Fast tracking Altera's return to significant offshore business

OSJ: What were the biggest challenges and obstacles faced during the restructuring process, and how were they overcome?

EM: The unsecured bondholders raised a number of objections to the restructuring plan put forward by the company, and challenged certain actions the company has taken in the past. A mediation process was then formulated, where the other Judge in the same Circuit acted as mediator to find a resolution to the objections. This took place over a few days and resulted in the bondholders and the company reaching commercial agreement, which was then included in the restructuring plan. This was a very effective way to avoid a protracted period of litigation which would have delayed the company’s emergence from Chapter 11 and therefore significantly increased costs and risk for all involved.

OSJ: In retrospect, were there any decisions made during the process that could have been improved, and if so, what would have been done differently?

EM: It’s not always easy during a restructuring process, particularly when there are a large number of stakeholders, each with differing positions and interests. We spent a great deal of time designing a structure with the company and the co-ordinating committee to give the company sufficient flexibility to run its business and the secured lenders certain protections over future cash flow. This was included in the restructuring plan approved by the Court, but then needed to be fleshed out in full documentation. This meant we had created a bespoke structure, with unique documentation and no precedent, so there was a great deal of negotiation on that front. That said, this is one of the important elements of the structure, so it was essential to make sure we got it right for all stakeholders and the company.

OSJ: How did the company balance the interests of different stakeholders during the restructuring, and what lessons were learned from this process?

EM: In most restructurings, a company will look to negotiate with each of its stakeholder groups individually, and in a Chapter 11 process this is particularly important to assess in light of voting classes. Creditors are divided into different classes and are able to vote in each class and influence whether the restructuring plan is approved or not. A strategic approach to different stakeholder groups was important, but there was a key recognition that the secured lenders together held a significant portion of the debt. The secured lenders were organised through the co-ordinating committee and were able to use their collective bargaining power, which meant they were faster to come to the table and secure a deal with the company, which was filed with the Court when the company entered into Chapter 11 proceedings. This early organisation enabled the secured lenders to protect their position much more effectively.  

OSJ: What risks and uncertainties were identified in the decision-making process, and how were they addressed?

EM: The company’s secured debt structure meant each facility was structured slightly differently, with different secured assets and a separate security package. This meant each set of lenders needed to agree to the plan taking into account how it affected their individual facility. Obtaining all lender consent under each facility, some of which required export credit agency approval, meant any one lender or ECA had a veto right, so it was important to allow sufficient time for explanation, negotiation and approval. As lawyers for the co-ordinating committee, it was our role, together with the financial advisers, to keep each syndicate informed as the negotiations continued and so far as possible ensure the general direction of travel could be accepted by each syndicate and quickly achieve the unanimous support of all our clients.  

OSJ: Can you discuss any key learnings from the negotiation and agreement with the bareboat charterer of the FPSO, and how these could be applied to future agreements?

EM: FPSO charter negotiations are always complex and involve balancing several different commercial interests. This FPSO charter was made more complicated by the funding arrangements in place for the upgrade of the FPSO. As we have seen a number of the FPSO companies find it more difficult to obtain financing during a lower oil price environment, there has been a move towards different funding arrangements, and this FPSO charter was no different.  

OSJ: What were the factors that influenced the decision to upgrade the existing FPSO rather than building a new one or purchasing one on the secondhand market?

EM: To respond to this would be to speculate on the decision parameters of the Rosebank partnership. We would note, however, that we are seeing the North Sea Transition Authority apply different metrics to its decisions to approve new field developments. One of these relates to the amount of carbon expended for each barrel of oil produced. We understand the Knarr FPSO is attractive due to its relatively recent construction and size, meaning it is potentially capable of electrification and therefore open to the possibility of running from green electricity.  

OSJ: What was the cost of the upgrade compared with building a new FPSO, and how will this impact the company’s financial performance in the long term?

EM: If you ask a technical adviser, they may tell you the cost of an upgrade can never be accurately predicted, as you never know what problems you might face until you start the upgrade. However, if we are going to focus on reuse and repurposing, then FPSO upgrades should be a real focus. Many FPSO companies have completed successful upgrades of their FPSO assets.  Based on general predictions, the cost of an upgrade is typically much less than a newbuild cost.

OSJ: What were the most important factors that contributed to the successful outcome of the restructuring and upgrade, and how can these be replicated in future deals?

EM: The most important factor in my view was the willingness of the secured lenders to engage with the company early on in the process. This enabled the company and the secured lenders to find a structure which each could accept, which gave the company significant support in approval of the restructuring plan throughout the Chapter 11 process. This has enabled the company to emerge with a stronger balance sheet, ready to take advantage of some of the new tenders out in the market.

OSJ: What advice would you give to other companies in the offshore oil and gas industry that are facing similar challenges and considering a restructuring or upgrade process?

EM: A restructuring can be a positive experience. It clearly depends on the attitude and position of the relevant stakeholders and their willingness to engage in constructive discussion. Upgrades of expensive assets should become more and more common as we focus significantly on the environmental aspects of the shipping and offshore industry, and may, in some cases, allow for cost, time and efficiency savings for all involved.

The Altera Infrastructure LP restructing in numbers

Five months: the length of time need to structure Altera Infrastructure LP and its subsidiaries out of the Chapter 11 process.

US$1Bn: the amount of secured and unsecured holding company debt that had to be restructured.

US$400M: the amont of preferred equity involved.

US$550M: the level of secured asset-level bank debt.

US$1Bn+: the junior debt converted into equity ownership as part of the restructuring.

9 years: the length of the bareboat charter of the Petrojarl Knarr FPSO vessel.

25 years: the Equinor contract includes options for up to 25 years and provides liquidity for substantial capex upgrades to the FPSO.

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