Petrofac's restructuring team floats proposal to lenders

Late last year, Sharjah-headquartered Petrofac launched a major restructuring overhaul to reduce its debt load, with support from advisory firms Moelis & Company and Teneo.

The project team has now reached an important milestone in their efforts, floating a proposal to creditors. The proposal includes a request for the company’s bank lenders to release a part of their collateral. That prospect is now being discussed between the parties involved.

But according to two sources familiar with the matter, the lenders are not entirely satisfied with that proposal. Key lenders are reportedly being advised by FTI Consulting, while a group of bondholders tapped Houlihan Lokey.

The pressure for lenders to accept the offer – in some form or another – is mounting. If both parties fail to reach an agreement, Petrofac will face the risk of not being able to deliver projects without new contingency lines in place.

Petrofac needs to secure contingency lines (such as letters of credit) before the company is able to receive advance payments for backlogged contracts, thought to be collectively worth over $7 billion.

Some of the disagreements on the terms of restructuring stem from the different preferences of the many contingency providers. It has been suggested that some of the providers prefer fossil fuel-related projects, while others may be pushing more for renewable projects.

Petrofac announced late last year that the company would go into a process of restructuring, with Moelis & Company and Teneo as advisors. The main goal is to address a serious reduction in cash flow.

A client note from JP Morgan was frank about the trouble with Petrofac, which the investment bank said has dwindling options. The note said that Petrofac would either need to exchange its entire debt stack for equity, or somehow manage to convince banks to provide additional guarantees.

The London-listed international energy service provider works primarily in designing and building oil and gas (as well as renewable energy) infrastructure. The company has nearly 8,000 employees across 30 offices globally and clocked revenue of over $2.5 billion in 2022.