GMS, a leading provider of advanced self-propelled, self-elevating support vessels serving the offshore oil, gas and renewables industries, has signed a term sheet for debt arrangements with its banks on significantly improved terms. The Company is also pleased to confirm the underlying trading performance of the business remains strong and in line with the business plan.
·New debt arrangements provide a strong platform for future growth
o Term sheet signed with all six of GMS’s banks
o Reduced interest to Libor +3%, retrospectively from 1 January 2021, to 31 December 2022, leading to a saving of c. $53m over 2021 and 2022, if compared to the prior deal and suggested PIK as approved and recommended by the previous Board.
·2020 underlying trading performance, in line with the business plan, showing solid revenue and margin improvement.
·Entered 2021 in a stronger position, with 75% of the year’s vessel utilisation already secured, up from 56% at the same time last year.
Debt Term Sheet Agreement:
As detailed in previous announcements, the new Board has been in positive discussions with the Company’s banks to agree significantly improved terms to the debt arrangements, put in place in June 2020, and to remedy the previous onerous deal. The term sheet signed, with all six of GMS’s banks, will deliver significantly improved terms, which allow for deleveraging, an improvement to net profit and provides a platform for the future development and growth of the business.
Under the revised terms, which are subject to the completion of definitive documentation, the rate of interest payable by the Company will decrease to Libor +3%, retrospectively from the beginning of this year. Based on the Company’s current levels of debt, this will equate to a saving of c.$53m over 2021 and 2022, when compared to the previous PIK arrangement recommended and approved by the previous Board. The reduced interest rate will apply until the end of 2022, after which the existing ratchet will apply.
Additional time has been granted to the Company to raise equity and issue warrants. The previous PIK structure and vesting of warrants to the banks will be automatically cancelled once issued, providing the Company raises equity capital of $25m or more no later than 30 June 2021 (the “Equity Raise”), and raises further equity capital by 31 December 2022, taking the combined fund raising to at least $75m. Under the previous arrangement, the Company was required to have raised $75m by 31 December 2020.
This revised structure provides the time needed to seek to complete the $75m equity raise, as well as review alternatives options to optimise the capital structure, including a refinancing, by the end of 2022, should GMS be able to deleverage the balanced sheet and improve its Net Debt to EBITDA profile.
Two of the Company’s key shareholders, Seafox International and Mazrui Investments (both under NDA till this announcement), have agreed to take their pro rata share in the Equity Raise, to facilitate the new agreement with the banks. In this context, the Board would like to thank the two shareholders for their extensive work and support to deliver this improved debt deal, which is a milestone for the business.
Documentation for the revised agreement is expected to be finalized over the coming weeks. Furthermore, the $15m advisor and bank fees reported in the first half of 2020, for the previously agreed June 2020 banking arrangements, have been deemed to have no value and will be written off.
In the meantime, and as announced earlier, the banks have agreed to a further extension of the deadline, for the conclusion of improved terms, to the end of March 2021. GMS, as a result, avoids an event of default to the debt structure.
2020 Trading and Operations:
For the year to 31 December 2020, GMS’s underlying trading performance was in-line with the business plan, with solid revenue progress and an improved margin. Top line performance was based on strong utilization, which increased to 81% in the year, up from 69% in 2019, combined with day rates in-line with expectations. The Company’s margin also improved, driven by cost reductions and greater efficiencies.
Adjusted EBITDA, for the year to 31 December 2020, is now expected to be in the range of $50-52m. This reduction, over previous guidance of $57-62million, reflects a change in relation to certain costs, previously considered as exceptional, and therefore not accounted for in the Adjusted EBITDA calculation.
These costs, totalling $9.1m, relate to $6.8m for the relocation of two vessels from the North Sea to the MENA Region and $2.3m incurred dealing with the impact of COVID, the majority of which is linked to the challenges faced in crew movements and quarantine requirements. The new Board has concluded that these costs are more appropriately treated as a normal cost of operations. They do not reflect any change in the underlying business performance.
