BW Offshore at Risk of Breaching Liquidity Covenant
Norway's BW Offshore, an owner of floating oil production vessels, is unable to tap the bond market for cash and could see liquidity reserves fall to a level breaching its debt covenants in 2016, it said in its annual report on Friday.
BW will continue a series of cost cuts and expects to seek waivers from bond holders to avoid defaulting on its loans, the company added.
A sharp drop in crude prices since mid-2014 has led energy firms to reduce their demand for services from suppliers, idling equipment and triggering a series of debt restructurings in the oil services industry.
BW Offshore said a minimum liquidity covenant of $75 million was the most critical it had to comply with in 2016.
"While the actual minimum liquidity was above this at year-end 2015, there is a risk, due to down payments of debt and capital commitments on newbuildings and life extension programs that the minimum liquidity may decrease to be close to or go below $75 million," the firm said.
"BW Offshore has also since 2012 been using the bond market to provide an additional liquidity base. However, in the current macro-economic environment this market does not seem available for the oil and gas companies," it wrote.
BW Offshore owns and operates more than a dozen floating oil production, storage and offloading vessels (FPSOs) that pump around 700,000 barrels of oil equivalents per day on behalf of energy companies.
Adding to the pressure from lower oil prices, a deadly explosion on one of its vessels offshore Brazil last year has further cut the company's revenues.
BW said it needed to make additional drawings on a revolving credit facility (RCF) in the coming year, representing a significant portion of its liquidity reserve.
At the and of 2015, the undrawn part of the facility stood at $226.2 million, it added.
The company predicted it would be able to obtain a waiver in case the liquidity covenant is breached.
"Should such breach continue without a waiver or remediation by the group, the RCF agent and bond holders could ultimately declare default and demand a repayment, which again would represent an event of default in most of the group's other loan agreement," BW said.
BW Offshore's equity ratio stood at 27.5 percent at the end of 2015, compared to a minimum requirement of 25 percent, it said. Including its revolving credit facility, available liquidity amounted to $348 million.
By 1113 GMT, the company's shares traded 2.3 percent higher, while the Oslo benchmark index was down 1.5 percent for the day. Year-to-date BW was down 48 percent.
Reporting by Henrik Stolen
