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Market brief: Hybrid Bonds – a permanent temporary solution to the financial limbo for O & OFS companies

By Kaare P. Sverdrup and Knut Bergo, Partners, Wiersholm

Market Brief: Hybrid Bonds – a permanent temporary solution to the financial limbo for O & OFS companies


Kaare P. Sverdrup and Knut Bergo are partners in the Norwegian law firm Wiersholm.

Both are heavily involved in the challenges facing oil companies and oilfield services providers, where refinancing and restructuring is the topic of the day.

Among recent assignments Kaare is advisor in the on-going refinancing of Norske Skog, Knut was involved in the restructuring of Seabird and Polarcus and he is also deputy chairman of the Norwegian Exchange Appeal Committee.

Hear them on the Inaugural European Hybrid Bond Conference in London 13 May 2016.

 



Oil companies and oilfield service providers operating in the North Sea area constitute a very significant part of the Norwegian economy. These companies in a large degree tapped the Nordic and European banking market and the emerging Nordic HY Bond Market when financing theirs assets and operations.

Transgressing these geographical boundaries, the Nordic HY bond market also contributed with financing and listing of a number of HY Bond issuer with O & OFS operations in other areas (Brazil, the Gulf of Mexico, Kurdistan etc.).

Today these markets suffer, they have suffered for a rather long time, and the issuers suffer with them. There is a mountain of maturity facing a high number of companies carrying a large pile of bank debt and/or bond debt.

Share prices are down 90-99% percent since peak, the bond debt is trading at 20-60% of par with effective yields 25 to 30% or more.

No one knows what will happen to the oil price in the short and long term. Excessive investments, financed to a large degree by debt, have created oversupply in many OFS segments. Restructurings have commenced in varying degrees, but basically none can be said to be fully completed.

Shareholders have been significantly diluted, debt maturities postponed, bondholders conditioned for a partial write-off by exercise of call options.

There is still some case in the companies but the real story is that these companies needs to be fully refinanced at some stage, in order to among the survivors in their various segments.       

How can the companies get out of this "financial limbo", attract the new capital required to get rid of old debt, and resurrect in a consolidated industry?

Wiersholm believe this will require significant financial engineering with the issuers, banks and investors applying the full range of financial tools available, including hybrid instruments (preference shares, PIK Bonds, CoCos, perpetual notes) in a "mix" adapted to each case.

Kaare and Knut will analyse this field of opportunities and address recent Nordic cases where hybrid instruments have been introduced in restructuring deals.

By this they want to address a potential window of good investment opportunities for investors seeking yield at an acceptable risk.   

This content is provided by Euromoney Seminars for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.