global_marine

Restructuring and Turnarounds using formal insolvency procedures

Global Marine Systems – Administrators; CVA Supervisors; Loan Note Trustees

Global Marine Systems (GMS) operated a sub-marine cable layer. This was a sophisticated and complex business that had a large workforce and operated 14 large cable laying ships. GMS was one of only 3 businesses in the world that could lay sub-marine cables at the required level of technology. In many ways – this business was (and still) is a world leader.

The business was sold by Cable and Wireless to Global Crossing for £500m, and at the peak of the internet “dot.com” boom when GMS had sales of £525m. However, the whole sector struggled to be profitable and when the dot.com bubble burst the sector experienced massive activity declines yet was burdened with large labour costs and funding obligations on the ships and capital equipment.

GMS was haemorrhaging cash and Global Crossing attempted over a three year period to negotiate out-of-court compromises with the key major creditors who all had significant leases on ships. These negotiations never reached any acceptable conclusions and Global Crossing (itself in Chapter 11) then tried to sell the business. This, given the financial circumstances was extremely difficult. When one purchaser (who was a major client of one of the Bank creditors) failed to complete, Global Crossing sold GMS to Bridgehouse Capital (a small private equity team).

Bridgehouse then resumed negotiations with the key creditors and again failed to reach viable settlement agreements. The position was that:

• Negotiations had failed – and 2 different management teams had tried to come to compromise

agreements and failed – over a 3 year period.

o In fact, some of the creditors where extremely hostile to GMS – this was to make coming

to a deal extremely difficult.

• In particular, the business was burdened with legacy costs that it could – given its current

levels of turnover – not afford.

o GMS had 14 ships under various recurring finance leases, and

o A large workforce that had been recruited in the glory days when the turnover was £525m

– and was far far too large for the current turnover of about £80m.

• To add to the complications – the workforce was represented by 3 different unions.

o There were very large (defined benefit) pension liabilities to the GMS pension fund that was

massively underfunded.

• There were no prospective sources of additional financing.

• The business was haemorrhaging cash and only a few months cash resources left before there

was no cash.

But it was not all bad news …

• GMS was a world leader. It was very highly valued by its client base – all of whom wanted GMS

to survive in business.

• Its operating management team and staff had built up a unique base of skill and experience.

In summary – our solution was to:

• Enter into Administration which effectively created a moratorium and protection against unilateral

creditors’ action.

o However, we were strongly of the view that if the Administration lasted too long we would

destroy the customer relationships and contracts – and therefore any prospect of an effective

turnaround.

• Allow certain lease creditors to repossess their ships that were not essential to trading.

o This had the key advantage of reducing the ongoing (unaffordable) lease obligations, yet

allow the lease creditors the ability to “deal” with their own assets under their security.

• Downsize the workforce using the protection of Administration, then

• Exit from the Administration using a Company Voluntary Arrangement (CVA).

Implementing this solution was a massively hard battle because of the hostility of the key creditors (not least because the creditors had competing interests). However, we managed to:

• Exit the Administration within 6 weeks with a CVA which was 100% approved by all classes of

creditors.

• Generate a return for the following classes of creditors.

o Secured creditors – 100% given on going contributions from GMS itself.

o Preferential creditors – 100%

o Unsecured creditors – 38%

• Stabilise GMS so that post the insolvency it is profitable and thriving.

A genuinely complex and difficult job – but the results given the circumstances were extraordinary.

www.globalmarinesystems.com

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Restructuring &

Turnarounds