Shareholders Vote Down DOF's Debt-for-Equity Swap

Norwegian offshore vessel operator DOF is the latest in a long string of peers to head for a balance sheet restructuring, but a shareholder revolt appears to have disrupted management's preferred plan for how to go about it. 

In June 2022, after three years of negotiations, the company reached a comprehensive agreement with its major creditors. The deal would implement a $580 million debt-for-equity swap, roll over $70 million in bond debt and consolidate most of subsidiary DOF Subsea's debts into a single loan. This would reduce DOF's $2 billion debt load down to a more manageable $1.3 billion, putting it on a better footing against competitors who have already lightened their balance sheets through bankruptcy or restructuring.

However, the proposed deal would also wipe out existing shareholders, who would be left holding a combined four percent of the company. A substantial minority of these shareholders opposed the deal, arguing that the market conditions have changed since DOF entered into restructuring negotiations. They pledged to vote down a motion to approve the agreement at the next shareholders' meeting and called for more information from management about the firm's prospects and financials. 

This threat prompted a warning from DOF's creditors that there would be no better alternative on offer, and that a forced process would follow if the measure did not pass.

"The restructuring is the only solution to solve DOF's financial issues absent repayment in full of all DOF's financial debts, and the restructuring therefore must and will occur, with or without the support of DOF's shareholders," warned DOF's bankers and creditors in a letter. 

Nonetheless, the opposing shareholders gathered enough votes to prevail, and on Friday the restructuring plan was voted down. 

In a brief memo, DOF's management said that the firm has agreed with its creditors to implement the same restructuring plan, but as a forced process, using the legal tools available under the pandemic-era Norwegian Reconstruction Act. This will leave existing shareholders with a collective one-percent stake, according to the firm. 

If that method is not successful, the company's senior secured lenders have already pledged to "take steps to assume control over the remaining DOF through [a] bankruptcy proceeding without disturbing the ongoing business operations within the DOF Group." This last recourse would leave existing shareholders with zero equity. 

Once restructuring is complete, DOF stands to benefit from a growing offshore recovery. It recently secured a three-year charter agreement from Petrobras for the use of three subsea vessels and ROVs, which will generate a cumulative $250 million in revenue.