Introduction

In his opening remarks at the SICC INSOL seminar on debt restructuring in the Asia-Pacific held on 22 September 2022, Second Minister for Law Edwin Tong SC cited the court sanctioned schemes of arrangement of Singapore-listed Pacific Radiance group as an example of the Singapore insolvency framework facilitating successful outcomes. He mentioned that these schemes tied in with a wider consensual restructuring negotiated earlier this year. This consensual restructuring recently completed with the resumption of trading of the securities of Pacific Radiance Ltd (Pacific Radiance) on the Singapore Exchange Securities Trading Limited (SGX-ST) on 26 September 2022. It was the culmination of close to five years of restructuring efforts by Pacific Radiance, in which Dentons Rodyk played a key role as its legal counsel.

The story

The Pacific Radiance group was an owner and operator of a diverse fleet of offshore vessels, as well as a provider of offshore support services, principally engaged in the offshore support services business, subsea business and shipyard business.

Between 2010 and 2013, the Pacific Radiance group anticipated that there would be an increase in demand for offshore vessels arising from an increase in oil and gas spending globally, and actively pursued business growth by expanding its fleet of vessels in order to increase market share. The fleet of vessels were mainly financed by bank borrowings, which were secured against mortgages on the vessels, assignment of charter and charter earnings, amongst others. The company also established a Medium Term Note Programme late 2014 under which the company issued S$100 million 4.30 per cent. Notes due 2020 comprised in Series 001 (ISIN: SG6SF2000004) (Notes).

In 2015, the offshore and marine industry began to decline as oil prices plummeted. The systemic decline in the oil and gas sector led to languishing charter rates and vessel utilisation, putting tremendous stress on the group’s operations and finances, and pushed its debt to an unsustainable level. To make matters worse, over the first half of 2020, the COVID-19 epidemic sharply deteriorated into a global pandemic. That led to a global economic downturn. Oil prices also dramatically collapsed around early March 2020 to unprecedented negative prices. The weakness and volatility of the oil price environment also led to a worldwide reduction in activities in the exploration, development and production of oil and natural gas, which in turn led to depressed charter rates and reduced charter utilisation. The ill after-effects of the pandemic persisted into 2021. Revenue was impacted as the group had to continue grappling with charter cancellations and delays to the commencement of charter contracts.

The culmination of these factors resulted in little or no returns from the group’s business activities, contributed to liquidity constraints, and resulted in its dire financial position. Its debt level was unsustainable. It could not meet its debt obligations.

The long restructuring journey

In the second half of 2017, the Pacific Radiance group started discussions with bank lenders to review its financial position and capital structure, and to restructure its secured financial indebtedness. It also sought potential investors to raise fresh funds as part of its debt restructuring. An informal arrangement was reached with major lenders to temporarily suspend certain debt obligations. Stakeholder engagement was difficult, to say the least. The company’s shares were suspended from trading on the Mainboard of the SGX-ST in 2018.

In August 2019, potential investors, debt funders and owners of a vessel-owning and logistics service provider gave the company hopes for a breakthrough. The restructuring plan entailed the extension of debt financing of US$180 million and raising of additional equity funds of another US$180 million through new share issuances. Funds raised would be used to finance the acquisition of 100% of a target company (which owned vessels and logistics services business in the Middle East) as well as to repay indebtedness. Our firm advised on the restructuring proposals, conducted due diligence on the target, prepared and negotiated definitive agreements, as well as SGX-compliance documents. Much to everyone’s disappointment, discussions stalled around December 2019.

Pacific Radiance underwent three rounds of consent solicitation exercises to restructure the Notes, which included multiple extensions of the maturity date of the Notes, waiver of payment covenants and redemption of the Notes through the issuance of securities and debt instruments (such as new shares in the counter, warrants, convertible bonds and promissory notes). Our firm handled the consent solicitation documentation for all three rounds, including for the issue of warrants, convertible bonds and promissory notes.

The debt restructuring plan

Pacific Radiance managed to secure a successful debt restructuring plan with the ENAV group (ENAV), a Mexican offshore support vessel owner and operator that services the Mexican and international offshore industry. In October 2021, Pacific Radiance announced the debt restructuring plan which had the following features:

• disposal of 33 vessels to ENAV in exchange for consensual discharge of US$200 million secured indebtedness;
• collaboration by its key management with ENAV’s buyer entity through minority share participation;
• securing ship management agreements with ENAV to manage the majority of its vessels after the sale of the 33 vessels;
• restructuring of remaining debt obligations of approximately US$229 million via schemes of arrangement;
• consensual restructuring of the loan associated with its office and shipyard complex of approximately US$52 million, and other unsecured debt obligations with its secured lenders;
• consensual restructuring of the Notes via a 4^th consent solicitation exercise, so that the Notes would be redeemed through the issue of new shares in Pacific Radiance and the issue of new perpetual securities;
• consensual restructuring of various cross-currency swap facilities with some of its secured lenders via the issue of ordinary shares in Pacific Radiance;
• allotment of new shares in Pacific Radiance to its key management to satisfy certain conditions of the ship management agreements;
• issue of two classes of warrants (to existing shareholders and to the key management of Pacific Radiance); and
• housekeeping corporate actions e.g. share consolidation.

With the successful completion of the debt restructuring plan, the liabilities of the Pacific Radiance group were settled, discharge and restructured, allowing the group to pivot to an asset-light full-fledged ship manager business.

Dentons Rodyk advised the Pacific Radiance group on their debt restructuring plan and the transactions thereunder, negotiated the definitive agreements, undertook the consent solicitation exercise to restructure the Notes, and prepared the documentation for the SGX-related corporate actions (such as the issue of new shares, perpetual securities issuance, warrants issues, applications for listing of the new shares and resumption of trading). The Notes restructuring Extraordinary Resolution (in the 4^th consent solicitation exercise) was successfully passed in April 2021. Shareholders approved the transactions under the debt restructuring plan in February 2022. Court sanction of the schemes of arrangements was obtained in August 2022. The numerous securities issuances and share consolidation was completed in September 2022, and trading resumed on 26 September 2022 amidst congratulatory messages and heartfelt thanks from shareholders and management.

Concluding remarks

The offshore marine sector took a beating and many good companies, several larger and stronger than Pacific Radiance, fell victim to the downturn. In the words of our clients, it was a very long journey. But it was a journey that our firm was happy to walk with them, supporting them every step of the way.