Kicking the can down a dead-end street : an inquiry into the role of banks in financial restructurings of Norwegian offshore companies after the 2014 oil price collapse

2019

This paper examines the role of banks in the financial restructurings of Norwegian offshore

companies following the steep fall in oil prices starting in June 2014. Developing the work of

Torstensen and Rasmussen (2017), we delve into the resolution of financial distress in 11 OSV

companies from 2015 to 2018, aiming to understand the role of banks as main creditors in

financial restructurings. Further, based on insight from key stakeholders, we discuss the

outlook for bank behaviour in future restructurings. Analysing the restructuring outcomes, we

show how bank debt is practically unchanged from the level prior to the restructurings. Instead

of nominal reductions, the banks have opted to amend and extend current loan terms. Although

partially compensated through debt converted to equity and cash redemptions, bondholders

have seen their claims being greatly reduced. Moreover, in most cases, equity infusions came

in form of private placements from the largest existing owners, significantly diluting other

shareholders. As such, banks have favoured large existing shareholders at the expense of other

unsecured claimholders, violating the assumption of absolute priority. As we believe the

current decline in the OSV industry is just as much a structural crisis as it is a cyclical

downturn, we argue that it is essential that banks opt for scrapping of vessels and enhanced

industry consolidation when resolving financial distress in the future. Nevertheless, recent

restructurings provide indications of banks being neither prepared nor willing to address the

fundamental issue of overcapacity in the market.