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Highlights
- Comprehensive Restructuring: Petrofac enters a binding agreement for a restructuring plan, including $325 million in new funding and $772 million of debt-to-equity conversion.
- Strategic Debt Reduction: The restructuring will significantly reduce Petrofac’s debt, strengthening its balance sheet and liquidity.
- Restructuring Timeline: The company expects to complete the restructuring in Q1 2025, subject to approval.
Petrofac Limited (LSE:PFC) has announced that it has entered into a binding agreement with key financial creditors to implement a comprehensive restructuring plan aimed at significantly strengthening the Group’s financial position and enabling it to achieve its long-term strategic goals. The Lock-Up Agreement formalizes the in-principle agreement first disclosed in September 2024 with a group of senior secured noteholders, representing approximately 57% of the Group’s senior secured notes.
Key Components of the Restructuring
The restructuring, which will deliver at least US$325 million of new funding, involves several key actions to address the Group’s liquidity and debt levels:
- New Funding: The plan includes US$131 million in new debt and US$194 million in new equity, committed by an ad hoc group of creditors, a new investor, and other shareholders. Additionally, the equity issuance may be increased by up to US$25 million.
- Debt Conversion: Approximately US$772 million of existing debt will be converted into equity, reducing the Group’s total gross debt to approximately US$250 million.
- Extinguishing Liabilities: As part of the restructuring, Petrofac will extinguish certain historical claims and contingent liabilities, including those related to the Thai Oil Clean Fuels contract.
- Performance Guarantees: The Group expects to secure US$72 million in new performance guarantee facilities, which will help release US$56 million in cash collateral.
- Strategic Focus: The plan includes operational changes, including the formalization of the Group’s delivery units and improved governance practices.
Debt Relief and Improved Liquidity
The restructuring is expected to provide an immediate boost to Petrofac’s liquidity, with at least US$195 million expected to be available after fulfilling obligations and covering transaction costs. This new financial flexibility is essential for Petrofac to meet future project requirements and guarantee needs as it continues its strategy to focus on its core strengths.
Impact of the Restructuring
Petrofac’s Directors believe that the restructuring is critical for the company’s long-term sustainability. By significantly deleveraging the balance sheet and improving liquidity, the company aims to strengthen its position in the market and ensure it has the financial resources to deliver on its strategic goals.
Challenges Leading to Restructuring
Petrofac’s recent financial performance has been impacted by its legacy projects, particularly the Thai Oil Clean Fuels joint venture, which faced substantial cost overruns and delays exacerbated by the COVID-19 pandemic. These challenges, along with a reduced ability to secure performance bonds and advance payment guarantees, strained the Group’s liquidity and affected its ability to execute its backlog of contracts.
Future Outlook and Board Changes
The restructuring also includes changes to the Board and the implementation of an enhanced corporate governance framework, aligning with the company’s new direction. The process is expected to conclude in Q1 2025, pending requisite approvals.
