Latina Offshore seeking three-month waiver for USD 50m July bond maturity; specifics of new Pemex contracts a concern

20 July 2016

by Pablo Dominguez

 

Latina Offshore Holding, the offshore drilling business of Mexico-based Constructora y Perforadora Latina (CP Latina), is negotiating with bondholders a three-month waiver on the USD 50m maturity payment due at the end of July, CFO Miguel Ruiz told Debtwire today. Such a waiver would come in addition to a recent agreement with holders of a larger 2018 international bond for a three-month postponement of an instalment payment due earlier in July, as reported.

 

The holders of the 2016 bonds, though, are different from holders of the 2018 bonds, according to Ruiz.

 

Nevertheless, talks with holders of Latina’s USD 50m 10% 2016 unsecured bonds are running smoothly and an agreement could be reached by mid next week, just ahead of the 31 July maturity, Ruiz said.

 

The negotiations are taking place directly with the investors, who haven’t hired any advisors and are relying on the leadership of some larger holders, the CFO said. As reported, Latina has retained Clarksons Platou as financial advisor.

 

A required majority of holders of Latina Offshore Holding subsidiary Latina Offshore Limited’s 8.875% senior secured bonds due 2018 approved earlier this week a borrower’s proposal to postpone to 30 September the payment of USD 10m of principal. Out of the USD 15m in principal due 3 July, Latina paid USD 5m on that date and deferred the remainder.

 

In addition to semi-annual interest payments, the 2018 bond also includes an amortization repayment schedule of USD 15m every January and July. After the July partial payment, there is USD 306.25m outstanding of the 2018 bonds.

 

This time around however, the borrower will not be able to make a partial payment of the 2016 bond in exchange for the waiver.

 

“I have no funds to make any additional payment,” Ruiz said. “As of now, I have no revenue.”

 

The operating contracts of the Santa Maria and La Covadonga jack-up drilling rigs, which act as collateral of the 2018 notes, have been suspended for three and a half months starting in May, said Ruiz, noting that no revenue will be generated from those assets until mid-August.

 

The suspension was agreed upon between government-owned oil producer Pemex and parent CP Latina, according to Ruiz. Latina Offshore charters the two jack-ups to parent CP Latina, which in turn operates and lease the rigs to Pemex, as reported.

 

The Santa Maria hasn’t operated since 8 March, while the Covadonga halted operations on 29 April, as reported. In spite of that, Pemex continued paying the daily rent of both jack-ups until the May suspension.

 

CP Latina agreed with Pemex last year to cut the day rates for each of its two jack-ups to USD 125,000 from USD 158,000, for the period June 2015 through May 2016. Of those amounts, Latina Offshore receives USD 107,000 per day and rig from its parent.

 

Contract resumption subject to budget availability

 

Even though Latina and Pemex have a preliminary agreement to resume the charter contracts following the three-and-a-half-month break, no formal agreement has been signed yet, and uncertainty and concern regarding some contract details remain, Ruiz noted.

 

“For me, it [the resumption] has been agreed, and I think so has it been for Pemex,” Ruiz said. “But we need to see the addendum [to the contract] and the conditions.”

 

Pemex has presented a peer Mexican driller with suspended contracts a preliminary agreement that states that the reactivation of the operations is subject to the existence of drilling activity and budgetary resources, according to Ruiz.

 

“If we’re presented with that, I won’t sign it,” Ruiz stressed. As a reason for that stance, the CFO noted that Pemex has rejected to invoice work done by one of the two jack-ups during April with the argument that it has no budgetary funds.

 

Latina has no idea as to when a final agreement for the resumption of operations could be in place, as Pemex isn’t responding to the company’s emails, the CFO said.

 

A Pemex official declined to immediately comment about contract renegotiations with its service providers.

 

Unless new charter contracts are in place though, no proper restructuring negotiations can be held between Latina and its bondholders, Ruiz acknowledged.

 

“The first thing bondholders are requesting is a formal contract,” said Ruiz, adding that having such a contract is the rationale behind the three-month waiver requests.

 

Modular platform under operation; no further parent help expected

 

On a positive note, a newly built modular platform – which is outside of the 2018 bond structure but is part of Latina Offshore Holding – started operating for Pemex on 5 July, Ruiz noted. Pemex pays USD 52,000 per day for the asset to CP Latina, which in turn pays around USD 40,000 per day to Latina Offshore, he added.

 

Nevertheless, Latina Offshore won’t receive any liquidity from this asset until the end of August, at the soonest, once Pemex approves the invoice for the first month of operation, Ruiz noted. Only with that invoice approved will Latina be able to enter into factoring agreements to obtain liquidity.

 

Pemex and CP Latina agreed last year on new payment terms with a 180-day delay period following the issuance of the invoice for the two jack-ups, as reported. In the case of the new modular platform, the delay period has been set at 90 days, Ruiz said.

 

In order to overcome a liquidity crunch as a consequence of Pemex’s delays in payments, Latina has resorted to factoring lines with HSBC, as reported. The outstanding on those lines amounts to USD 48m, after Latina recently repaid USD 38m with funds from payments that Pemex made in June for July-November work that were invoiced in December 2015, according to Ruiz. Another USD 13m payment is set for 25 July, with additional payments from Pemex scheduled for 15 August, 23 August and October, the CFO added.

 

“At least Pemex is paying within the 180 days,” Ruiz said. “That’s good news.”

 

These factoring lines are critical for Latina Offshore, as no further help from parent CP Latina should be expected going forward, according to Ruiz.

 

On top of assuming the cost of the factoring lines, CP Latina has in the past provided its offshore drilling subsidiary with two loans that allowed it to make respective bond coupon payments. Last year, CP Latina also made an equity investment into the subsidiary to fund a USD 25m face value buyback of the 2016 bond, as part of a condition imposed by the bondholders in exchange for giving up a coupon increase to 11%.

 

Latina Offshore Limited’s USD 306.25m 8.875% senior secured bonds due 2018 were last bid at 56, while Latina Offshore Holding’s USD 50m 10% unsecured bonds due July 2016 were last bid at 88.