Changes will take place in the offshore vessel sector in the next 6–12 months – big changes – with the fate of well known players in the balance

November,16th 2016

Late 2016/early 2017 could see an industry-leading company file for bankruptcy protection, such is the state of the market in the Gulf of Mexico. It could see major take-over deals or mergers. It is unlikely to be a period of stasis. Tidewater is perilously close to the edge, GulfMark is being wooed by Charles Fabrikant, chief executive of Seacor, and questions are being asked about other leading owners.

October saw Mr Fabrikant writing to the board of directors at fellow offshore support vessel operator GulfMark suggesting the companies merge. In a letter dated 18 October, Mr Fabrikant said, “We write this letter to you and our co-stakeholders as a significant bondholder and also one with the perspective of being in the same business as GulfMark Offshore for 27 years. Seacor Holdings currently owns approximately US$54.0 million of GulfMark’s 6 3/8% Senior Notes due 2022. “We believe that GulfMark is at a crossroads,” said Mr Fabrikant. “It can restructure its debt and continue operating independently, incurring costs of a public company and overheads for a small fleet with limited employment. This will most certainly deplete value to the detriment of shareholders and creditors; or choose to restructure its debt and combine with a financially stronger participant in its industry, thereby benefiting from cost synergies and positioning for future growth.”

Mr Fabrikant said uncertainty in the market, coupled with GulfMark’s balance sheet, “puts the issue of GulfMark’s survival front and centre”. He went on to say, “As noteholders, we believe restructuring to create a manageable level of debt is priority number one. Consolidation to generate cost synergies and operating efficiencies of scale enhances the potential benefit when a recovery materialises.”

Mr Fabrikant said GulfMark’s recent public filings show that it appears to face a liquidity shortfall and “very little cash has been generated from operations” and that “it appears to be only a matter of time before GulfMark will be in covenant default”. He went on to ask the board of directors at GulfMark to consider a “pre-packaged reorganisation and combination” with Seacor Marine Holdings.

Hornbeck Offshore, one of the best known owners of offshore support vessels in the US, has engaged an advisory firm to review its capital structure and assess strategic options. In financial statements for its third quarter 2016, the company said that, as of 30 September 2016, it had a cash balance of US$225.5 million. The company projects that, even with the current depressed operating levels, cash generated from operations together with cash on hand should be sufficient to fund its operations and commitments at least through to the end of its current guidance period. However, Hornbeck Offshore has three tranches of funded unsecured debt outstanding that mature in fiscal years 2019, 2020 and 2021, respectively, and existing covenants in its revolving credit agreement constrain its ability to access that undrawn facility. Given the above and “fully cognisant of the challenges currently facing the offshore oil and gas industry”, Hornbeck Offshore said it is acting proactively and “taking steps to protect the business enterprise”. Accordingly, it has engaged the advisory firm of PricewaterhouseCoopers Corporate Finance to begin the process of independently reviewing its capital structure and assessing strategic options.

Early November saw Tidewater announce a second-quarter net loss for the period ending 30 September 2016. The loss amounted to US$178.5 million on revenues of $143.7 million and included US$129.6 million in non-cash asset impairment charges that resulted from impairment reviews undertaken during the September 2016 quarter. As highlighted on the OSJ website, as of the end of June and end of September 2016, the company did not meet the 3.0x minimum interest coverage ratio covenant in its revolving credit and term loan agreement, Troms Offshore debt (Troms Offshore being a Norwegian subsidiary) or its 2013 Senior Note Agreement. Failure to meet the minimum interest coverage ratio requirement would normally have resulted in covenant non-compliance. However, limited waivers were received. The company’s bank loans and its notes are linked together by cross-default provisions. In short, although the company is continuing to work towards amendments to its various debt arrangements, there is a possibility that the lenders, noteholders and the company will not be able to negotiate new debt terms that are acceptable to all parties, in which case, the company will probably have to seek reorganisation under Chapter 11 of the federal bankruptcy laws.

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