UK-based offshore and subsea oil & gas services company solidifies its position and completes ownership transfer to noteholders in major company milestone.
The recent Bibby Offshore recapitalisation is as fair and equitable a restructuring as the media has seen, offering creditors an example of what an effective restructuring requires. This case study exemplifies the key points that companies facing unpredictable market conditions must consider:
- The correct restructuring solution
- Deft management of shareholder dynamics
- Careful handling of stakeholder expectations
Background: Facing Rough Seas
In early 2017, Bibby Offshore’s directors determined that the company’s capital structure had to be right-sized and that additional liquidity was required to meet the challenging market conditions facing the business. The solution was a debt-for-equity restructuring, which involved transferring the shareholding of the company’s parent to Bibby Offshore’s bondholders.
Plotting a Course: Touching the Key Elements
Bibby Offshore engaged the existing shareholder early on in the process to gauge the shareholder’s appetite to put in new money. After several rounds of discussions, it was ultimately Bibby Offshore’s bondholders, recognising the company’s continuing potential to capitalise on new opportunities as and when the market improves, who provided the new money in the form of a £50 million equity injection through a rights offering. Furthermore, one of the bondholders had a controlling position, which considerably eased the path to transactional success. This set of circumstances pointed to a debt-for-equity swap as the natural solution.
Bibby relied on an English law scheme of arrangement to implement the transaction. The scheme is a UK Companies Act 2006 restructuring tool and has become a popular restructuring mechanism for English and foreign companies alike. Clearly, the key to successfully implementing a bond restructuring without unanimous consent is having the ability to cram-in/drag along non-participating bondholders. The scheme offers certainty in this regard (once 75% of those by value and a majority in number of those present and voting, vote in favour) and can even cram in those who did not vote or attend the creditors’ meeting. On the other hand, an exchange offer may not always feasibly achieve this outcome, as was the case here.
Throughout the process, Bibby Offshore had to manage stakeholder dynamics sensitively, especially as the family founders retained the business at that time. Furthermore, prior to launching the scheme, Bibby Offshore had to ensure there would be an orderly transition of shared services to the new ownership. Accordingly, the company entered into a transitional services arrangement with its highly cooperative parent company.
As important as it was to manage the relationship with the company’s (then) current and future shareholders, Bibby Offshore was also mindful to manage carefully its customer base to minimise any operational disruption. For this reason, the board agreed to commence the restructuring in autumn 2017, with a view to completing in early 2018 to coincide with the key contracting period. Although there is hardly ever an ideal time to commence a restructuring, Bibby Offshore was able to point to a fixed timeline, a certain implementation route via the scheme of arrangement process, a debt-free outcome for the company, and significant financial reserves to weather the stormy waters. Latham & Watkins attended calls with Bibby Offshore’s CEO to help present this message to customers. Customers appear to have responded well, and a major customer contacted during the restructuring period awarded a significant contract to Bibby Offshore immediately following the sanction of the scheme and the completion of the transaction.
The Outcome: A Calmer Future
The combination of careful stakeholder management, finding and tailoring the right restructuring solution, and effective restructuring tools, allowed Bibby Offshore to re-enter safe waters, ensuring that it has a strong consolidated position from which to expand in the markets in which it operates. As echoed by Bloomberg’s comment on the transaction: “(….) this is about as fair of a deal for all creditors as I have seen. Parties may differ on what the future holds, but the terms of the restructuring are clear and equitable. This is a text-book restructuring (…)”.