Hornbeck Offshore files for Chapter 11 bankruptcy

June 2020 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

June 2020 Issue

As a part of a plan with creditors to ease its $1.2bn debt load, offshore transport services provider Hornbeck Offshore Services, Inc., and certain of its subsidiaries, has filed for Chapter 11 bankruptcy.

According to a filing with the Securities and Exchange Commission (SEC), Hornbeck came to the decision to file for a pre-packaged Chapter 11 in the Southern District of Texas after defaulting on its payment obligations.

In addition, Hornbeck has said that it is in the process of negotiating and finalising a restructuring support agreement (RSA) with its creditors.

The RSA – with lenders and holders of the company’s unsecured 5.875 and 5 percent senior notes – placed a moratorium on creditors exercising certain of their rights and remedies with respect to certain defaults by Hornbeck.

In an attempt to attain liquidity, Hornbeck proposed a $674m bond swap in March. However, this move failed due to what Hornbeck described as “circumstances surrounding Covid-19 and the precipitous decline in oil prices”, which meant that it would not receive enough votes for approval of the deal.

If it had been agreed, the debt exchange offer to bondholders would have pushed out maturity dates and included a cash offer to repurchase as much as $67m of certain debt tranches at up to $0.30 on the dollar.

Previous attempts by Hornbeck to strengthen its liquidity include a 2017 refinancing of its existing $200m revolving credit facility, with a new credit facility providing up to $300m of term loans. The six-year term of the credit facility extended the maturity of the old credit facility from February 2020 to June 2023.

“We were working on a consensual plan that would have avoided bankruptcy”, said James Harp, executive vice president and chief financial officer (CFO) at Hornbeck, in an interview with The Advocate. “But coronavirus (COVID-19) and, more importantly, the Organization of the Petroleum Exporting Countries (OPEC) oil price war, was a game changer.”

The price war was triggered by a breakup in dialogue between OPEC and Russia over proposed oil production cuts in the midst of the COVID-19 pandemic. This breakdown in discussions led to Russia walking out of the agreement, and the fall of the OPEC alliance.

Although the recent oil price war helps to explain many of the pressures being faced by offshore industries – comprising the offshore oil and gas industry and the offshore wind energy industry – the reality is that these industries have been under increasing pressure in recent years, in the main due to volatile global markets.

Indeed, several large offshore operators have filed for bankruptcy in recent times, using the Chapter 11 process to restructure their balance sheets while keeping operations largely intact. These operators include Tidewater, which erased $1.6bn of debt via a pre-packaged bankruptcy in 2017, and Gulfmark Offshore, which emerged from bankruptcy protection after shedding around $430m in debt, before being acquired by Tidewater in 2018.

Others, such as McDermott International and Hercules Offshore Inc., have also successfully restructured after filing for Chapter 11 – Hercules having done so twice – eliminating over $4.6bn and $1.2bn of debt, respectively.

Founded in 1997, Hornbeck provides technologically advanced, new generation offshore service vessels primarily in the Gulf of Mexico and Latin America. The company owns a fleet of 74 vessels primarily serving the energy industry.

Mr Harp concluded: “Our creditors have been very supportive and when the market eventually recovers, we are a viable essential company in our industry for the long term. All we need is liquidity.”

Fraser Tennant