The bank debt of the Norwegian oil field services company Petroleum Geo-Services has climbed approximately 15 points as the company reorganizes under Chapter 11 in the U.S. Bankruptcy Court. About $80-100 million of bank debt paper is believed to have changed hands last week around the 721/4 range. "We have seen other creditors buying into the bank debt," said Svein Knudsen, v.p. finance and treasury of Petro Geo. An analyst who follows the company said its bonds and bank debt should be hot. "Our valuation showed that there is a tremendous amount of upside for the senior notes as well as the bank debt," he said. Prior to Petro Geo's bankruptcy filing, the bank debt was trading in the mid-to-high 50s (LMW, 6/2). The company has a $430 million revolver with J.P. Morgan as agent and a $250 million short-term bridge loan with Scotia Capital as agent, Knudsen explained, declining to name other large creditors invested in the company's bank debt. Scotia Capital; Dresdner Bank; Royal Bank of Canada; Midland Bank, now named HSBC; Landesbank Schleswig-Holstein Girozentrale; Christiania Bank og Kreditkasse, now known as MeritaNordbanken; and Den Danske Bank were original lenders in the $430 million piece. The parties involved in the trades and whether the paper traded in one piece or multiple pieces could not be determined.
The company's $680 million in bank debt claims are pari passu with $1.46 billion in bond claims. Under the company's plan of reorganization, the senior creditors have the option to receive one of two recovery packages. Under Package A distribution, the creditors will receive a portion of a new term loan, and a piece of the $55 million in proceeds from the sale of Petro Geo subsidiary Atlantis Holding Norway to China National Chemicals Import and Export Corp. The portions distributed under Package A will be tweaked by an oversubscription adjustment formula depending on whether senior creditors holding more than $1.46 billion in claims choose Package B. Under Package B, senior creditors can receive $350 million in new senior "A" notes; $250 million new senior "B" notes; and 91% of the new shares in the reorganized company. In addition, an offering will take place giving the equity holders the option to buy an additional 30% of equity from the senior creditors for $85 million, Knudsen explained. Equity holders are already slated to receive 4% of shares in the reorganized company and holders of the trust preferred securities are slated to receive 5%, he noted.
Creditor votes on the plan are due on Oct. 14. A confirmation hearing is scheduled to be held in the court on Oct. 21. Petro Geo anticipates that it will consummate its plan of reorganization on Nov. 5. "The most important thing is that the company is going to emerge with less debt," the analyst said. The nature of the company's business is likely to remain the same, he added. If Petro Geo is able to win creditor approval for its reorganization plan, the company will be able to reduce its approximately $2.5 billion in debt down to about $1.27 billion. The company filed for bankruptcy on July 29 and at that time obtained an agreement in principle from its major creditors.