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Posh JV faces cross default after an earlier default
AN event of default on a loan granted to PACC Offshore Services Holdings' (Posh) joint venture has triggered a cross-default under a second loan facility by another lender to the joint venture.
Posh had announced that the 50 per cent-owned joint venture Posh Terasea was in default on a US$27.6 million loan as at Sept 17. Following its filing to the Singapore Exchange on Sept 19, a second lender to Posh Terasea has declared that an event of cross default has occurred, said Posh in a regulatory filing on Sept 21.
Cross default is a provision in a bond indenture or loan agreement that puts a borrower in default if the borrower defaults on another obligation.
The outstanding amount of the facility comprising ship financing loans and a short-term facility from the second lender was approximately US$7.1 million as at Sept 19. The loan is solely secured by mortgages over two anchor handling tugs owned by Posh Terasea and its subsidiaries Terasea Falcon and Terasea Hawk.
The second lender will exercise its rights to appoint a receiver for the two anchor handling tugs should the event of default be continuing after five days from Sept 20. It is one of the only two financial institutions that have extended facilities to Posh Terasea, and neither of them were named in the announcements.
As at the date of the latest announcement, Posh said that the extent of the financial impact to the group arising from the cross default "cannot be fully ascertained" but it expects "no change" to the potential maximum financial impact of up to US$42 million which had been disclosed in the Sept 19. announcement.
Also, it does not expect the development to have any impact on its operating cash flow.
Posh commented: "Based on the unaudited consolidated financial statements of the group for the first six months ended June 30, 2019, the group generated positive Ebitda (earnings before interest, tax, depreciation and amortisation) of approximately US$24.5 million. Posh Terasea is not a contributor to such Ebitda"
The Business Times understands that Posh had explored options such as a possible capital injection from shareholders to rescue Posh Terasea.
Posh is the largest Asia-based international operator of offshore support vessels with a diversified fleet servicing offshore oil and gas exploration and production activities. It operated a combined fleet of 122 vessels (of which nine vessels were operated by Posh Terasea and its subsidiaries) and had a debt headroom of approximately US$90.4 million as at June 30.
Terasea, a separate joint venture between Ezion and Seabridge Marine Services, owns the remaining 50 per cent stake in Posh Terasea - a specialist offshore marine service contractor primarily focusing on niche speciality services such as towage and mooring installation of floating production storage and offloading.
Ezion had made a filing on Sept 20 to assure that Posh Terasea's event of default and any cross defaults have "no material impact" on the offshore and marine group.
Posh shares were 1.5 Singapore cents or 12 per cent lower at 11 Singapore cents on Sept 20 when market closed while Ezion shares under voluntary suspension.