Island Offshore seeks stand-still agreement, changes to bonds due 2016

By Marisa Wong

Morgantown, W.Va., March 2 – Island Offshore Shipholding LP is proposing to amend its senior open callable bonds due 2016, according to a notice from bond trustee Nordic Trustee ASA.

The company is also asking the bondholders to agree to refrain from exercising any default or termination rights until the effective date of the amendments and April 5.

Bondholders will vote on the amendments at a meeting scheduled for March 16 in Oslo.

To approve the proposal, holders representing more than two-thirds of the bonds represented at the meeting must vote in favor of the resolution. In order to have a quorum, at least half of the bonds must be represented at the meeting.

Proposed amendments

Among a number of proposals, the company is seeking to extend the maturity of the bonds by 30 months to Oct. 5, 2018.

The company is also asking to reduce interest on the bonds to no more than the average cash interest margin paid on its senior secured first-lien credit facilities, equivalent to Nibor plus 241 basis points.

However, there will be no change to the aggregate contractual interest accruing on the bonds, the notice said. From and including the effective date of the proposal, if approved, the remaining interest of 2.84% will be paid in kind through the quarterly issue of additional bonds that are pari passu with the outstanding bonds. To facilitate the PIK interest, the nominal value of the bonds will be changed to NOK 1.00.

The issuer is also proposing a call option. The company wants to be able to redeem the bonds in whole or in part at 103.5 at any time up to, but not including, the interest payment date on April 5, 2018 and at par at any time after that. However, no tranche B bonds would be called until all of the tranche A bonds have been redeemed. The bonds will be divided into tranche A and tranche B bonds under a related tender offer described below.

In addition, the company is seeking to align financial covenants in the bond agreement with those of its senior secured first-lien credit facilities.

Tender offer

As a condition to the implementation of the proposal, the issuer will conduct a tender offer. The issuer will offer to purchase NOK 230 million of the bonds at 72.5. The company said it expects to launch the tender offer promptly after the bondholders’ meeting and settle the offer by March 31.

All bonds that are acquired under the tender offer will be converted into a new and separate tranche of bonds. These tranche B bonds will have a maturity date falling six months after the extended maturity date of the remaining bonds, which comprise the tranche A bonds.

Bondholders representing NOK 142 million of the bonds have confirmed that they will not tender their bonds under the tender offer.

The tranche A bonds and tranche B bonds will vote separately at the bondholders’ meetings.

Background

Since early January, the issuer has been in discussions with an ad-hoc group of bondholders that beneficially own more than 40% of the bonds. Following extensive talks, the issuer and ad-ho committee have agreed on a proposal that the committee will support, which will be presented at the bondholders’ meeting.

The parties were seeking consensus on how the bond agreement could be amended to allow for the implementation of changes to Island Offshore’s senior secured first-lien credit facilities. Those amendments include postponing installments over the next 18 months, adjusting covenants and suspending dividend payments and other distributions.

The loan amendments are conditioned on, among other things, the extension of the bond maturity date, reduction of interest and alignment of the financial covenants.

Carnegie AS (attn.: Tobias Berdal, tobias.berdal@carnegie.no, +47 934 09 382) and DNB Markets (attn.: Hermann Hovland Overlie, hermann.hovlan.overlie@dnb.no, +47 922 46 501) are the issuer’s financial advisers. They will also be the joint bookrunners for the tender offer.

Questions may also be directed at the bond trustee (attn.: Morten Sannes Bredesen, mail@nordictrustee.com, +47 22 87 94 00).

Island Offshore issued NOK 700 million of the bonds in March 2013.

The vessel investment company is based in the Cayman Islands.

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