its new build cost.
Following its shareholders' meeting on June 28, Bourbon had proposed two options for the payment of its financial commitments to its creditors, which is claimed were, "based on the principle of value creation sharing", which in practice seemed to mean, "we can't pay, and you can't make us."
The first proposal was essentially a write-down, with the possibility of the lenders sharing in the upside financial benefits of any future market recovery. The second was a debt-for-equity swap, whereby Bourbon would reduce the amount of debt to be repaid, extend the interest and principal over eight years, and offer lenders a maximum of 30 per cent of Bourbon Corporation's share capital. Of course, offering lenders only 30 per cent of the company's capital would enable Mr de Chateauvieux to maintain his control over the company. This has always been his game plan.
ICBC's pre-emptive claim should be seen as an aggressive attempt to seize the initiative back from Mr de Chatueavieux. One that has been devastatingly effective at breaking the stasis between the company, its owners and directors, on the one side, and its dissatisfied, out of pocket lenders on the other.
In the short term, nothing. Bourbon has up to 18 months to reach agreement with its creditors. The French commercial court will place most importance on preserving the jobs of the company's French employees, above the immediate repayment of debts, so avoiding the catastrophic break-up of the company in piecemeal asset sales, as happened with Toisa earlier this year.
However, it is clear that Mr de Chateauvieux's efforts to limit creditors to claiming only 30 per cent of the company's equity has failed. Either he and his brother are going to have to reach into their pockets and contribute fresh equity if they are to maintain the control they so desperately crave, or they risk ceding all control to the lenders.
Since the court procedure can extend the debt maturity to ten years, given the weak recovery and ongoing misery in offshore charter markets, we can expect a combination of delaying payments over a decade, and the debtors taking equity and a majority shareholding in a "New Bourbon".
A New Bourbon, unencumbered by absurdly high bareboat charters from ill-timed and ill-prices sale and leaseback deals; A New Bourbon with a smaller fleet, less debt, and new shareholders. A New Bourbon which will hopefully have very little to do with the conflicts of interest poor corporate governance of the Old Bourbon under the control of Mr de Chateauvieux.
Expect the wrangling to last until the end of 2020, as management and lenders refuse to back down, and both eye utilisation and charter rates in the hope that the promised "emerging recovery" finally happens to strengthen the company's available cash.
Firstly, that the Chinese leasing houses are a lot more assertive than many of their borrowers had expected, and hoped. Bourbon was not the only company to sign sale and leasebacks with ICBC and Minsheng. Other borrowers must be concerned that the finance houses will be far more aggressive in ensuring repayment of bareboat hired earned. Beware the postman bearing letters from China.
Secondly, that even in its fifth year, the offshore crisis is far from over. Around the same time that Bourbon was throwing itself upon the mercy of the commercial court in Marseille, Emas Offshore was finally placed under judicial protection in Singapore, McDermott reported another quarter of disastrous losses, and Topaz Energy and Marine was sold at book value by its Omani owners to a company owned by the Government of Dubai, DP World.
But there will be more huge offshore stories to follow, bigger than Emas and bigger even than Bourbon. We're looking at the rig market and seeing both Seadrill and Borr Drilling facing tough cash flow issues, and in the OSV space both Solstad and DOF have arguably worse balance sheets than Bourbon. Unfortunately, Norwegian law doesn't give its insolvent companies 18 months to restructure under the French-style redressement judiciaire. Like Bourbon, more offshore companies should perhaps be preparing for "Transforming for Beyond". And not in a good way.
Background:
Italian Legal Firm Morace ran this analysis of Bourbon's sale and leaseback deals:
The Bourbon website www.bourbonoffshore.com/en provides a full history of the company's grandiose press releases, sudden judicial filing, and turbulent past.