Matthew Little: Welcome and thank you for joining this edition of Restructuring Trends.
Today we are discussing shipping and offshore. As many of you will know the sector has been experiencing huge challenges as one of the worst performing industrials sectors over recent years.
It’s certainly an area that it is likely to keep everyone busy over the next 12 to 18 months and we have been heavily involved in ongoing mandates.
One factor has been the poor market fundamentals. Turning to you Nasos, what do you see in the market?
Nasos Tsarouchis: Yes Matt, I have been in shipping finance for the last 10 years and I recently joined PwC coming from a major shipping bank. In my view there are two key trends that we can focus on.
The first is that the volatility in the shipping sectors has been over the long term particularly for the sub-sectors of dry boat, tankers and container ships and we have seen that the companies participating in those sectors are actually running out of liquidity and seeing their cash buffers being reduced. The similar trend has been in the offshore sector for the last couple of years and we expect that to remain.
The second trend to watch is that the banks are faced with new and stricter regulations which actually make them less flexible partly in view to the higher capital they need to provide for the capital intensive portfolios sides of shipping. And I think these two trends are the key to focus on and the combination of these two should lead to more restructurings in the next 12 to 18 months.
Steve what would your take be on this?
Steve Moll: Yeah I think I’d agree and recognising what you said I mean really interesting back-drop in terms of the sector and lender behaviours, but for me it really is an interesting sector from a restructuring point of view – and why do I say that? I think a couple of reasons. The first one is really interesting capital structures so everyone who has done work in shipping knows that it is a featured industry that you have of an SPV with bilateral lending which makes complexity. But secondly the capital intensity of it has meant that we are starting to see bond structures evolve there, or we have seen bond structures evolve there, and that is driving some of the more complex difficult restrictions particularly in places like Norway in the offshore market and that is what’s talked about.
So as I am advising my clients in terms of these situations and we are starting to see them play out and I think inevitably as people start to just perhaps bring a bit of realism and start to try and find some sustainable structures and sustainable solutions, we are starting to see lots of things happening like for sale of ships, we are starting to see inevitably bonds getting equitized, we are even starting to see senior lenders talking about equitizing. And so that means that those are happening against an even wider back-drop of market consolidation and wider strategic considerations.
So my perspective, I think there are going to be more of these restructurings and I think interestingly there are solutions out there, there are win-win solutions out there, but they are going to be really hard fought.
Matthew Little: Thank you Steve.
The messages are clear. The market outlook is bleak; liquidity is tightening which combined with high complexity is likely to result in further restructuring activity over the next 12 to 18 months.
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