COLUMN | Bourbon faces stark choice in restructuring decision: stick with Jacques de Chateauvieux or make a fresh start [Offshore Accounts]

The history of Bourbon Corporation is one of hubris, tragedy and fall, as the company expanded from running sugar plantations in the Indian Ocean, to owning a fleet of over 500 vessels operating in over fifty countries, the largest in the world.

Along the way we saw the tragic sinking of the anchor handler Bourbon Dolphin, claiming the life of the Norwegian captain and his son; lurid accusations of corruption in Africa after a suitcase of money turned up in Marseille airport, leading to court appearances for the senior management earlier this year; and the bankruptcy of the company’s main shipbuilding partner in China, Sinopacific, followed by the arrest in Myanmar of the boss of Sinopacific for tax evasion in China last year.

And the drama shows no sign of abating, as the company struggles to honour its massive debts. In January, Bourbon renewed a general waiver with the majority of its debt holders, allowing the company to suspend debt repayments to them. But this gave it only limited breathing space.

Wipe out the shareholders to save the business?

Now, the board of the French offshore support vessel owner faces a stark choice as it considers which of two rival financial restructuring proposals it should back to save the company. The directors have to decide whether to take fresh debt from major shareholder, chairman and founder, Jacques de Chateauvieux, or to accept a proposal from the company’s major lenders to swap the majority of their debt for equity, all but wiping out existing shareholders and offering the company a fresh start with minimal debt.

Accepting this second proposal would see over US$1.5 billion of debt lifted from the company and the lenders and vessel lessors would control 93 per cent of Bourbon’s equity. This option would also, of course, see Mr. de Chateauvieux lose nearly all his investment in the company, and lose control of it. For employees, suppliers, customers and the independent directors a debt for equity swap would be the best possible option to ensure the survival of the company. It would guarantee the employees their jobs, customers continued service, and suppliers their payments and future orders. For Mr. de Chateauvieux, it would be a disaster, and therefore we can expect him to make every effort to resist it.

A concert which squeezes minority investors

Throughout the last five years Mr. de Chateauvieux has sought to maintain his control over Bourbon. The onset of the oil crisis saw the appointment of Mr de Chateauvieux’s niece as the CFO, when the company entered financial difficulties. On June 24, he announced that he had extended the right to act in concert with his brother, Mr. Henri de Chateauvieux, without requiring them to make a formal offer to buy out the minority shareholders.

This locks the minority shareholders into submission to the de Chateauvieux brothers, who control over half the voting rights in the company through the new, extended concert agreement. Good governance should require the brothers to make an offer to buy out the minority shareholders. Don’t expect that to happen, anytime soon, as they have expressly sought a waiver so that they do not have to.

A simple choice – do as Tidewater did

The choice should be simple. Bourbon’s biggest rival Tidewater recently underwent a similar debt for equity swap, which has left it financially stronger and placed it in the position of industry consolidator, through its recent amalgamation with Gulfmark Offshore. Tidewater’s old shareholders lost nearly all their equity, but the company is positioned to thrive.

Bourbon, meanwhile, continues to struggle under the burden of over a billion euros of debt. Under the debt for equity swap, the company would receive a cash infusion in the form of a new loan of €120 million in addition to wiping out the old debts. So, debt would fall by more than 90 per cent, and Bourbon would be set on a sustainable footing with the lenders as new shareholders.

Jacques’ cunning plan – borrow more money

Jacques de Chateauvieux and his financial partners, on the other hand, have proposed that the solution to the company’s debts is not to wipe them clean and start afresh, but to borrow yet more money. Like the gambler in the casino hoping to win back all his losses, Mr. de Chateauvieux proposes what the Bourbon press release described as, “a contribution of €80 million in new money in the form of debt and a €164 million loan, which would make it possible to pay off lenders who would wish so.”

So, actually, he is not proposing any new equity capital for the company at all, but simply close to a quarter of a billion of euros of new debt for Bourbon. This is because, any new equity capital investment he makes would obviously be jeopardised in the event that his debt-loaded plan didn’t save the sickly patient. Key to Chateauvieux’s proposal is that it, “does not involve any dilution of shareholders at the end of the restructuring.” Which is obviously in his interests and those of his brother as controlling shareholders. I will reiterate that it is clearly not in the interests of the staff, customers or suppliers, however.

Independent directors are hardly independent

Both offers had a ridiculously short validities, and may have lapsed before this article goes online. The restructuring of Bourbon will be a long battle. The independent directors will be key. They have a duty to represent the interests of minority shareholders and employees. An ad hoc committee of four Bourbon directors (two of whom are independent under the definition of the French stock exchange rules) was created in July 2018 to assess the different restructuring options.

When it announced the existence of the two restructuring plans to the world at large, Bourbon declared that, “At this stage, the board of directors is not able to pronounce itself in favour of one of these proposals since they still include a number of conditions, and in particular the agreement of all parties. The board’s main goals remain to guarantee a sustainable level of debt, to receive new money to support the group’s growth, and a stable shareholders structure that has the trust of Bourbon partners and teams.”

The announcement concluded that the general management of Bourbon had been asked to pursue negotiations in order to obtain final and binding conditions for both two offers, and extend their validity in the meantime.

Run for the door whilst you still have time

Whilst I am not a specialist in French corporate governance, or in Bourbon’s corporate governance, which many would argue is a contradiction in terms, I would observe that both the board and Bourbon’s management will find it hard (nigh impossible?) to be independent of Mr. de Chateauvieux’s influence, given the control he exercises over their appointment and continued tenure in their roles.

I would recommend that any minority shareholders consider getting out now, because with either plan they likely face wipe out. Strangely, the stock market currently values their equity at €188 million, suggesting that it sees little possibility of the debt for equity plan proceeding.

Whilst Bourbon’s equity is potentially worthless, the company itself has value. Without the significant debt for equity swap that the lenders have proposed, however, Bourbon will continue to struggle to service its debts, and likely faces a bleak future. Ditching de Chateauvieux and making a fresh start will save Bourbon. Expect Jacques and Henri to do everything they can to fight it.