Around the world, offshore and marine companies are at different stages of restructuring, whether through Chapter 11 or consolidation. Now they have another option, in the form of Singapore’s new restructuring regime.
In the US, leading players such as Tidewater and GulfMark have already emerged from Chapter 11 bankruptcy proceedings; in Norway, Solstad, Farstad, Deep Sea Supply and Rem Offshore have merged into a single unit hoping that cost savings that accrue from rationalisation will mean they are well-placed when the market turns upward again.
It has been argued that the US approach is ‘cleaner’ and addresses the high level of debt faced by offshore and marine companies in a thorough way, rather than – as is sometimes claimed about mergers – creating new entities that can reduce costs collectively, but where the debt is ‘kicked down the road.’
Singaporean companies are a little behind the curve in this respect. Well known players such as Pacific Radiance are said to be making headway raising fresh funds with potential investors and are in the process of working out a sustainable debt structure with its lenders; Swissco Holdings has found a white knight, but for others the way forward is less clear.
That being the case, I was interested to read a piece by experts at global law firm White & Case, in which they made the case for a ‘third way’ of restructuring that could have benefits that Chapter 11 and mergers don’t.
As White & Case noted, many offshore and marine companies are between a rock and a hard place, faced with looming debt maturity and dwindling cash flow. Unlike the US and Norway, in Singapore and the region in general, leading players have yet to face immediate refinancing pressure, although they need to find restructuring solutions soon.
“With recovery uncertain, debtors in the region may soon have to look to new and existing sources of finance for continued liquidity,” said White & Case. Unfortunately for them, traditional shipping banks and lenders have been gradually reducing their exposure to marine and offshore, which may exacerbate liquidity issues for debtors.
As White & Case also noted, there has been some criticism that restructurings in the sector are only ‘sticking plasters’ for the problem rather than wholesale solutions. This is primarily due to the composition of the sector’s principal creditors, who have been reluctant to crystallise their position in a depressed market.
However, the law firm argues, Singapore’s new restructuring regime could prove preferable to the well-established frameworks such as Chapter 11 or English law.
The Singaporean regime seeks to transpose some of the more powerful tools from Chapter 11 into Singaporean law, as well as easing access for foreign companies to the country’s restructuring processes. In fact, the Judicial Commissioner of Singapore has referred to the ‘cherry-picking’ of restructuring tools in order to produce a hybrid system in which restructuring tools include rescue financing and an improved framework for schemes of arrangement.
“In theory, the new Singapore restructuring tools are an excellent fit for marine and offshore restructurings, but it remains to be seen whether they will be embraced in practice by the key players,” White & Case said. “Rescue financing depends upon the availability of a market willing to provide the credit rapidly and on a flexible basis and, despite the new statutory protections, debtors in the Singapore market may not find adequate rescue financing if the market does not develop quickly enough to compete with the highly developed US market for ‘post-petition’ financing.
“To compete effectively with established M&O restructuring hubs, Singapore will have to gain the confidence of the sectors’ businesses, banks, funds and export credit agencies – and the advisors who will ultimately steer them towards a solution,” White & Case argued. “These stakeholders will require convincing that a restructuring in Singapore would produce a superior outcome compared to Chapter 11 or an alternative process.”
As it also pointed out, despite these challenges, there is already evidence emerging from cases such as EMAS Offshore (which also recently found a white knight in the form of BT Investment Pte Ltd) and Nam Cheong that regional players are keen to make use of this new, local regime.
Tidewater, Gulfmark and Solstad Farstad will be speaking at the Annual Offshore Support Journal Conference, Awards and Exhibition 7-8 February 2018 in London.
You can find the original article and contact details for White & Case’s experts here.