After years of struggling with oversupply and weak demand, companies in the OSV market are now being further challenged by the economic downturn from the global pandemic.
Siem Offshore, which operates a fleet of 35 vessels serving the oil and gas industry, announced that it has entered into a standstill agreement with its secured lenders in Europe and Norway to defer payments until April 30, 2021, as a first step toward improving cash flow and liquidity to maintain operations.
In February, Siem warned that in the fifth year of a depressed market, and with the mounting pressures resulting from the impact of COVID-19, that the company’s existing agreements with its lenders for debt repayments were “not sustainable under today’s market conditions and with the expected level of earnings going forward.”
Despite having taken significant steps to reduce its debt over the past five years, Siem warned that with a recovery in its market taking longer than expected, that “It is highly uncertain as to when charter rates will offer sufficient earnings for full debt servicing.” They said that they were seeking relief from lenders on its debt service for the next two years.
The agreement that was reached with the leaders in Europe and Norway provides for an 11-month deferral of principal and interest payments, includes a waiver of financial covenants and loan-to-value provisions.
The agreement, however, is just the first step as it is conditional on similar ongoing discussions with the secured lenders in Brazil and Canada. Siem must also obtain approval from its bondholders to defer payments and suspend their acceleration rights.
According to the company, the standstill agreement will improve its cash flow and liquidity and secure sufficient cash to continue operations during the current downturn in the offshore market.
Siem Offshore’s fleet includes large anchor handling tug supply vessels, platform supply vessels, multipurpose field & ROV support vessel and offshore subsea construction vessels.
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