Seeking to restructure and maintain a “best in class fleet,” Harvey Gulf Marine International Inc. filed for Chapter 11 bankruptcy reorganization, citing severely depressed oil prices and the sharp drop in offshore Gulf of Mexico work since 2014.
The New Orleans-based company’s March 6 filing in the Houston federal bankruptcy court for South Texas includes plans to convert nearly $1 billion of secured debt into equity, after months of intense negotiations with major creditors. Completing those moves will “right size” the Harvey Gulf balance sheet, and save the company some $47 million annually in debt service costs, according to court filings.
One day after a March 9 court hearing in Houston, Harvey Gulf CEO Shane Guidry sent a letter to customers, pledging to “provide services, and make payments,” to all its clients and vendors.
The bankruptcy plan, prepackaged by Harvey Gulf with support from its lenders and equity holders, aims to wrap up the restructuring and exit Chapter 11 on April 24 – just seven weeks after filing.
In a 91-page declaration to the bankruptcy court, Guidry described how the offshore slump affected the company, and the steps it took to defend its position amid “considerable vessel oversupply in the marketplace.”
“Industrywide oversupply granted substantial pricing power to exploration and production companies and deeply impacted all offshore supply boat and service market participants — including Harvey Gulf,” according to Guidry’s statement. “Company management quickly recognized the early signs of the market downturn and took action to combat its impact.”
During the first quarter of 2014 Harvey Gulf took operation and financial steps to cut costs by about $87 million, through stacking unprofitable vessels, selling some non-core assets and negotiating credit amendments with lenders. The company also slashed its crews by 45% and reduced general and administrative positions by 50%, cut bonuses and executive compensation, and suspended 401(k) contributions.
Meanwhile, “Harvey Gulf made the strategic decision to execute long-term vessel use contracts with its key customers to position itself to endure a potential downturn in the vessel spot market,” according to Guidry. “This unique approach successfully enabled Harvey Gulf to maintain positive EBITDA and substantially outperform other market participants during the now 3.5-year-long, industrywide market downturn.”
But as the downturn persisted into 2017, company officials saw they had to restructure the balance sheet, as competitors were doing, to deleverage.
Negotiations began early in 2017, and brought about the plan involving Harvey Gulf, its subsidiaries, lenders and equity sponsor The Jordan Company LP, a New York-based private equity firm that partnered in 2008 with Guidry to buy the family company founded in 1955 for $500 million.
The restructuring will bring improved cash flow, enabling Harvey Gulf “to offer more attractive pricing to their customers and to maintain and expand their state-of-the-art fleet,” according to Guidry. “Moreover, the plan does not impair general unsecured creditors, with the goal of preserving the debtors’ relationships with valued trade and contract counterparties.”
The plan ensures that Harvey Gulf’s operations remain Jones Act-compliant, the court statement notes. The company employs 580 people, including 504 mariners that operate a fleet of 60 vessels.
With the reorganization, Harvey Gulf will be well-positioned for an industry recovery, with “one of the most technologically advanced fleets operating in the Gulf of Mexico out of a full-services facility in Port Fourchon, La.”
The company was the first in North America to operate offshore service vessel fueled with liquefied natural gas, and built the nation’s LNG marine fueling facility. On Thursday builder VT Halter Marine, Pascagoula, Miss., marked the start of the first LNG articulated tug barge that Harvey Gulf is having built as a bunkering vessel.
The company other notable recent projects include the Harvey Stone, an advanced multipurpose field support vessel (MPFSV), and the Harvey Sub-Sea and Harvey Blue-Sea, multipurpose heavy construction vessels (MPHCVs).
In his March 10 letter to customers, Guidry said it will be almost business as usual during the Chapter 11 proceedings.
“Among the most significant relief granted was that Harvey Gulf is authorized to pay our all of our vendors in full and in our normal course of business. This is true both for services performed before, and after, our filing date,” Guidry wrote. “Harvey Gulf is permitted to contract, provide services, and make payments, all in our normal course of business going forward.
“I am also pleased to report that the judge set a confirmation hearing for April 24, 2018 for my company to exit Chapter 11, at which time it will be fully restructured, with a very robust balance sheet, with approximately $1 billion dollars of less debt, and possibly having achieved the quickest ever chapter 11 bankruptcy restructuring for a company this size.”