Bibby Offshore Holdings Limited announced today it reached a comprehensive agreement on the recapitalisation of its balance sheet with noteholders who hold 80% of the £175 million 7.5% senior secured notes due 15 June 2021 issued by its subsidiary Bibby Offshore Services Plc .The terms of the recapitalisation will result in the group having a substantially debt-free balance sheet with an equity injection of £50 million to enable it to consolidate and expand its position within the offshore inspection, repairs and maintenance and construction markets. At completion of the transaction, Bibby Line Group Limited (BLG) will transfer its entire ownership in Bibby Offshore to the group’s noteholders.
It is mildly ironic that after the Nor and Bibby bondholders spent so long seeking a resolution to their problems that both solutions were announced within hours of each other. On a first pass I would rather be a Boskalis shareholder than a Bibby bondholder.
Let’s be really clear this was no ordinary refinancing: this was in effect a relatively hostile takeover by the bondholders after the financial situation became untenable. Bibby Line Group exit with 0% having clearly been unable and unwilling to put any money in. After taking out £60m since 2014 they may consider this a good deal, but it will be painful for the Group accounts next year.
Bibby Offshore can keep using the name for another 12 months and the Directors have warranted not to frustrate the handover or pay the December interest payment (amongst other things). As at the close of the last quarter Bibby Offshore had a mere £3.1m cash in the bank, so the last point was academic in a way, but it avoids the need for a disruptive administration process. It seems pretty obvious to outside observers that it took the bondholders to make BLG aware of the gravity of the situation. Smaller companies in Aberdeen supplying goods on credit were taking an enormous risk here.
The restructuring values Bibby Offshore at £115m: basically the outstanding £175m bond (valued at .37) + 50m in new cash. Transaction and other expenses need to be taken from the £50m going in. Therefore for £115m bondholders are now the proud owners of the Bibby Polaris, Bibby Sapphire, a risk share charter on the Bibby Topaz, and all the associated IP, master service agreements, etc of the company that make it a business. This is a company that will now undergo a fundamental operating restructure as the announcement makes clear:
Within the next 7 days, Bibby Offshore will appoint an independent consultant on behalf of the noteholders to support management on the ongoing cash flow management and transition of the business to the new shareholders.
That means a group of restructuring consultants (in all likelihood from Alix Partners or Alvarez and Marsal) who will come in and do a restructuring plan that will be loosely based on zero-based budgeting. This is a brutal process and will aim to significantly reduce the costs so the business is at least cash flow breakeven by June (or they will be through a significant portion of the £50m on current trading levels). Given this hasn’t been the case for well over 2 years now you can imagine the scale of what is about to go on here (even accepting that vessel charters have been part of the issue). I’d imagine Small Pools, Business Excellence, and ex-pat managers in Houston look to be first on the list of costs to be reduced but there is a real question about what the business model is and what position the company will hold in the market that needs to be addressed.
For staff this is still the best outcome even if it provides huge uncertainty in the short-term: with only £3.1m in the bank without this agreement there would have been an administration process begun in the next few days. The revolver expired in the next couple of days and that would have brought the nuclear scenario. This was not a deal made in strength but in effect a shareholder being faced with insolvency having a gun held to their head and told to handover the keys.
The consultants’ budgeting process will highlight the fundamental issue the new owners of the business have: What is the competitive and market position of the business? A high end North Sea contractor trying to compete in the US market which is the most price sensitive in the world? Cut the costs back to a “Bibby lite-2007”, with 80 people in Waterloo Quay, shut all other offices, and trade with 2 x DSVs and Sapphire in lay-up or sold, and you will never recover your £115m. But keep trading as you are with an uncompetitive US and Norwegian office and you have to burn vast amounts of cash to make it through until the market changes. There are no economies of scale or scope through these regions and therefore no need for an expensive corporate staff and administrative overhead.
The fleet strategy will also need to be sorted out. Sapphire is in warm stack and Polaris (1999 build) cannot keep going forever. Both vessels are to old for mortgages and will be equity funded for the rest of their lives and there is a valuation implication in that (i.e. lower). The Topaz is only on a risk sharing charter and frankly without that vessel it is arguable if there is a “Bibby Offshore” at all.
The Boskalis shareholders got a much newer DSV for $60m (£45m at todays exchange rate) and have chartered another one for a rate I believe that is c. $7.5k per day bareboat. The new Bibby will have to compete with a company with a much lower implied asset cost and breakeven level. Boskalis now has sister ships that they can interchange on projects and tenders and appear to have done this for an implied CapEx of c. $40-45m per vessel. Balance sheet strength prevails during consolidation and this will be no exception.
Bibby Offshore now looks exactly like Harkand before it folded. Harkand had 2 x the Nor vessels in the UK and the Swordfish in Houston for their ex-Veolia acquisition. Oaktree funded Harkand 3 times, and it only broke even a couple of quarters, before finally giving up. In the scheme of operating North Sea class DSVs £50m is not a lot of money given the direct operating costs and associated infrastructure (tendering, marine, overhead etc). The new shareholders will require a firm constiution and plan to carry through this through for any length of time given that the order book is nearly empty and vessel commitments remain until Q2 2018.
One option maybe to seek higher value services such as well intervention with some talented ex- Helix staff floating around though the barriers to entry are high though and it will require further capex. The Bibby investments in renewables capacity (i.e. the carousel) look prehistoric compared to the DeepOcean and Boskalis fleet. Simply bashing up against three substantially bigger companies offering DSV days doesn’t strike me a great strategy and certainly not a sustainable one.
There is no other reasonable expectation now than for Boskalis and the “new Bibby” to fight it out for utilization by dropping the day rates they bid at (and Technip and Subsea 7 have shown they play this game as well). There is no guarantee the market is big enough for four companies at current activity levels. The “new” Bibby Offshore is a hugely leveraged play (both operationally and financially) on an oil price recovery that will force a declining basin back to higher production levels with small scale developments and higher maintenance requirements. It looks like a big ask at this point, but the team leading this investment have the financial firepower and competence to see this through if they choose; but it will not look even remotely close to the current Bibby Offshore.
Something rare happened today: the entire picture of how this market will look for the next 5 to 7 years was made public with just two announcements. It is going to be a much better market to be an E&P or renewables company in than a contractor for a good while yet.