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Bibby Offshore Recapitalisation

Bibby Offshore reaches agreement with 80% of its noteholders to recapitalise the business and strengthen its financial position 

Bibby Offshore Holdings Limited (“Bibby Offshore” or the “Group”), is delighted to announce that it has reached a comprehensive agreement on the recapitalisation of its balance sheet with noteholders who hold 80% of the £175 million 7.5% senior secured notes due 15 June 2021 (the “Notes”) issued by its subsidiary Bibby Offshore Services Plc (the “Issuer”). The terms of the recapitalisation (when implemented, see below for details) will result in the Group having a substantially debt-free balance sheet with an equity injection of £50 million to enable it to consolidate and expand its position within the offshore inspection, repairs and maintenance and construction markets. At completion of the transaction, Bibby Line Group Limited (“BLG”) will transfer its entire ownership in Bibby Offshore to the Group’s noteholders.

The Group’s delivery of high quality services to its customers has resulted in the Group’s continued success securing new contracts. Since the end of the reporting period, Bibby Offshore has been awarded over 50 days of work through the traditionally quiet winter period, with work scopes in Q4 2017 and Q1 2018 utilising both the DSV and ROVSV fleets, from clients including Maersk, ConocoPhillips and Perenco. The summer campaign for 2018 has also continued to develop with approximately 100 days of work awarded in the past month for Q2 and Q3 2018.

From a cost perspective, the Group continues to focus on cost reductions and management have taken several actions to significantly reduce the onshore and offshore fixed cost base. In addition, since the start of Q3 2017 the Group has benefited from the flexible charter arrangements on the Bibby Topaz and reductions in the US cost base as previously announced. The Olympic Ares firm charter also ended on the 28 August 2017 providing further reduction in the fixed cost base, although the vessel continues to be available to the Group on a flexible project-by-project basis and has subsequently been deployed due to continued work demand.

Howard Woodcock, Chief Executive of Bibby Offshore, commented:

“This transaction will result in significant investment flowing into the business and will provide the Group with an excellent and robust financial platform from which to continue to weather current market conditions and to capitalise on future opportunities within the offshore services market as it improves over the medium term. The elimination of our debt service burden, when taken together with the benefits of our cost-saving initiatives, will position our business well to maximise cash flow through the current market downturn.

We look forward to continuing to provide a high quality, responsive service safely to our customers. We would also like to thank our customers and suppliers for the loyalty and patience they have shown whilst we have worked to complete this transaction, our existing shareholder BLG, for its cooperation and financial support to date, and our noteholders who have agreed to make a significant financial investment in the Group in order to support the business moving forward.”

Summary of the recapitalisation

At completion of the transaction, BLG will transfer its entire ownership in Bibby Offshore to the Group’s noteholders. The terms of this transaction are set out in further detail below, together with copies of the full term sheets.

Plan Value

  • The recapitalisation is based on a plan value of approximately £115 million, based on a pre-money firm value of approximately £65 million attributable to the existing £175 million Notes plus an additional £50 million of new money injected through the Rights Offering (as defined below).

Rights Offering

  • Based on a pre-money firm value of approximately £65 million attributable to the existing £175 million Notes, existing noteholders will be offered the opportunity to subscribe for their pro rata share of a rights offering in the total amount of
    £50 million at a 45.7% discount to the theoretical ex-rights price, resulting in 80.0% equity in the post-restructured group being issued to such subscribers (the “Rights Offering”).
  • The proceeds from the Rights Offering will be injected into the post-restructured group at completion to be used for working capital, to repay the RCF, cash on balance sheet and transaction expenses.

Rights Offering Backstop

  • As of today, noteholders holding 80% of the Notes have provided a backstop of 100% of the Rights Offering (the “Rights Offering Backstop”).
  • Subject to eligibility criteria, all existing noteholders will be given the opportunity to elect to participate in the Rights Offering Backstop on a basis pro rata to their holdings of the Notes until 5 January 2018.
  • In order to participate in the Rights Offering Backstop, noteholders must, by no later than 5 January 2018, accede to: (i) a lock-up agreement; and (ii) a subscription agreement, both of which are available at the following website www.bibbyoffshore.com/news, and take certain other steps as set out in the practice statement letter which is described below. The accession deeds for both the lock-up agreement and the subscription agreement will also be appended to the practice statement letter which is described below.
  • Eligible existing noteholders which elect to participate in the Rights Offering Backstop will receive a backstop fee of 4.0% of the equity in the post-restructured group on a basis pro rata to their underwriting commitments.

