Axis Offshore resets holder meeting for Tuesday as it faces backlash

By Susanna Moon

Chicago, July 21 – Axis Offshore Pte. Ltd. has postponed the bondholder meeting that had been set for Friday until July 26 as it confronts resistance from a group of bondholders in its bid to amend its floating-rate senior secured callable bonds due 2018.

No other information was contained in the meeting rescheduling announcement.

Bondholders representing $13.7 million of the bonds are rejecting the terms of the proposed amendments, calling it “unbalanced” and “unequal,” and are asking other bondholders to contact them, according to a letter Wednesday by the opposing bondholders.

The bondholders called the summons “a short-term solution as the proposal lacks hard commitments from secured creditors and shareholders.”

The opposing bondholders are asking the issuer to call off the sale of bonds to its shareholders and, if liquidity is needed, to instead offer the same deal to the public at the same terms.

The opposing holders are looking to renegotiate the restructuring plan, stating that the sale of the bonds to the company’ shareholders “seems to be constructed to force through the proposed amendments and in essence keep bondholders not being bonds held by Lauritzen or Hitecvision (as the issuer’s two shareholders) dependent of shareholders going forward,” the letter said.

Conflict details

The holders also contended the following, according to the letter:

• The buyback offer to bondholders is being made at the lowest price for each bondholder’s bids, not equal price for the bid price that clears the entire volume offered;

• The issuer reportedly bought back bonds in 2015 and 2016 in which $12 million was written down on Dec. 24, 2015 so that the outstanding amount was $48 million. In 2016 the issuer bought back bonds up until April 29, 2016 totaling $12.3 million, which has no voting rights at a bondholders meeting;

• The opposing bondholder group had its first meeting with the issuer on May 3, 2016 and this group was approached as the opposing bondholders owned 37.8% of the voting bonds and “had negative control,” according to the letter. The group “was very surprised that the issuer wanted to discuss a restructuring plan based on liquidity concerns only three days after their last buyback in the market”;

• The issuer did not publish the June 8 bondholder meeting invitation on Stamdata, only sent them by mail and therefore “only the specifically invited bondholders (not the opposing bondholders) was in that call,” which supposedly contained new information, the letter said.

• The opposing bondholders said that despite “sporadic correspondence” with the issuer in June, there were no firm commitments from secured creditors and no real liquidity issues;

• On July 2 the issuer announced its sale of bonds, and the opposing bondholders appointed Fearnley Securities as the bondholders’ adviser on July 8, to be paid by the issuer, to help evaluate the issuers’ financial position and a potential restructuring;

• The issuer was contacted by Fearnley Securities over the weekend of July 8 to July 10 and on July 11 the issuer’s shareholder started buying bonds actively in the market, the letter said; and

• The issuer rejected a bondholder’s adviser on July 14 and subsequently issued the summons.

Further, the opposing holders are questioning the reason for the sale of the bonds, arguing against the issuer’s assertion that it wants to increase liquidity. The group cited the company’s $27.6 million of cash in the first quarter and added that if the company needed liquidity, it could sell the bonds in the market.

The group added that a sale of “bonds with an American put option would be a devastating transaction for a company in financial distress, making itself hostage to that creditor as counterpart.”

Rather, the opposing holders believe that the transaction is intended to increase the voting rights and dilute the opposing bondholders.

Bondholders may contact the opposing holders through Tom Hestnes, senior portfolio manager, Alfred Berg Kapitalforvaltning AS, tom.hestnes@alfredberg.com, +47 22 00 51 58 or +47 916 32 358.

Amendments sought

As announced July 15, Axis’ proposed amendments to the bond agreement include

• Replacing its existing financial covenants with a market value covenant, under which Axis would ensure the minimum market value of its vessel at all times equals at least 120% of the outstanding senior debt under its KfW facility;

• Amending the interest payments, from and including December, such that payments would be made in the form of additional bonds;

• Waiving certain insolvency and leverage restrictions that apply to the additional unit owners;

• Allowing for proposed amendments to be made to the KfW facility; and

• Allowing for the title of the vessel to be transferred to DS Denmark.

The bondholders meeting will be held at 4 a.m. ET on July 29 in Oslo.

In order to have a quorum, at least half the voting bonds must be represented at the meeting. In order for the proposals to pass, they must be approved by bondholders representing more than two-thirds of the bonds represented at the meeting.

Nordic Trustee ASA (+47 22 87 9406) is the trustee.

The issuer said on July 15 that it is in compliance with its financial covenants at the end of the first quarter of 2016 but that its Dan Swift vessel minimum cover ratio of 1:75 to 1.00, its value-adjusted equity minimum threshold of 30% and its $5 million liquidity threshold are under pressure due to the downturn in the offshore accommodation market, stemming from falling oil prices and cost-cutting.

Dan Swift, its only vessel, has been employed on a five-year time charter with Petrobras, which expires this month, and is then scheduled for dry-docking.

The company said it is working on a comprehensive refinancing to ensure financial flexibility during the market downturn.

Singapore-based Axis Offshore, a joint venture between J. Lauritzen A/S and HitecVision, is a provider of high-specification flotels servicing the offshore oil and gas industry.

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