Ship management company

Light at the End of the Tunnel – A Case Study of Successful Restructuring | Denton

Introduction

In his opening remarks at the SICC INSOL Seminar on Debt Restructuring in the Asia-Pacific Region held on September 22, 2022, Second Minister of Law Edwin Tong SC cited the schemes of arrangement sanctioned by the Singapore-listed Pacific Radiance Group courts as an example of the insolvency framework facilitating positive outcomes. He mentioned that these programs were linked to a broader consensual restructuring negotiated earlier this year. This consensual restructuring was recently completed with the resumption of trading in the securities of Pacific Radiance Ltd (Pacific Radiance) on the Singapore Exchange Securities Trading Limited (SGX-ST) on September 26, 2022. It was the culmination of nearly five years of restructuring efforts. by Pacific Radiance, in which Dentons Rodyk played a key role as legal counsel.

The story

Pacific Radiance Group was an owner and operator of a diverse fleet of offshore vessels, as well as an offshore support service provider, primarily engaged in the offshore support service business, subsea business and shipyard business.

Between 2010 and 2013, the Pacific Radiance Group anticipated that there would be an increase in demand for offshore vessels resulting from increased oil and gas spending globally, and actively pursued the growth of its business in expanding its fleet of vessels in order to increase its market share. The fleet of ships was mainly financed by bank loans, which were secured by mortgages on the ships, charter assignment and charter income, among others. The company also set up a medium-term note program at the end of 2014 under which the company issued 100 million Singapore dollars at 4.30%. Notes due 2020 included in series 001 (ISIN: SG6SF2000004) (Notes).

In 2015, the offshore and maritime industry began to decline with the fall in oil prices. The systemic decline in the oil and gas sector has led to sluggish charter rates and vessel utilization, straining the group’s operations and finances, and pushing its debt to unsustainable levels. To make matters worse, during the first half of 2020, the COVID-19 outbreak deteriorated sharply into a global pandemic. This led to a global economic downturn. Oil prices also crashed in early March 2020 to reach unprecedented negative prices. The weak and volatile oil price environment has also resulted in a global reduction in oil and natural gas exploration, development and production activities, which in turn has led to lower rates of chartering and a reduction in the use of chartering. The adverse effects of the pandemic persisted in 2021. Revenues were impacted as the group had to continue to deal with charter cancellations and delays in the start of charter contracts.

The culmination of these factors resulted in little or no return from the group’s business activities, contributed to liquidity constraints and resulted in its dire financial situation. His level of debt was unsustainable. He could not honor his debts.

The long journey of restructuring

In the second half of 2017, the Pacific Radiance group entered into discussions with bank lenders in order to review its financial situation and its capital structure, and to restructure its secured financial debt. It also sought out potential investors to raise new funds as part of its debt restructuring. An informal agreement has been reached with major lenders to temporarily suspend certain debt securities. Stakeholder engagement was difficult, to say the least. The company’s shares were suspended from trading on the SGX-ST motherboard in 2018.

In August 2019, potential investors, backers and owners of a shipowner and logistics service provider gave the company hope for a breakthrough. The restructuring plan involved extending debt financing by US$180 million and raising an additional US$180 million in equity through new equity issues. The funds raised would be used to finance the acquisition of 100% of a target company (which owned ships and logistics services activities in the Middle East) as well as to repay debt. Our firm advised on restructuring proposals, performed due diligence on the target, prepared and negotiated definitive agreements, as well as SGX compliance documents. Much to everyone’s disappointment, discussions stalled around December 2019.

Pacific Radiance underwent three rounds of consent solicitation exercises to restructure the notes, which included multiple extensions to the maturity date of the notes, waiver of payment covenants and redemption of the notes by the issuance of securities and debt securities (such as new over the counter shares, warrants, convertible bonds and promissory notes). Our firm managed the consent solicitation documentation for all three rounds, including the issuance of warrants, convertible bonds and promissory notes.

The debt restructuring plan

Pacific Radiance successfully secured a debt restructuring plan with ENAV Group (ENAV), a Mexican owner and operator of offshore support vessels that serves the Mexican and international offshore industry. In October 2021, Pacific Radiance announced the debt restructuring plan which had the following features:

  • sale of 33 vessels to ENAV in exchange for a consensual discharge of a guaranteed debt of 200 million dollars;
  • collaboration of its main managers with the entity buying ENAV through a minority stake;
  • securing vessel management agreements with ENAV to manage the majority of its vessels after the sale of the 33 vessels;
  • the restructuring of the remaining debt securities of approximately US$229 million through schemes of arrangement;
  • the consensual restructuring of the loan associated with its approximately US$52 million office and shipyard complex, and other unsecured debt obligations with its secured lenders;
  • consensual restructuring of the Notes via a 4e consent solicitation exercise for the Bonds to be redeemed through the issuance of new shares of Pacific Radiance and the issuance of new perpetual securities;
  • consensual restructuring of various currency swap facilities with certain of its secured lenders through the issuance of common stock of Pacific Radiance;
  • allocation of new shares of Pacific Radiance to its key executives to satisfy certain conditions of vessel management contracts;
  • issuance of two classes of warrants (to existing shareholders and key executives of Pacific Radiance); and
  • Internal management corporate actions, eg stock consolidation.

With the successful completion of the debt restructuring plan, the Pacific Radiance group’s liabilities have been settled, discharged and restructured, enabling the group to transition into a full-fledged, asset-light ship management business.

Dentons Rodyk advised Pacific Radiance Group on its debt restructuring plan and related transactions, negotiated the definitive agreements, undertook the consent solicitation exercise to restructure the notes and prepared the corporate action documentation related to SGX (such as the issuance of new shares, issuance of perpetual securities, issuances of warrants, applications for admission of new shares and resumption of listing). The Notes restructuring the Extraordinary Resolution (in the 4e consent solicitation exercise) was successfully passed in April 2021. Shareholders approved the transactions under the debt restructuring plan in February 2022. Judicial sanction of the schemes of arrangements was obtained in August 2022. The numerous securities issues and the share consolidation were completed in September 2022, and trading resumed on September 26, 2022 amid congratulatory messages and heartfelt thanks from shareholders and management.

Final remarks

The offshore maritime sector has been battered and many good companies, including several bigger and stronger than Pacific Radiance, have fallen victim to the downturn. According to our customers, it was a very long journey. But it was a journey our firm was happy to take with them, supporting them every step of the way.