The Notes

  • The existing Notes, to which an aggregate pre-money value of approximately
    £65 million is attributed, will be fully extinguished in exchange for new shares. Following the £50 million new money discounted rights issue and taking into account other carve-outs, the new shares issued for the existing Notes will represent 15.0% equity in the post-restructured group.
  • Any noteholder which is unable to receive equity (or which fails to provide the information required in order to receive equity) will have its pro rata equity held on trust for a period of 18 months following which its equity will be sold at the best price reasonably obtainable at such time, and the proceeds distributed to such noteholder.

December Coupon

  • In connection with the recapitalisation process and to ensure that there will be a smooth transition to the new owners, the Issuer’s directors have resolved not to make the coupon payment that falls due on 15 December 2017 (subject to a
    30-day grace period) pursuant to the Notes.

Restructuring Work Fee

  • The largest noteholder who led the restructuring will be paid a monthly work fee of £200,000 for each calendar month (or part thereof) that it has participated in restructuring discussions as compensation for the intensive work that it has undertaken in respect of the restructuring, accruing from August 2017 through to the effective date of the restructuring, to be paid in (and not to exceed 1.0% of) equity in the post-restructured group (the “Restructuring Work Fee”).

Post-Restructuring Equity

  • Prior
    to dilution by the management incentive plan (“MIP”) (the terms and quantum of which remain to be agreed following completion of the restructuring) the equity in the post-restructured group will be split as follows:

Entity

Share Percentage

Existing Noteholders

15.0%

Participants in Rights   Offering

80.0%

Rights Offering Backstop   Fee

4.0%

Restructuring Work Fee

1.0%

 

Governance

  • A simple majority of the holders of equity in the post-restructured group (calculated excluding the MIP) will appoint directors, provided that the two largest minority investors holding at least 10% of the shares of the new parent company of the post-restructured group (“TopCo”) shall be entitled to appoint a director (an “Investor Director”). Any 5% shareholders that have not appointed an Investor Director may appoint a board observer. The board will initially comprise five (5) members.
  • Any dealings in equity in the post-restructured group will be subject to the following arrangements: (i) tag-along rights set at 50% of the outstanding shares; (ii) drag-along rights set at 50% of the outstanding shares for all cash (or other marketable securities) deals and drag-along rights set at 66.67% for other transactions; (iii) mandatory offer at 75% of the outstanding shares; and (iv) right of first refusal on transfers granted to 10% shareholders pro rata in respect of transfers to “restricted persons” (i.e. competitors of the Group) and right of offer for all shareholders in respect of all other transfers.
  • Any fundamental changes to the nature and structure of the investment and any material transactions will require consent of a majority of 75% of the holders of equity in the post-restructured group.
  • Shareholders will have a right to receive summaries of annual budget, annual audited financial statements and half-yearly unaudited financial statements. Such information will be provided to them on a private Intralinks website and, for the avoidance of doubt, no cleansing of shareholder information will be required.
  • The governance and shareholder relationships described above will be documented by way of articles of association and, if required, a shareholders agreement.

Appointment of Independent Consultant on behalf of noteholders

  • Within the next 7 days, Bibby Offshore will appoint an independent consultant on behalf of the noteholders to support management on the ongoing cash flow management and transition of the business to the new shareholders.

BLG

  • BLG will have no equity in the post-restructured group.
  • BLG will continue to support the Group’s revolving credit facility until the restructuring effective date (at which point it will be repaid in full) and has provided funding under the Group’s revolving credit facility in order to settle certain ongoing disputes with a vessel owner in the United States, in relation to the termination of a charter agreement in October 2015.
  • BLG has entered into a lock-up agreement in relation to the restructuring, pursuant to which it has agreed to (i) provide customary and reasonable representations and undertakings related to support of and non-interference with the Restructuring and (ii) transfer all of its shares in Bibby Offshore to a new noteholder-owned holding company.
  • BLG has also entered into (i) a transitional services agreement, which includes arrangements to ensure that the Group is transitioned to its new owners in an orderly manner and (ii) a brand and IP licence, pursuant to which the “Bibby Offshore” name and all associated intellectual property rights may continue to be used by the Group for a transition period of 12 months following the completion of the Restructuring and thereafter return to BLG.
  • BLG and the Group have also agreed a tax loss sharing provision related to the sharing of the Group’s tax losses in the 2016 and 2017 tax years.

Implementation

  • The transaction will be implemented by way of an English law scheme of arrangement, which requires the approval of a majority in number and at least 75% in value of the noteholders present and voting.
  • Upon the sanctioning of the scheme of arrangement by the court, the transaction will be binding on all noteholders whether or not they voted or voted in favour of the scheme.
  • The key dates for the scheme of arrangement, as currently anticipated, are:

Step

Date

Scheme Practice Statement Letter distributed

29 November 2017

Q3 Results Call

5 December 2017

Scheme Convening Hearing

20 December 2017

Scheme Explanatory Statement distributed

20 December 2017

Rights Offering Backstop Deadline

5 January 2018

Scheme Voting Instruction Deadline

9 January 2018

Scheme Creditors’ Meeting

10 January 2018

Scheme Sanction   Hearing

12 January 2018

Scheme Effective Date

12 January 2018

Restructuring   Effective Date

15 January 2018

(or as soon as   reasonably practicable thereafter)

 

  • Further details will be provided in the practice statement letter which will be distributed by Bibby Offshore Services Plc on or around the date hereof.

