Norway is famous as the land of the midnight sun, where warm summer days stretch endlessly on, one into another.
So, too, in offshore restructurings, where Norwegian companies in default have endless negotiations with their creditors, stretching for years on end, with no resolution and no sunset (past coverage here).
But the pressure of the renewed crisis caused by the collapse of the oil price has finally forced some outcomes. With oil at $30 a barrel, and customers cancelling contracts around the world, kicking the can down the road and hoping for a miracle is no longer possible.
Finally, on April 1, Solstad Offshore, long distressed under a mountain of debt and in standstill with its lenders, reached a revolutionary agreement to restructure, as Reuters reported here.
Before reaching agreement with its creditors, Solstad sensibly did some housecleaning, finally terminating five of the most onerous (or optimistic) sale and leaseback deals ever undertaken in the offshore sector.
On March 17, it terminated the bareboat charter agreements for the DP1, UT755-L design PSVs Sea Halibut and Sea Pike with SFL Corporation, having previously agreed in February also to terminate the bareboat charter agreements with SFL for three mid-sized AHTSs, Sea Cheetah, Sea Jaguar, and Sea Leopard.
All five vessels had been laid up since 2016, but Solstad was still obligated to pay bareboat to SFL, a liability the company acquired following the disastrous acquisition of Deep Sea Supply in 2017.
The deal had been made in the halcyon days of 2007, when Deep Sea Supply could confidently boast that, "The AHTS vessels are employed on three to six month [long] time charter contracts, and currently the market is approximately $40,000 – $45,000 per day. The PSVs are sub-chartered to international oil majors with charters expiring between November 2007 and August 2010 at charter rates between $22,000 and $28,500 per day".
This apparently justified SFL charging bareboat charter of $45,500 per day in total for the five units for up to twelve years later, under the original deal – you can see the full, historic terms in the Nordic business press here – try not to get nostalgic.
Just before the market went into freefall, SFL promptly announced that the two PSVs had been sold, reportedly to M.Pallonji and Co. of India, taking them back to the land where they were built, and that one of the AHTS was being scrapped in an environmentally friendly manner in Norway.
Last month, broker Braemar ACM announced the final two 15,000bhp AHTSs Sea Cheetah and Sea Jaguar had been sold to Haduco of Vietnam, at a price of around US$1.5 million apiece. SFL then reported a non-cash impairment charge of approximately US$34 million in the quarter relating to the disposal of the five vessels (see here), leaving its only exposure of the offshore sector as three drilling rigs on charter to Seadrill. Good luck with those.
Having got shot of five obvious dogs back to SFL, Solstad then closed the sale of its derrick laybarge Norce Endeavour to Saipem, which had been bareboating it in Asia since early January (as we reported here). Any shareholders hoping for a rich payout from Saipem will be disappointed. Solstad reported that the sale of Norce Endeavour has only a "minor accounting effect".
The decks duly cleared, the banks and shareholders finally accepted the inevitable. Solstad's lenders will write off US$962 of debt and convert it into equity. The existing shareholders will be almost wiped out, and will end up with only 0.4per cent of the restructured company.
The current shareholders include the investment firms of Kjell Inge Roekke and John Fredriksen, two of Norway's richest men, which have 20 per cent and 14 per cent stakes in the company respectively, while the Solstad family firm Soff Invest owns six per cent.
Importantly, all the categories of the company's debt will have the same conversion rate, Solstad announced, including secured debt, leasing obligations, bond obligations, and also unsecured debt.
Under the new plan, the debtholders whose loans are converted to equity will own at least 65-75 per cent of the company's shares. The existing "industrial shareholders" including Solstad's CEO, Lars Peder Solstad, would be offered the chance to invest fresh capital under a share subscription rights issue, so that they could retain up to a third of the shares in the restructured company, if they want to put in new money. The remaining retail shareholders would also receive an offer to subscribe, too, for, wait for a it, a whole two per cent of the shares in the restructured entity.
As well as the financial restructuring, Solstad also announced ambitious plans to slim down its fleet, announcing the goal of selling or scrapping 37 of its older vessels. This would leave Solstad with a fleet of approximately 90 vessels after the disposals are completed.
Right on the bell, Solstad's former head of sale and purchase, Adrian Geelmuyden, announced that he was leaving the company to become Commercial Director, Offshore Supply at Seatankers Management, one of John Fredriksen's companies.
We have already seen with Bourbon and Tidewater, that talking about selling vessels is easy, but actually doing so is hard. We observed here that in 2018 Bourbon had declared it wanted to sell 41 of its elderly vessels; it ended up selling just 16 that year, and nine of those were crew boats.
Tidewater did manage to dispose of just one vessel in February this year, getting the sale of the UT745-design PSV Highland Navigator, built in 2002, across the line, according to industry sources.
Trying to sell vessels as the industry lurches into yet another downturn, with the Covid-19 outbreak and the Russia-Saudi oil price war, will be extremely difficult. But at least Solstad has shed the crippling NOK10 billion of debt which has been blighting the business.
With fresh equity and a drastically improved balance sheet, Solstad can look to the future with greater confidence that it will survive the latest catastrophe to envelope the offshore industry.
Unfortunately, the latest shock for offshore owners came at the wrong time for DOF. DOF and its subsidiary DOF Subsea had been hoping to obtain an agreement with its banks for the refinancing (in the form of an agreed term sheet) by the end of March. It needed that term sheet to amend the terms of its onerous bonds.
Once the oil price fell, so did the hope of refinancing. Instead, DOF Subsea rushed to borrow yet more money, and announced it had been granted a credit facility of NOK100 million t,o "cover its immediate liquidity needs".
Compatriot Siem Offshore also faces grave difficulty, despite reducing its debt pile from US$1.6 billion to "only" US$1 billion at the end of 2019, and selling two older vessels for scrapping, which reduced its fleet to 35 vessels, as it reported a net loss of US$55 million for 2019.
Siem had strong cash flows from operations of US$92 million for the last year, but its debt burden is simply too large. At the end of March, Siem warned that, "the extreme fluctuations in the financial markets over the past weeks have resulted in a further deterioration in the company's liquidity situation," and that the company, "is in discussions with its banks to seek to alleviate this situation".
Siem already faced some tough negotiations, similar to DOF and Solstad's. The company had an existing agreement with its banks to start to pay back its loans on April 1, which it noted, "is not sustainable under today's market conditions and with the expected level of earnings going forward" (see the report here).
So, like DOF, Siem raced to its lenders in March to agree a change in the loan repayment schedule. The company's situation is also complicated by the need to repay a NOK350 million high yield bond, which is due October 30 this year and, like DOF and Solstad, Siem has to balance the priorities of the different categories of lenders, and its shareholders, in a grim market where utilisation is collapsing and day rates and tumbling.
Solstad's restructuring, however, is like the pole star, which can guide the other Norwegian companies to a restructure on similar lines. The debt has to go, the lenders have to take a haircut, ships must be sold and scrapped, and the existing shareholders face wipeout.
Such is capitalism. Scandinavia has no shortage of midsummer horror stories to complement the midnight sun – see here; DOF and Siem's creditors can join the "carnival of agony" which we all are experiencing now in the industry.
