Gulf Island Fabrication Inc. announced yesterday the sale of assets and certain vessel construction contracts of its shipyard division to Bollinger Shipyards LLC for approximately $28.6 million.
Gulf Island said the sale will transform the Houston-based company into a more focused, specialty fabrication business, positioning it for profitable growth in existing and new higher-margin markets. The deal also removes future risks associated with existing, long-term contracts that represent more than 90% of the company’s current backlog that extends through 2024. The transaction will also strengthen liquidity.
Net cash proceeds from the sale are anticipated to be approximately $15 million. Gulf Island is expected to use the proceeds for working capital liabilities associated with retained construction contracts and other shipyard division liabilities, and the wind down of the shipyard division operations, which is expected to occur by mid-2022.
Gulf Island said the sale will transform the company into a more focused, specialty fabrication business, positioning it for profitable growth in existing and new higher-margin markets. The deal also removes future risks associated with existing, long-term contracts that represent more than 90% of the company’s current backlog that extends through 2024. The transaction will also strengthen liquidity.
“This is a transformational transaction for Gulf Island, as it will enable us to accelerate our strategic priorities by significantly de-risking our business and positioning us to pursue new, higher-margin opportunities within our fabrication and services division," Richard Heo, Gulf Island’s president and CEO, said in a statement. "We are well-positioned given the strategic initiatives implemented over the past year and we are excited by the opportunities for profitable growth that lay ahead. We believe this divestiture is in the best interest of all our stakeholders, including our shareholders, employees and customers."
The sale includes Gulf Island's shipyard division property and assets in Houma, La., including all four of the division’s drydocks —a 15,000-short-ton drydock, a 4,000-short-ton drydock, a 3,000-short-ton drydock and a 1,500-short-ton drydock. In addition, the transaction includes the long-term contracts and all related obligations for the construction of three research vessels for Oregon State University and five towing, salvage and rescue ships (T-ATS) for the U.S. Navy. Heo said Bollinger had agreed to provide employment to most of the shipyard division's employees associated with the acquired contracts.
In a conference call this morning, Heo said the "ongoing risk-reward proposition in the shipyard business is uncertain given the low margin nature" of the business and the competitive landscape.
Excluded from the transaction are liabilities associated with the divested construction contracts. Also excluded from the Bollinger sale are the contracts and related obligations for the construction of two 40-vehicle ferries for the North Carolina Department of Transportation, a 70-vehicle ferry for the Texas Department of Transportation, and two multipurpose offshore service vessels for Hornbeck Offshore Services that are subject to dispute.
Gulf Island received $26.4 million at closing and will receive the remainder from Bollinger upon its collection of certain customer payments associated with the divested construction contracts. Gulf Island anticipates a pre-tax loss of approximately $26 million to $28 million in connection with the transaction.
The company will retain the $8.8 million payment received in the first quarter 2021 associated with the previously announced amendment to the U.S. Navy contracts.
Lockport, La.-based Bollinger, a privately held designer and builder of steel military and commercial vessels, said the acquisition creates expanded opportunities for the company to better serve its key defense and commercial customers with an increased capacity for new projects and access to a larger workforce skilled in steel construction. Bollinger officials said that the company is now the largest privately owned and operated shipbuilder in the U.S.
Current customers for Bollinger include the Coast Guard, Navy, General Dynamics-Electric Boat, and non-defense and commercial customers servicing energy production to dredging.
“The addition of the new Houma shipyard further strengthens our position within the U.S. defense industrial base as a leading shipbuilder and vessel repair company,” Ben Bordelon, president and CEO of Bollinger Shipyards, said in a statement announcing the sale. “For 75 years, we’ve developed a deep expertise in and proven track record of building reliable, high endurance steel vessels for the Coast Guard, Navy and our commercial customers. As the needs of these customers change and grow, we are constantly looking for ways to invest in and expand our capabilities and innovative solutions so that we can continue to provide them with the highest levels of quality, support and service in our industry.”
The new Bollinger Houma facility encompasses 437 acres on the west bank of the Houma Navigation Canal, of which 283 acres is unimproved land that is available for expansion. The facility includes 18,000 sq.-ft. of administrative and operations facilities, 160,000 sq.-ft. of covered fabrication facilities and 20,000 sq.-ft. of warehouse facilities. It also has 6,750 linear feet of water frontage, including 2,350 feet of steel bulkheads. Located just 30 miles from the Gulf of Mexico, the location provides short and unrestricted access to the facility from open waters.