Operations

  • All operations are expected to continue as normal and without disruption throughout this process. The Group will continue to make all payments in full to its suppliers, trade partners and employees.

Bibby Offshore Holdings Limited: Third Quarter 2017 Results

Financial Highlights

Q3 1

 Note: EBITDA is defined as profit for the period plus finance costs, income taxes, depreciation and amortisation

OPERATIONAL AND FINANCIAL REVIEW

Q3

Note: Utilisation is measured on the number of vessel working days divided by the days available, which excludes maintenance periods

The Group saw increased levels of activity in its core North Sea market during the third quarter compared to the previous reporting period, however, the summer season has been disappointing overall. The Group’s financial results were also impacted by non-cash impairments following a review of vessel valuations. Low levels of utilisation, continued pressure on margins and the short term nature of the tendering market all impacted the Group’s financial performance. Notwithstanding the market conditions, Bibby Offshore continues to deliver industry leading project execution for its clients, with repeat business remaining high and the framework agreements signed earlier in the year continuing to generate work.

Overall utilisation increased in Q3 driven by a seasonal increase in activity in the North Sea over the previous quarter, however this was partially offset by extended idle periods for the Bibby Sapphire in the US. The Group continued to see a trend towards short notice call-out work and growth in work scopes, once awarded.

North Sea Update

During the period the Group completed projects for ConocoPhillips, Engie, Fairfield, Apache, EnQuest, Maersk, Saipem, TAQA, CNR, Perenco and Endeavour. As a proven operator, Bibby Offshore continues to be awarded work by repeat clients.

The Framework Agreements continued to be utilised with ConocoPhillips and BP awarding w

ork during the period. Both were significant campaigns, involving decommissioning work for ConocoPhillips and IRM work for BP.

Bibby Offshore has also successfully secured several new contracts since the period end.

The Olympic Bibby continues to work on short term contracts and therefore has not been placed into layup for the winter period yet as it has been in previous years.

International Update

In the US, the Bibby Sapphire commenced a short project for Shell during the period, however the market has been depressed compared to previous summer seasons. The cost reductions previously announced reduced the financial impact for the Group, however, given the ongoing difficult market conditions the Bibby Sapphire has now been placed into a period of minimum safe manning whilst we assess options.

As part of its ongoing cost reduction programme and focus on core geographies in which it operates, the Group took the decision to sell its fleet of ROVs in Singapore. This decision has allowed Bibby Offshore to immediately realise the value created by the team on the ground, with the sale of its five ROVs for which it received a net consideration of £3.5 million, after settling outstanding hire purchase agreements. The Group will also recognise savings from the cessation of its lease on the Loyang office and the reduction in associated personnel costs.

Reductions in Cost Base

Since the Group last reported, management have taken several actions to significantly reduce the onshore and offshore fixed cost base. In addition, since the start of Q3 the Group has benefited from the flexible charter arrangements on the Bibby Topaz and reductions in the US cost base as previously announced. The Olympic Ares firm charter also ended on
28 August 2017 providing further reduction in the fixed cost base, although the vessel continues to be available to the Group and has subsequently been deployed on a flexible project-by-project basis.

Recent Developments

Since the end of the reporting period, the Group has continued to be successful in winning new contracts. Bibby Offshore have been awarded over 50 days’ work through the traditionally quiet winter period, with work scopes in Q4 2017 and Q1 2018 utilising both the DSV and ROVSV, from clients including Maersk, ConocoPhillips and Perenco.

The summer campaign for 2018 has also continued to develop with approximately 100 days’ of work awarded in the past month for Q2 and Q3 2018.

As noted in previous announcements, the Group received notification in January 2016 of a citation from a US vessel owner seeking compensation for the “termination” of a three-year charter agreement in October 2015, and a further citation was served by the vessel owner in March 2017 alleging common law fraud and racketeering. The Group has now reached settlement with all parties on this matter without any admission of guilt or liability by any party, and full provision is included in the quarter’s results.

Summary

Bibby Offshore will enter 2018 with a strong balance sheet and a significantly reduced cost base. The recapitalisation of the business together with the improving market outlook, reflected in the growing summer campaign, means the Group is well placed to weather the current market conditions and to capitalise on new opportunities.

 Associated Documents

Noteholder cleansing document

Bibby Lock Up Agreement

Bibby Commercial Termsheet

Simplified Structure Chart

Subscription Agreement

Scheme Practice Statement Letter