Prosafe says financial covenants "likely to come under pressure"Company News // April 28, 2016
Offshore accommodation unit provider Prosafe SE says that since its fourth quarter 2015 report, the offshore oil services market has continued to deteriorate following the oil price decline.
In a statement, the company said: "For Prosafe, this negative development has been coupled with a further delay in the start-up of the Safe Scandinavia Tender Support Vessel (TSV), suspension of additional Mexico contracts as separately announced (including cancellation of a letter of intent for a new 4.5 year contract of US$145 million for Safe Notos) and a consequent deterioration of Prosafe’s contract backlog, as well as the unavailability of the bond market as a refinancing source. As a consequence, Prosafe is likely to enter into a situation where its financial covenants would be under pressure.
This being th case, the company has therefore engaged legal and financial advisors and initiated a review of the its strategic options and funding situation.
Prosafe is in an ongoing dialogue with key stakeholders, including the main shareholders, bondholders, bank lenders and yards, and the company is currently working with stakeholders and advisors to evaluate alternatives to improve the financial situation.
The company has obtained a reduced minimum liquidity bank covenant of US$20 million until the end of the third quarter 2016. This temporary reduced level is applicable to both the US$1.3 billion facility and the US$288 million newbuild facility. In addition the company will utilize the second skipped payment option that was granted by the banks in the previous amendment process closed around year-end 2015.
"Further amendments to the bank and bond agreements will however be required in order to secure a robust financial foundation and to safeguard and further strengthen Prosafe’s market leading position in the industry," the company said. "The dialogue is constructive and the company intends to communicate its updated financial plan during the second quarter of 2016."
As a result of the negative developments following the preliminary fourth quarter 2015 report, the company has incurred additional impairment charges. These impairment charges total US$145.6 million are explained in its 2015 Annual Report.
The company said that aggregate capital expenditure (capex) for 2016 remains in line with previous indications of US$700 million. This figure includes final capex related to the completion of the TSV conversion which in total has cost in excess of US$300 million compared to the US$140 million initially budgeted, as well as the last three newbuild vessels of which Safe Notos and Safe Zephyrus were delivered early 2016.
"However," said Prosafe, "given recent shifts in the contract portfolio the company is working with the yard to find an amicable solution regarding the delivery of Eurus and thereby reduce actual 2016 capex compared to above figure. In this context it should also be noted that the company is likely to contest parts of the additional costs incurred on the TSV conversion project."
The TSV commenced operations for Statoil on the Oseberg East field in March. The company has been working to optimize the fleet deployment and utilization in a situation where the fleet renewal strategy is being completed while the market is historically soft and contracts are being suspended. Examples of measures to optimize the fleet are deferred deliveries, seller's credits and the replacement of Safe Boreas for Safe Notos for Talisman in the UK.
In addition the company has decided to scrap three of its oldest units, respectively Jasminia, Hibernia and Safe Britannia, and to cold stack other units starting with the Safe Astoria. Through these measures the company is seeking to reinforce its market leading position and contribute to a necessary restructuring of the industry while also reducing cost.
The company is also in dialogue for potential employment of uncontracted vessels, including Safe Notos.
The board currently anticipates that the company will deliver an EBITDA in 2016 of between US$170 and US$220 million, depending on the outcome of these contract discussions.