(Bloomberg) -- Petrofac Ltd has reached a preliminary agreement with some of its key stakeholders that will see creditors convert a majority of the firm’s debt into equity, significantly diluting existing shareholders.
Under the proposal, Petrofac will get new long-term funding underwritten by an ad hoc group of senior secured noteholders, plus an equity injection from new and existing investors to boost liquidity, the energy services company said in a statement on Friday.
The deal is not binding and still subject to certain terms and conditions. Petrofac expects to announce a lock-up agreement with final terms in coming weeks.
The in-principle agreement was reached with stakeholders, including a group of senior secured noteholders representing about 47% of the outstanding notes and some clients with engineering and construction contracts, the company said. It is still in discussions with its bank lenders and its two largest shareholders, which hold about 34% of the ordinary shares.
“Whilst we have not yet reached the finish line, this is a significant step towards securing a deal which will materially reposition Petrofac with a stronger balance sheet and improved liquidity,” Chairman René Médori said.
The agreement also looks to amend deals with some clients to protect key contracts in the group’s backlog, according to the statement. With the proposed restructuring, Petrofac is hoping to “strengthen its balance sheet” and provide a more sustainable capital structure, allowing the company to execute existing contracts and sign new ones, it said.
Petrofac has been looking for fresh funding since at least December. Its financial problems stem from legacy loss-making contracts, which are weighing on its liquidity. That’s hampered its ability to access the performance guarantees, key to carry out projects, just as it tries to win more new business to add to an $8.1 billion pipeline of contracts.
The company will publish its interim financial results for the first six months of 2024 on Monday.
--With assistance from Giulia Morpurgo.
(Updates with chairman’s comment in fifth graph, details on timing of results in eighth.)
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