Lenders Grant Petrofac Another Grace Period

Creditors of bonds issued by Petrofac Ltd. have for the seventh time extended a forbearance agreement, withholding themselves from pursuing legal action over the energy engineering company’s failure to pay $29 million in interest.

Jersey-based Petrofac is in default on the senior secured notes due last May. But an ad-hoc group representing about 47 percent of the outstanding notes and other noteholders representing a further 12 percent signed a forbearance deal with Petrofac in April.

That agreement has now been extended to December 13 after the prior extension expired November 15 as Petrofac has yet to agree financial restructuring with investors, including the forbearing creditors.

“This forbearance agreement also extends to the non-payment of the interest coupon that was due on 15 November 2024”, Petrofac said in a statement online about the latest extension.

“The forbearance agreement is entered into by an ad hoc group of noteholders representing approximately 47 percent of the outstanding senior secured notes and certain other acceding noteholders”.

On October 21, announcing the extension that has now lapsed, Petrofac said it was deferring payment for outstanding balances on its revolving credit facility and term loans that were maturing that month.

On September 27 Petrofac said key stakeholders had agreed in principle to support the company’s proposed debt reorganization. The proposal includes new long-term funding underwritten by the ad hoc group of noteholders.

Additionally, Petrofac proposed to convert most of its existing debt into equity, “resulting in the significant dilution of the existing shareholders, the extent of which is still to be agreed”.

The in-principle agreement also included “alternative arrangements with certain key clients to meet the performance security requirements, in lieu of performance guarantees, to protect key contracts in the Group’s backlog, releasing a significant amount of retentions to Petrofac”.

Petrofac may also see a reduction of about $100 million in guarantee requirements for a contract awarded 2023, through either a new performance bank guarantee or other arrangements, it said then.

“The financial restructure would ensure performance security requirements are met for Petrofac’s existing backlog, strengthen its balance sheet and provide a capital structure and improvement in liquidity which will support the Group in executing its order book and capturing future growth opportunities”, Petrofac said. “It would also provide a runway for a subsequent gradual improvement in access to guarantees for new EPC contracts on normal commercial terms”.

For the first six months of 2024, Petrofac reported a year-on-year increase of $26 million to $162 million in net losses.

“Operational performance in the first half of the year reflected the continued impact of legacy contracts, the challenges in securing performance guarantees and adverse operating leverage”, Petrofac reported September 30.

Its engineering and construction (E&C) business logged $103 million in EBIT loss, “reflecting the impact of onerous contracts with no margin recognition and adverse operating leverage due to low levels of activity”.

On the other hand, overall revenue rose 13 percent to $600 million thanks to the initial phases of contracts won last year.

Petrofac said it had $8 billion in order backlog, mostly in the Middle East and North Africa (MENA), and that it expects to bag $53 billion worth of new contracts over the next 18 months. “E&C’s addressable pipeline is US$44 billion, of which 47 percent is in the Group’s core MENA markets and 23 percent in energy transition sectors”, it said. “Asset Solutions’ addressable pipeline is US$9 billion, of which 62 percent is in target expansion geographies outside the UK & Europe”.

However, while Petrofac expects E&C activity to be higher this year than last year, it said the segment still looks to be “sub-scale as the portfolio transitions from legacy to new contracts”.

“The markets we operate in remain robust and we have secured a good level of new order intake in Asset Solutions”, chief executive Tareq Kawash said at the time.

To contact the author, email jov.onsat@rigzone.com