Norway’s Fjord Line seeks bondholder OK to amend bonds due 2016

By Toni Weeks

San Luis Obispo, Calif., Nov. 17 – Fjord Line AS is seeking bondholder approval for proposed amendments to its senior unsecured bond issue due 2016 at a meeting in Oslo on Dec. 1, according to a notice from bond trustee Nordic Trustee ASA.

The company, an operator of short sea cruise ferries in Norway, said that it has incurred increased costs, disturbance of its cruise schedule and weakened profitability due to the delay in the delivery of a new vessel. In addition, rudders were incorrectly installed on two ferries, and the company experienced significant lost income during than those ferries’ dockings.

Furthermore, the company is being affected by the delay in the construction of a pipe to refuel LNG. In an effort to deal with the excessive refueling times, the company has been forced to run ferries on a higher speed, resulting in higher fuel consumption, and decrease the number of weekly departures until the pipe has been completed.

Due to its challenges, the company is expecting an EBITDA of about NOK 2 million for 2014, representing a shortfall from budget of roughly NOK 146 million. The deficit can be attributed primarily to non-recurring start-up costs on new routes/ferries and lower-than-expected on-board spending.

he weak financial performance is impacting the issuer’s cash flow and cash balance significantly, resulting in a potential covenant breach in the first quarter of 2015.

Without any amendments of the current financing structure, the cash balance is expected to be below the minimum cash requirement of the issuer’s loan agreements.

Improving finances

To strengthen its financial position, Fjord Line has already negotiated and is moving forward with plans to

• Change the amortization structure for each of its long-term senior debt facilities to reduce annual installments by 40% during the next four years. The lower payment will begin in 2015 and is expected to strengthen the cash position by about NOK 68 million per year;

• Amend the covenants on its interest-bearing debt. Specifically, the book equity ratio covenant would be at least 15% until Dec. 31, 2017 and at least 20% thereafter, and the NIBD/EBITDA covenant would be no more than 9 times until Dec. 31, 2017 and no more than 7 times thereafter. Additionally the NOK 21.5 million cash deposit would be released.

• Raise a minimum of NOK 100 million in new equity, which will be fully underwritten by the company’s largest shareholders; and

• Implement internal targets for cost reductions.

Proposed amendments

The issuer has requested approval of changes to the bond agreement at the meetings and specifically wants to

• Extend the maturity date to Feb. 5, 2018 from Feb. 5, 2016;

• Amend the meaning of senior debt and permitted security;

• Obtain additional security from Fjord Skibsholding I A/S, owner of the MS Oslofjord), and Fjord Skibsholding II A/S, owner of the HSC Fjord Cat;

• Temporarily lift the minimum liquidity requirement of NOK 50 million in March 2015 to a reduced level of liquidity of NOK 25 million until June 2015, at which time the NOK 50 million liquidity would then be re-instated; and

• Increase the margin to 875 bps from 750 bps from the interest payment date in February 2015 and onwards.

The company has informed the trustee that it has received binding commitments from its largest bondholders to support the proposal.

To approve the resolutions at the meeting, bondholders representing at least two-thirds of the bonds represented in person or by proxy must vote in favor of the resolution. To have a quorum, at least half of the voting bonds must be represented at the meeting.

Questions may be directed to financial advisers Pareto Securities AS Fixed Income Sales (47 22 87 87 70) or Norne Securities AS Fixed Income Sales (47 55 55 91 50).

The company is based in Egersund, Norway.

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