PGS’s 2002 annual report reveals a true annus horribilis for the company. A year of ‘disappointments for PGS and its stakeholders’, ‘very substantial financial losses’ and a ‘failed merger effort’ resulted in lost confidence among investors and creditors and a share price collapse. PGS’s new board, headed by chairman and CEO Svein Rennemo, is battling to save the company with a restructuring agreement that sets out to ‘provide a solid basis for future operations and growth’.
The agreement—which has already received backing from a majority of PGS creditors and its largest shareholders—involves a debt reduced from approximately $2.5 billion to approximately $1.2 billion. Existing shareholders are to receive a skimpy 4% of post-restructuring equity with an option to acquire an additional 30% stake in the restructured company for $85 million. A goodly chunk of this new cash will go into the pockets of PGS’s legal, financial advisors and auditors who are expected to clear a tidy $35 million for their pains. PGS plans to use a US Chapter 11 procedure at parent company level only, as ‘the most effective mechanism’ to carry out the restructuring. This will allow operating subsidiaries to continue with operations, leaving clients, vendors, employees and subsidiary creditors ‘unaffected’.
Post-restructuring, PGS’s banks and bondholders will own 61% of the company’s shares and holders of the $144.75 million of PGS ‘Trust Preferred’ securities will get 5%. At the PGS general assembly this month Svein Rennemo described the company’s problems as ‘largely of our own making’—major investments since mid-90s were financed with debt and failed to meet cash flow expectations. Since then, a declining seismic market and depressed US dollar have compounded PGS’s misery.
CGG acquired 7.5% of PGS last September with the intent of ‘working towards a consolidation in the seismic industry’. CGG has lent its support to the restructuring and is underwriting its share of the 30% shareholder equity. Depending on take-up, CGG will end up with a stake in PGS of somewhere between 2.7% and 8.1%. Completion of the restructuring is expected later this year.
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