Buying time for a managed exit from Deep Sea Supply….

The solution to a debt crisis is rarely more debt and a complete avoidance of the issue. From Solstad:

The Financial Restructuring includes a deferral of scheduled instalments, interests and bareboat payments until December 31st, 2019 in a total amount of approximately USD 48 mill. The Financial Restructuring also entails suspension of the majority of financial covenants in the same period.

As part of the Financial Restructuring, SI-3 will be provided a loan from Sterna Finance Ltd. in the amount of USD 27 million, which shall be applied for general corporate purposes in SI-3.

So the banks stop time and Fredriksen (Sterna Financial) lends the company $27m to get them through the next 18 months? And then what? Day rates rise and solve everything? Where that loan sits in the capital structure will be interesting…

Ships depreciate. That means they are worth less next year than this year ceteris paribus, and therefore their earning power is reduced. This plan is predicated on the fact that this is the bottom of the market and the vessels must work next year. Good luck with that. For the old Deep Sea Supply vessels this is your competition.  Yet in 18 months time they have to earn, after OpEx, $48m just to keep the creditors at bay? It’s just not serious. All the more so because the vessels have an Asian focus and there is widespread agreement that that is the most price-competitive oversupplied region in the world.

All this deal does is keep potential credible supply in the market. The problem for any industry rebalancing is the perceived capital value is so high compared to the actual layup or running costs, and that is an industry wide problem. Pacific Radiance, EMAS, Solship, etc., they can’t all survive at current demand levels, but while they try it is mutually assured destruction.

#lastrollofthedice surely?

Which leads me to believe that all involved know this. Have a look at the bulk of these assets and their status:

SF PSV.pngSF AHTS.png

No lenders really believe they are getting paid all they are owed here surely? My guess is that the JF money has been provided on some sort of “super senior” basis, which gets paid out before the banks, and provides working capital while the next 18 months is spent trying to unwind the Solstad exposure to the DESS fleet. The banks don’t write off anything because it protects their legal position to the claim and preserves the illusion of commitment (and allows the loss to be booked later). A managed wind-down of a clearly not viable business that avoids an immediate firesale would seem the most likely scenario here. A bottle of champagne awaits the first person to send me the IM 🙂

 

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