DOF Puts Forward New Debt Plan Warning of Insolvency and Bankruptcy

The new board of directors of Norwegian offshore operator DOF is back with a new proposal to refinance the company and lower its debt two months after the minority shareholders voted down the previous deal and later ousted the board. The company said it believes based on its review that the new proposal is a reasonable compromise while warning the company faces questions over its financial solvency and without acceptance of this deal is likely to be declared bankrupt.

After more than two years of negotiations, last year DOF said it had reached terms for a $580 million debt-for-equity swap along with a rollover of existing bonds into a more manageable single loan. The debt holders would have received most of the equity in the company with the minority shareholders receiving an original proposal of just four percent that was later lowered to one percent. The shareholders voted down the deal saying they believed there was more favorable treatment for the large investors and a month later voted in a new board of directors.

“We are already in overtime and need a solution now. The company has been living at the mercy of its creditors for a long time,” said Leif Chr. Salomonsen, Chairman of the Board of DOF. He said the board recognizes it is impossible to obtain consent for the deal at one percent but also could not achieve acceptance from the creditors to increase the stake over the new proposal of 3.75 percent of the equity for the minority shareholders in the refinanced company.

Salomonsen is emphasizing the precarious position of DOF calling the new proposal a reasonable compromise. He emphasizes that the company has over $2.5 billion in debt which for the most part neither interest nor installments have been paid for more than two years. The company has commissioned an independent review of the value of its debts and assets in bankruptcy which along with its liquidity would be used to judge solvency. They note that the board considers it probable that the report from Deloitte based on information from shipbrokers Fearnleys and Clarkson will consider the company insolvent.

The board says it immediately started work reviewing the situation after it was elected in December assessing valuation, liquidity, and future cash flow. They reviewed the agreements with financial creditors and looked for possible alternative solutions, including refinancing the debt, sale of ships, and issuing new shares. The board says none of those solutions are possible.

“If the proposal is not adopted, there will be no prospect that the company will be able to achieve a reconstruction and the court will probably open bankruptcy after a report from the reconstruction committee,” DOF writes in its statement. While saying the business would continue to operate, they predicted that shareholder value will in all likelihood be lost. They further noted that the company’s financial creditors could withdraw support at any time and force the company into bankruptcy. 

The company recognizes that the new proposal is largely the same as the prior terms except for raising the retained equity stake to 3.75 percent. They said however that DOF has already received support from Møgster Offshore, which owns approximately 31.6 percent of the shares in DOF. The board plans to seek more pre-acceptances from shareholders and provide more detailed financial statements before the next extraordinary general meeting.