Investing

Petrofac’s Restructuring Talks in Limbo as Debt Deadline Nears

(Bloomberg) -- UK energy services company Petrofac Ltd is running out of time to agree a debt deal with creditors, after months of talks have failed to produce a definitive agreement.

The London-based firm missed a bond payment in May and has until July 25 to find a solution with creditors. Failure to do so could lead to an extension of the deadline, or force the company to immediately repay debt.

At the moment the talks are locked in a Catch-22 situation because bondholders want financial institutions to give performance guarantees — insurance against project failure — before they provide rescue financing, yet banks and other providers only want to do so if the capital structure of the company is made more sustainable, said people familiar with the matter.

Petrofac is hoping to resolve the deadlock as soon as possible, said the people, who spoke to Bloomberg on the condition of anonymity. A spokesperson for the company didn’t immediately respond to requests for comment. 

While bondholders have offered up to $200 million of new financing and another $100 million of credit support, which would enable it to convert a significant proportion of existing debt to equity, the deal is contingent on securing these performance guarantees. That hasn’t happened yet, the people said.

The company’s financial problems stem from legacy loss-making contracts, which are weighing on its liquidity. That’s hampered its ability to access the performance guarantees, key to carry out projects, just as it tries to win more new business to add to a $8.1 billion pipeline of contracts.

The situation has led the company’s high-yield bonds maturing in 2026 to lose much of their value in the secondary market, where they are quoted at 18 cents on the dollar versus around 79 cents a year ago, according to CBBT data compiled by Bloomberg News. Its stock has also slid over 80% in the same period.

Its debt totaled $784 million at the end of last year, while its liquidity position was only $201 million at the end of 2023.

Another factor complicating the debt talks is that the performance guarantees are provided across multiple projects and jurisdictions, involving a lot of parties, the people said.

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