Norway's Solstad Offshore has delivered a stark message about its future in its first-quarter results.
The survival of the world's biggest high-end offshore support vessel owner hinges on a debt-swap deal that will see banks take over the company, which is backed by billionaires John Fredriksen and Kjell Inge Rokke.
The Oslo-listed group said on Thursday that its equity is negative to the tune of NOK 6.37bn ($645m) as a result of a continuing offshore downturn made worse in recent weeks by the Covid-19 pandemic and oil price plunges.
"The company's ... financial situation is unsustainable as equity is negative and liquidity is under pressure," Solstad admitted.
The net loss in the first quarter was NOK 2.25bn, up from a deficit of NOK 528m in 2019.
A big chunk of this — NOK 1.39bn — arose from currency losses as the krone fell against the US dollar.
There was also a one-off non-cash loss of NOK 350m from terminating leases on vessels owned by Fredriksen's SFL Corp.
Revenue from the 130-ship fleet rose to NOK 1.2bn from NOK 1.14bn a year ago.
All eyes on July
On 8 May, Solstad announced a provisional restructuring agreement with most banks that will see $1.1bn of debt swapped for equity and 37 non-core ships sold.
However, three lenders have not agreed and a debt freeze was imposed on them by Solstad. Their inclusion is not considered essential to the deal.
The remaining secured debt will be included in a fleet loan maturing after four years and worth $886m.
Closing of the deal is expected to take place in July, but there is a "long-stop" date of 8 November.
"It is now a great uncertainty how the markets will develop," Solstad said.
"There are reasons to believe that the activity in general will be significantly reduced, but activity linked to oil and gas production will be less affected than activity linked to exploration and maintenance."
The offshore vessel owner also said counterparty risk has increased, and contracts may be cancelled or not renewed if a sustained challenging market situation continues.
Solstad has a contract backlog of about NOK 8.5bn, with NOK 4bn of that to be accounted for in 2020.
The company has been working to secure a vital refinancing with creditors since 2018, as it faced an ongoing liquidity crunch arising from the previous downturn in the offshore sector.
Big guns can buy stock
The company's current structure dates from 2017, when Fredriksen's Deep Sea Supply and domestic owner Farstad Shipping were merged into Solstad in a deal involving tycoon Rokke. Solstad had already taken over Rem Offshore, following the slump in the OSV market.
The stakes of these "industrial" shareholders will shrink to 0.4% after the refinancing.
But they, and chief executive Lars Peder Solstad, will continue to support the company and will be offered the chance to subscribe for shares so as to retain an ownership of up to 33% in Solstad.
Rokke is the biggest shareholder, currently with a 35.6% direct stake plus another 5% through his shipowning company, Ocean Yield. Fredriksen has 24.12% and the Solstad family controls 11.5%.
VesselsValue rates the fleet as being worth $1.34bn.
