(Bloomberg) – UK energy services provider Petrofac Ltd has applied to enter administration after the company’s latest plans to restructure its balance sheet unexpectedly fell through, putting thousands of jobs at risk.
The company has applied to the High Court of England and Wales to appoint administrators, according to a statement on Monday. It comes after European grid operator TenneT canceled Petrofac’s work at a large offshore energy project in the North Sea, rendering the financial restructuring unviable.
The firm employs around 7,300 people globally and has been trying to strike a deal with creditors for over a year, while safeguarding key business deals that could keep the firm afloat. Its collapse would raise the pressure on the UK government to protect British jobs, with the Labour administration already coming under fire for blocking new North Sea oil licenses.
The filing from the company, which employs about 2,000 people in the UK, adds to a string of challenges facing the government, including a bruising by-election defeat, pressure to raise taxes in the autumn budget, and ongoing public outrage over troubled utility Thames Water, Britain’s biggest and most indebted water supplier.
A representative for the Department for Energy Security and Net Zero said that Petrofac’s administration is a “product of longstanding issues in their global business,” adding that the UK arm is continuing to operate as normal. “The government will continue to work with the UK company as it focuses on its long-term future,” the spokesperson said.
Meanwhile, alternative restructuring and M&A solutions for the group are still being explored with creditors including its bondholder group, Petrofac said.
Key contract
Petrofac’s business with TenneT was particularly crucial given it represents over 80% of revenue in the group’s engineering and construction division, according to court documents filed earlier this year. But since Petrofac was not able to meet its contractual obligations, TenneT “exercised its right to partial termination of the contract,” the grid operator announced last week.
Petrofac said in Monday’s statement that it still has the support of its revolving-credit facility and term loan lenders, who are extending debt maturities on a rolling basis. Bondholders are also backing the firm via continued forbearance agreements.
“Petrofac has a number of fundamentally strong businesses and we are focused on delivering the best possible outcome for them through this process,” a Petrofac spokesperson said. “Our long-established North Sea business continues to operate as normal, and management are working to minimize disruption for clients and employees.”
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Serious fraud
The company’s troubles date back to a Serious Fraud Office investigation in 2017 that ended with Petrofac paying a £70 million ($93.5 million) fine. The probe had a lasting effect on business, with the company unable to secure new contracts in the Middle East, court documents filed earlier this year show.
Still, just months ago, a deal to save the company looked within reach. A plan backed by hedge funds including Mason Capital Management and Nut Tree Capital Management would’ve seen $845 million of the group’s debt converted into shares, while paving the way for fresh equity to be injected into the business.
But a landmark Court of Appeal decision in July shot down the proposal, with judges arguing that it unfairly allocated the benefits of the restructuring. They sided instead with a group of unsecured creditors, essentially forcing the parties back to the table to find a solution.