Since being appointed, the new Board has also undertaken a review of the carrying value of the Company’s assets, as part of a wider review and analysis of the business and its operations. As a result of that process, the Board is of the view that the carrying book value, across a number of the Company’s barges, should be impaired, such impairment expected, once finalised with the Company’s Auditors, to be in the range of $80m-$90m The Board believes that the decision to impair certain assets is long overdue and it is the fiduciary responsibility of the Board to make sure that the balance sheet reflects the true value of the assets and liabilities.
The changes outlined above, in relation to the relocation costs of two vessels and the impairment in the value of the Company’s barges, will have no impact on the Company’s operating cashflow. Equally, these adjustments have no impact on the Company’s banking covenants but are considered necessary measures to support clarity and the future growth of the business. All of the Board approved adjustments are subject to final audit review.
The market for the Company’s vessels remained strong throughout 2020, despite the volatile oil price, which is reflected in vessel utilization increasing to 81% (2019: 69%). Unsurprisingly, COVID created some challenges, with several contract awards delayed, from both NOC and EPC clients in the MENA region. These contracts are fully expected to be awarded in 2021. The company incurred $2.3m of costs relating to COVID in the year, some of which will continue as ongoing operating expenses in the future, however operational changes have been implemented to significantly reduce these going forward.
Following a successful trial of the cantilever workover system on the GMS Evolution in 2020, it recently commenced a long-term contract with the same NOC client, on improved terms. The system is unique and offers significant operational and cost benefits versus more traditional methods.
2021 and Outlook:
In February this year, Jyrki Koskelo was appointed as an Independent Non-Executive Director to the Board. Jyrki brings vast knowledge and experience, which will provide further support to the overall governance of the Company. GMS continues to seek to strengthen its Board, looking to bringing in further diversity, knowledge and experience.
Also, in February, Andy Robertson was appointed as Chief Financial Officer, with immediate effect. He is a Chartered Management Accountant and has been with GMS for 13 years. During that time, Andy has developed strong relationships with key stakeholders of the business, having previously held the positions of Finance Director and Head of Business Development.
Under the new Board, a total of 21 months of additional work across the fleet has been secured and vessel utilisation has continued to improve. The Company entered 2021 with 75% of the year’s vessel utilisation already secured, up from 56% at the same time last year. A further $3m of annualised cost savings have also been implemented and the Company will seek opportunities to further reduce its operating and capital costs going forward.
The outlook for the Company’s markets continues to improve, with additional pickup in tender activity in the European Renewables market and the Middle East Oil & Gas market. Against this backdrop, GMS intends to continue to maximize cash generation, build on its backlog of activity and utilization, drive additional margin improvements, through the careful management of its operating costs and capital spending, and to benefit from the rebalancing of its financial structure, as outlined above. The company expects that this will lead to significant improvement in EBITDA going forward and the bottom line turning positive after years of continued losses.
Mansour Al Alami GMS Executive Chairman said:
“This new agreement with the banks is on vastly improved terms to what was agreed in June last year. As a result, it creates a positive platform on which the future development and growth of the business can be based; allowing the Company to benefit from the pick-up across its core markets.”
“As the numbers demonstrate, GMS is in a strong position. Underlying operations continue to see good progress, with a far better secured utilisation position than this time last year, combined with improved margins and efficiencies. The pipeline of work opportunities continues to strengthen, particularly in the MENA Region, where contract awards, delayed as a result of COVID, are expected to be awarded in 2021, in addition to further demand created as NOC clients look to increase production capabilities.”
Hassan Heikal GMS Deputy Chairman said:
“The new debt deal, and the changes which we have relentlessly sought are starting to crystalize. The best creation of shareholder value in the foreseeable future is to deleverage and again deleverage. Once GMS’s debt profile achieves a level of normality, it will then be the time to look at different strategic and tactical alternatives.”
This announcement contains inside information for the purposes of article 7 of the Market Abuse Regulation (EU) 596/2014 (“MAR”), which is part of UK law by virtue of the European Union (Withdrawal) Act 2018.
Sea News, March 17