Schahin DIP loan in danger due to lack of interest

29 August 2016

by Aline Lima

 

Grupo Schahin’s chances of securing a debtor-in-possession (DIP) loan to fund maintenance are shrinking, due to a lack of interest from investors, according to two sources close to the matter and a source familiar. The legal issues facing the Brazilian oil services provider and “Lava Jato” (“Car Wash”) investigation target have been the biggest deterrent in the nearly nine-month quest for the DIP, they said.

 

“Some investors have shown interest [in a DIP loan], but there is nothing concrete so far,” the first source close said. Schahin is still awaiting a court decision on the appeal filed in April by a syndicate of 13 banks against the approval of its restructuring plan, the source noted, and the delay is not helping the matter.

 

Schahin’s implication in the Lava Jato Brazilian federal corruption probe has also been discouraging potential investors, the second source close and the source familiar said.

 

“No one wants to negotiate with someone who is admittedly involved in corruption,” the second source close said.

 

The Brazilian MPF Federal Prosecutor’s Office has recommended the conviction of shareholders Salim Schahin and Milton Schahin and director Fernando Schahin for paying bribes to get a contract with state oil producer Petrobras to operate the Vitoria 10,000 drillship.

 

In addition to Schahin’s legal issues, remuneration for the DIP has been another stumbling block, according to the source familiar.

 

“Investors were asking for 25% per year in dollar terms, but the company was inclined to pay only 10%,” the source familiar said. There would be a one-year grace period for interest payments and a maturity in 2020, the year when the Vitoria 10,000 contract with Petrobras expires, according to the same source.

 

Schahin has been negotiating a USD 25m-USD 30m DIP loan with foreign investors since the beginning of 2016, initially to fund the maintenance of its Vitoria 10,000 vessel, the only asset still in operation for Petrobras. The vessel maintenance was completed in May, and Schahin got a judicial authorization to access part of the payments it receives from the charter and service agreements related to Vitoria 10,000 and paid for the work, according to the source familiar and a third source close.

 

Schahin is still trying to raise money to keep the Vitoria 10,000 operation, but the risk for a potential investor is making this almost impossible, the source familiar said. “After European investors, who are known for being used to taking risks, rejected the offers made by Schahin’s representatives during a road show in May and June, I believe it will be very difficult [closing the deal],” the same source said.

 

Without the DIP, Schahin faces difficulties maintaining operations. Its cash situation is already “not so good,” the first source close said, without elaborating. As all of the recovery plan is based on Vitoria’s operation, Schahin could be headed for insolvency, the second source close and the source familiar said. Petrobras could choose to replace the Vitoria 10,000.

 

A Schahin representative said in an email statement that the Victoria 10,000 vessel is operating normally, with excellent performance. The company remains confident its judicial recovery plan will be approved and it will be able to pay all creditors, the statement said, adding that in the beginning of this year Schahin signed a memorandum with the CGU (Brazil’s Comptroller General’s Office) and is cooperating with judicial authorities in all areas.