On Monday the Bibby Offshore bonds jumped from £0.32 (implying Bibby Offshore was worth £56.0m) to £0.39 (implying a value of £68.3m), the only tangible cause would appear to be the refinancing of Volstad Maritime which would give Bibby continued access to the Topaz as the Volstad Subsea bond was redeemed in full. The two companies make an interesting contrast as to how a likely refinancing will happen at Bibby.
I note that far from being a fringe opinion when I raised it early this year Bibby Offshore management have now accepted they need to change the capital structure to make the business sustainable. That means a restructuring event. However, the business still looks unprepared for the scale of change required in order to attract sensible amounts of new equity: for example until recently there were 21 people in the US office which has had less than 30 days work in 2017. As early as Nov 16 that office should have been shut down and an agent appointed to sub-lease out the building, instead they have blown at least USD 3m in OpEx, with nothing to show for it and flown a new senior manager over just weeks before the cash crunch bites.
A refinanced Bibby Offshore, if it happens and I think it is a real if, will revert back to being a two, maybe three, North Sea DSV operation. Maximum 80 people and an Aberdeen office only. Quite how the musical chairs in management play out in the new structure is beyond me, but the days of effectively one Board per DSV are gone. Not even the UK operation is making money so any re-financing relies on new money accepting a “market recovery” will come in 2018, because without it you need GBP 20-30m in OpEx just to keep the doors open. As I have said before there is no backlog and that is the problem. The US, Singapore, and Norwegian offices are just vanity projects and if there is no structural way to close them through a pre-pack then the re-financing will fail.
Investors who believe the share pledge, Sapphire, and Polaris, the only security behind the bonds would be worth GBP 68m are either delusional or have not been following vessel values closely. The maximum in a fire sale for those 2 vessels is likely to be USD 30m excluding the running costs for the six months it would take. The business has fixed assets of £35-40m on a non distressed sale basis, but requires £20m OpEx for 1 year to access their full value, putting a value on that is very difficult because in a poor year (like this year or the year before) you have just blown £20m on Opex and clearly the business has negative value.
The Bibby bondholders face a realistic recovery of 5-10% of their initial investment under a bankrupcy scenario and this fact alone may convince them to put some money in for OpEx to try and see if time will buy them a higher recovery rate. But they will not invest anything like the current running costs of the company and therefore they will need a legal change in the structure and something significant to the cost base going forward.
I note that the funding Bibby Line Group made available (subject to Board approval and definitely not unconditional) was roughly equivalent to the Dec interest payment and ROV interest. It may be a coincidence but I think likely this was done only to help strengthen the BLG position in any negotiations, because if they miss a single interest payment the company is not theirs but the bondholders. Another poor year of trading results have made this a relatively pointless gesture. Remember BLG is only agreeing to guarantee Barclays a secured portion of the revolver facility, they are not actually injecting money into Bibby Offshore. In the Tidewater and CGG restructurings shareholders not putting in new equity have ended up with less than 5% of the equity and given the scale of the writedown bondholders will take here similar formulas will be used, I find it hard to see a meaningful role for Bibby Line Group in the restructured entity because they simply don’t have cash required for a significant recapitalisation.
Volsdtad on the other hand was another classic Norwegian restructuring. It doesn’t solve anything permanently but buys some headroom and financial flexibility. The real surprise was redeeming the bond in full which valued the Topaz at USD 60m if viewed as a standalone transaction. Clearly it wasn’t that but was blended in the overall cost of the equity injection from the Saevik family. The bondholders appear to have done well out of this as the bonds have traded as low as the mid-30s and large chunks I understand traded in the 40s recently, being redeemed at par was infinitely preferable to taking the Topaz in the current environment.
But Volstad has five other highend CSVs, three with a blue chip charterer with multi-year 365 contracts. If there is a recovery these assets will be a part of it. The risk of course is that Helix renew at dramatically lower charter rates or choose alternative tonnage, very easy now, which is all but a certainty even if they love the vessels. Some press reports tended to indicate a parachiol Norwegian element to the transaction but effectively the Saevik family paid USD 36m for a 49% share that gives them exposure to USD 540m of assets. If Bibby don’t make it, and the Topaz isn’t sold quickly, I guess the vessel can go into lay-up and the other five vessels keep ticking over. But the big contrast is that with the amount of backog the new investor is taking some risk on the asset price over time but no short term risk on OpEx as the is in the majority covered. As with DeepOcean you need backlog to successfully refinance in this market I would argue.
Long term however I am not sure Volstad shareholders are in a materially better place than the Bibby bondholders: There are a large number of large CSVs either idle or entering lay-up, Bibby get rid of the Ares next week and the Boa vessels are available for example. Unless there is a fundamental increase in demand there are simply too may vessels and their capital value will remain below their contracted debt levels, the windfarm work that many are gravitating to covers OpEx only without even a basic contribution to drydocking.
The Saevik family have already achieved a similar result with the financial restructuring of Havila. It may give a runway until 2020 but this is a business that for Q1 2017 still lost (exclusive of restructuring charges NOK 100m) for 26 vessels 9 of which are in lay-up. But the link to Bibby is that with a poor order book Havila raised more in equity capital than it had to write off in debt and while every case is different it shows the scale of the challenge Bibby have in restructuring. The contrast between the Saevik and Bibby families could also not be greater: the Saeviks who have diversified interests in ship contruction and property, are investing equity, pure risk capital, as a core part of deals they are involved in. Instead of Michael Bibby flying to Aberdeen and telling staff the capital situation will be sorted it would be good to see them issue a corporate guarantee to all staff and small trade creditors of Bibby Offshore that regardless of circumstances they will not see them suffer should the worst occur.
Longer term I still feel that the European owners are positioning themselves poorly compared to the US counterparts. All the US deals involve significant writedowns on the secured elements of the debt whereas Havila, SolstadFarstad etc just involve deferral of the largest parts. Volstad will face the same issue when the Helix charters come up for renewal without a dramatic, and very hard to see, change in market circumstances.