‘Milestone’ restructuring to cut Solstad’s fleet by 25%

Oslo-listed Solstad Offshore has finalised a ‘restructuring outline’ with majority stakeholders, including secured lenders, leasing companies, industrial shareholders and key bondholders.

The move is a ‘significant milestone’ for one of the largest OSV owners in the world. Solstad Offshore and its subsidiaries have been working with their creditors towards a consensual financial restructuring since Q3 2018.

Besides converting Nkr10Bn (US$946M) of debt into equity, Solstad’s restructuring will also require it to sell or scrap 37 older and less sophisticated vessels in its fleet, leaving it with approximately 90 vessels.

"We are entering a period where global offshore activity is likely to be reduced with the impact of the Covid-19 virus and drop in the oil price,” says Solstad chief executive Lars Peder Solstad. “A successful implementation of the restructuring will enable the company to better meet the challenges of the current markets and position the company well for the coming years."

Solstad Offshore’s announcement follows closely on the heels of US-based OSV owner Hornbeck Offshore’s filing of a pre-packaged restructuring plan under a Chapter 11 proceeding.

VesselsValue head of offshore Robert Day says over the last five years, the OSV industry has experienced one of the longest and most challenging downturns in its history.

“The offshore industry is in retraction and the outlook will pose an extreme test for everyone”

“This year has seen the Covid-19 global pandemic and a significant decline in oil price,” says Mr Day. “On 21 April, Brent crude dropped below US$16/barrel, a 21-year all-time low. To put this into perspective, the lowest recorded oil price in the last crisis was US$23/barrel,” he says.

The oil price plunge has reverberated throughout the OSV market. As it involves one of the largest OSV owners in the world, Solstad’s restructuring, says Mr Day, “is an important milestone for the sector.”

Employing its bespoke algorithms, which use a combination of long- and short-term rolling averages of the Brent crude oil price to model sentiment in the absence of transactions, VesselValues put the value of the Solstad fleet at US$1,483.9M as of 23 April. Mr Day says the algorithms are “effective because the VesselsValue sentiment does not overreact to any short-term, knee-jerk effects witnessed in the market, unless there are enough supporting sale and purchase transactions to justify this.”

Utilising its fleet search and the AIS function, VesselsValue determined which PSVs, AHTs and OCVs within the Solstad fleet had not signalled in one or more weeks, classifying those as ‘inactive or laid up’. “These 34 vessels, which could represent a large portion of the possible 37 candidates for sale, are valued at US$121.13M,” he says.

Mr Day says that while it is unknown how long this current economic situation will last, “what is known is that the offshore industry is in retraction and the outlook will pose an extreme test for everyone from oil majors to small service providers and all those in between.”

He concludes: “All signs point to another period of restructuring, forced vessel sales, mergers and consolidations and therefore declining asset values.”