Ezra seeks latitude from bondholders again on S$150m notes

Singapore

DEBT-heavy Ezra Holdings' informal session to seek bondholders' leniency on its S$150 million notes lasted for two drama-free hours on Tuesday - relative to similar sessions by some industry peers - but over at the equity market, it offered up a reason for investors to dump the stock.

Shares of the oil slump-besieged offshore firm plumbed 16 per cent to four Singapore cents an hour into trading resumption after the company said it wants bondholders to bless its "pre-emptive" bid to free itself from meeting the financial covenants attached to the notes due in April 2018.

These covenants were put in place as "advance alerts" in a normal operating environment, not quite the case now given the sector's protracted downturn with offshore spending down 25 per cent this year alone, said Ezra in a slide presentation to noteholders at Tuesday's meeting that was called a week ago.

This would be the third time in nearly one year that the troubled offshore services provider is hoping for bondholders' indulgence on the same notes; it got its way in the past two consent solicitation exercises to loosen the debt covenants in December 2015 and April 2016.

"Though we are reluctant regarding certain aspects of the consent solicitation, we acknowledge that time is of the essence. Management requires the flexibility to negotiate with all stakeholders and this is the current optimal path for bondholders," said OCBC credit research analyst Nick Wong in an updated report titled "Between a rock and a hard place".

Clinching bondholders' go-ahead at a crunch meeting scheduled for Nov 9 may seem like a shoo-in for Ezra that merely wants a covenant waiver versus some peers that are banking on a wholesale debt restructuring including rolling over the debt.

It helps too that Ezra has dutifully settled the coupon payment of S$3.7 million on the notes that fell due on Monday and prior to that had repaid three bond issues totalling S$470 million between September last year and this March.

But the devil is in the details of Ezra's pitch which could still worry bondholders - some may be stuck with junk bonds of other distressed offshore and marine (O&M) firms - who, as Mr Wong described it, are being asked to "give up material protections" and not being compensated "beyond a token amount".

By this, he especially means the part on the company hoping for bondholders to waive an event of default (EOD) - this allows bondholders to demand immediate repayment - arising from its efforts to restructure debt of Ezra or its subsidiaries which include discussions between Emas Offshore Ltd (EOL) and its lenders to secure additional working capital and extend debt repayment.

This "right to accelerate" for immediate repayment is an important bondholder protection and should Ezra attempt to restructure the 2018 bonds - the only bonds that are outstanding - down the road, bondholders would not be able to consider that as an EOD, cautioned Mr Wong. He added, however, that their nod would still be required to restructure the bonds.

For what it's worth, Ezra said in its slides that "other rights are still preserved - for example, in the event of a cross default or liquidation".

Ezra's stock picked up a tad from the day's low to finish at 4.4 Singapore cents, still down about 8 per cent from Monday, and it has lost over half its value this year, no thanks to a run of bad news afflicting the firm.

Troubles at its associate, Malaysian-listed Perisai Petroleum Teknologi Berhad which declared itself insolvent after defaulting on S$125 million bonds due earlier this month, could exacerbate Ezra's woes.

Mr Wong reckoned that the evolving Perisai Petroleum Teknologi situation, coupled with likely asset impairments due to the harsh climate, could potentially cause Ezra to violate its financial covenants, hence its bid now to loosen them.

With Ezra's consent solicitation exercise launched last week, the firm joins a growing bandwagon of O&M firms which are at the mercy of bondholders, not all of whom appear to want to play ball with some struggling firms.

At Swissco Holdings' second informal session with holders of its S$100 million notes due 2018 on Monday, the company said it was given a document described as a notice of acceleration on behalf of 55 individuals who said they will take legal action and have asked the notes trustee to give the company notice to immediately pay up.

Swissco said based on the terms and conditions of the notes, it was unable to regard the document as valid. The company also said it received a letter from the trustee stating that there was an EOD as the interest payment on the notes due on Oct 16 was outstanding but the trustee did not give notice for immediate repayment.

"Presently, therefore, the notes are not immediately repayable," added Swissco.