(OILPRO) –
By Joseph Triepke
View the original article on Oilpro.com.
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Yesterday afternoon, Tidewater, the industry's largest offshore supply vessel (OSV) company, announced that it drew down its revolver. Specifically, the company borrowed $600 million under its revolving credit facility, the maximum amount available.
We've seen a rush on credit in O&G this year as companies try to a) bring all the cash they can in house in anticipation of diminishing credit availability, and b) gain leverage in coming credit negotiations on covenant breaches, particularly in the case of these revolver drawdowns.
Jeff Platt, Tidewater CEO said: "The uncertainty surrounding the future direction in oil and gas prices has resulted in our clients' continued reduction in their capital budgets, spending and activity levels. We are in compliance with all financial covenants and other terms of the revolving credit facility and our note indentures."
But compliance with Tidewater's financial covenants could be short lived. The current deterioration of the offshore market continues to erode the company's vessel revenue and other financial metrics. As a result, Tidewater signaled in yesterday's press release that a covenant breach could be coming before calendar year end. "It is possible that in future quarters, and possibly as early as fiscal 2017 [which begins in April], the company may cease being in compliance with interest coverage ratios contained in certain of its debt facilities and senior note indentures."
This would be a default under the company's debt facilities, and the revolver drawdown could give Tidewater some negotiating leverage to resolve the default without business interruption. Tidewater has already begun the negotiation, initiating dialog with its lenders to try and get covenant waivers and amendments ahead of the breach.
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