Banks hold about $133m in debt on an offshore supply fleet likely to be worth between $85m and $100m in Hermitage Offshore’s freshly filed bankruptcy court case in New York.
The inability of Hermitage and DNB to reach an out-of-court solution on the fate of the 21 offshore support vessels, despite more than four months of negotiations, landed the parties before a US judge.
The Chapter 11 filing, made late on Tuesday night in New York, caps what is viewed as a frustrating lack of results in lender negotiations with one exception: Hermitage’s sale of two anchor handling tug supply vessels on the eve of the court action.
This sale, at a $4m book loss, released Scorpio Group-backed Hermitage from its obligations under a $9m loan with DVB Bank.
Hermitage is believed to have pressed for a similar solution with lead lenders DNB and SEB over the summer, but to no avail as its cash position dwindled.
On the hook
The New York-listed owner owes $66.5m each to DNB and SEB for loans backing 10 platform supply vessels and 11 crew boats, the petition for bankruptcy protection indicates.
Private entities Scorpio Services Holding, Scorpio Offshore Holding and Scorpio Offshore Investments control a combined 66% of the company, which was acquired from Norwegian shipowner Herbjorn Hansson in December 2018.
Scorpio executives declined to comment on the filing on Wednesday.
The court-administered reorganisation will prove an unhappy ending to the venture into offshore services by Scorpio, which already backs the world’s largest product tanker owner in Scorpio Tankers and a sister public company in Scorpio Bulkers.
After entering Hansson’s struggling Nordic American Offshore (NAO) as a white-knight investor, Scorpio’s Emanuele Lauro was installed as chief executive. He holds the same position in the group and the two public Scorpio companies.
The venture was seen as a “turnaround project”, officials said, and as a countercyclical play at the bottom of the OSV market.
Finding scale
Privately owned Scorpio Offshore folded its own 13 OSVs into the 10-vessel NAO platform in April 2019 as part of a refinancing that triggered the current DNB and SEB loans. The move increased scale and also deleveraged a highly geared company.
But what Scorpio did not see coming — nor did peers in the same sector — was this year’s pandemic and a Saudi-led oil price war that devastated world crude prices.
The collapse put offshore companies back in a hole just as they were attempting to climb out of the previous market crater from 2014.
TradeWinds reported in June that OSV owners were attempting to restructure a total of $8bn in debt. Around the same time, DNB Bank global head of ocean industries Jan Ole Huseby said: “Offshore is causing the main concern” for the bank.
DNB is believed to have pressed Scorpio for continued equity contributions to Hermitage, while the company looked for the bank to take steps to place the vessels in other hands, much as DVB ultimately did with the AHTS vessels.
It was an impasse that could not be bridged, despite two forbearance agreements with the banks, the second of which expired on Monday.
US-based Hornbeck Offshore Services filed for Chapter 11 bankruptcy protection earlier this year.
"While the company would have preferred to complete its financial restructuring out of court, it was unable to reach a consensual agreement with its lenders, which made filing Chapter 11 necessary to provide a single forum for all continuing conversations with its lenders," Hermitage said in a release late on Tuesday.
