EMAS Chiyoda Subsea (ECS), the 40 per cent-owned unit of Ezra Holdings, is seeking bankruptcy protection in the US in a move that will ring fence some US$90 million (S$126.77 million) in fresh funds to be injected for its financial and operational restructuring.
ECS said in a statement issued on Tuesday that the Chapter 11 petitions under the US Bankruptcy Code were filed in the Southern District of Texas Bankruptcy Court.
A court document dated Feb 27 obtained by The Business Times from ECS's filings showed DBS Bank and OCBC Bank as backing some of the largest unsecured claims against the subsea business unit.
DBS has claims against ECS for working capital loans of US$70 million (S$99 million) and contingent claims of over US$14 million tied to one or more bank guarantees.
OCBC has contingent claims of over US$13 million tied to one or more bank guarantees.
ECS said that it has received a commitment for a facility of up to US$90 million from shareholders Chiyoda Corp and Subsea 7.
It said that the financing was subject to the approval of the bankruptcy petitions filed by ECS and certain subsidiaries.
Japanese engineering giant Chiyoda holds 35 per cent of ECS before the committed new financing.
Subsea 7, which is backed by "Norway's Warren Buffet" Kristian Siem, was last reported to be filling in the shoes of Japan's NYK Line as the shipping line seeks exit as a 25 per cent shareholder.
A Pareto Securities Research equity note said that the US$90 million funding comes in the form of a secured short-term debt facility, enabling both Chiyoda and Subsea 7 to get low-risk exposure to assets in ECS.
Subsea 7 also commented that it had not taken any equity exposure in ECS for now, nor had it entered into any operations, the research note said.
Whether NYK Line would eventually exit ECS thus remains unconfirmed as at press time.
ECS said that it had managed to accumulate an order book of over US$1 billion but the commencement dates of many of these projects remain in flux, affecting utilisation levels and negatively impacting financial performance.
In December 2016, Forland Subsea AS and Ocean Yield ASA disclosed defaults on payments for two ships that were on long-term charter to Emas AMC, a wholly-owned subsidiary of ECS.
Ezra has extended corporate guarantees to the bareboat charters of the two ships that had been on ECS's operating fleet.
Between late January and early February, ECS's existing shareholders announced massive writedowns tied to the subsea business unit.
The two Japanese partners, Chiyoda and NYK Line flagged combined writedowns of 51 billion yen (S$637 million), with Ezra subsequently acknowledging that a potential impairment of US$170 million could be on the table for its equity or shareholder loans to ECS.
Right on the heels of their announced writedowns, ECS faced an onslaught of trade claims, including a move to foreclose its spoolbase in Ingleside, Texas, by Houston-based Helix Energy Solutions.
While ECS was last disclosed as having been incorporated in the UK after Chiyoda first bought into the subsea business, law firm Gibson Dunn's partner Robson Lee said that any debtor companies either incorporated in or that possess assets in the US can potentially qualify for Chapter 11.
Mr Lee said that in most instances, a debtor company remains in control of its business operations as a debtor in possession, subject to oversight and jurisdiction of the court under Chapter 11 protection.
This effectively means the existing management of ECS stands to retain control of the business.
BT has learnt in conjunction with the announced petitions for Chapter 11, ECS has announced that David Lowther, its chief operating officer, will take over as chief executive officer of the company from March 1.
Mr Lee said that Chapter 11 also offers a debtor company protection from litigation through the imposition of an automatic stay.
The automatic stay will impose a moratorium on any creditors' claims or lawsuits against the debtor company.
Once the Chapter 11 petitions are approved and the stay is in force, ECS can then effectively ringfence the pledged US$90 million financing from Chiyoda and Subsea 7 for its financial and operational restructuring.
But a company that is afforded Chapter 11 protection still has to seek an approval vote from its creditors to its proposed restructuring.
Ezra requested for a trading halt on Feb 28.
The stock last traded at a record low of S$0.019.
This article was first published on March 1, 2017.
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