The shockwaves from the steep fall of oil prices are still being felt in the oil & gas and oil service industries. With the Norwegian High-Yield Bond Market's significant exposure in these industries, it is not surprising to see numerous issuers looking to achieve waivers or a general restructuring of their bond loans as a means to protect their assets.

The Norwegian High Yield Bond Market

Over the last ten years, the Norwegian High-Yield Bond Market has seen massive growth, with issues peaking in 2014 for a total amount of USD 11.5 billion.  The market has been a particularly important source of capital for companies engaged in shipping and energy, and approximately 70% of all the bonds issued within the Norwegian High-Yield Bond Market have been oil and offshore related. Bond issues within this market can be made using a very efficient and flexible process, which has spurred increased interest from international issuers financing their projects worldwide. The investor base, however, is very different for Nordic issuers (who typically attract 95%Nordic investors and only 5% international investors) and international issuers (who typically attract 75% international investors and 25% Nordic investors). International issuers  thus look to utilise the frame-work for Norwegian bonus look to utilise the frame-work for Norwegian bond issuances (including, notably, the standardised bond terms and the Nordic Trustee), whilst broadly maintaining an inter-national investor base.

The sharp drop of oil prices in the second half of 2014 was sufficient to submerge the number of oil and offshore related issues in the Norwegian High-Yield Market, and push such existing bond issues into troubled waters. In an environment of continued low oil prices, oil companies and oil service companies alike are struggling with stretched liquidity, troublesome balance sheets, and the consequential adverse impact on their financing arrangements. The oil and offshore segment of the Norwegian High-Yield Bond Market has, thus, for some time been characterised by restructurings – some completed, several ongoing, and still more to come.

The Role of the Nordic Trustee A particular feature of the Norwegian Bond Market is the role of the Nordic Trustee, who basically acts as bond trustee for all corporate bonds issued. In its role as bond trustee, the Nordic Trustee will represent the Bondholders in all matters related to the bonds – thereby facilitating communication between the issuer and the bondholders, arranging
bond-holder meetings or written resolutions, typically acting as security trustee (if the bonds are secured) and potentially accelerating and enforcing the bonds.

Pursuant to the bond terms, individual bondholders are prevented from taking any enforcement action, initiate insolvency proceedings or other legal proceedings against the issuer based on the bond terms themselves (non-action clause). This provision ensures that solutions between the parties needs to be sought through the mechanisms provided for in the bond terms – which, for the individual bondholder, means protection of their rights and equal treatment with the
remaining bondholder community.

The Nordic Trustee has, over time, proved its willingness to act on the wide authority provided by the bondholders, and has in certain circumstances granted (limited) waivers or made other decisions on behalf of the bondholders.  However, the Nordic Trustee only exercises such authority after a careful assessment and, if the issuer is facing difficulties –in particular, in a
situation where an event of default under the bonds is threatening – the Nordic Trustee is notably more reluctant to make such decisions without consulting the bondholders.   The Restructuring Process as with any publically traded debt instrument, the process for the restructuring of Norwegian bonds will require handling expectations of a (potentially) large number of bond investors with different incentives and information sharing to establish recognition of the challenges and support for a solution. Each stage of the restructuring process may, however, involve particular requirements and practices.

The timing for commencement of the restructuring process will, of course, depend on the level of distress in the issuers' operations. For project finance bonds issued by oil companies where additional cash calls are required, or oil service companies that face liquidity restraints following loss of employment, the restructurings commence quite quickly. Stakeholders seem to have assessed the situation on a longer term basis for bonds issued by more established industry
players but, with the prolonged downturn, the wave of bond restructurings, even for established players, is well underway.     

The issuer may, in the preparatory phase of the restructuring, engage legal and/or financial advisors to lay the groundwork for the negotiations with bond-holders. The issuer is likely to find it beneficial to establish an early dialogue with the Nordic Trustee. Although the Nordic Trustee is representing the bondholders and may be reluctant to grant material waivers without their
consent, it may be willing to consider limited time extensions to allow the issuer to provide further information, consider suggestions or material to be presented to bondholders and, in turn, facilitate communication with the bondholders.

The discussions during the negotiation phase regarding particular waivers or amendments will
need to be considered by the bondholders' themselves. A complicating factor in this respect is that the identity of bondholders is not public information and, further, that the particular composition of the bondholder community may change through second-hand trading of bonds. The issuer does not, therefore, know who the bondholders are, how many there are, their level of industry knowledge, or if their primary motivation for investing in the bonds is to generate yield as
debt investors, to implement "loan-to-own" transactions, or whether they are otherwise making strategic investments as shareholders or competitors.

Unless the bondholder community comprises a limited number of large bondholders known
to the issuer, it will typically have to engage brokers to facilitate communications with individual bondholders. During the negotiations, bond-holders will often organise themselves into an informal ad hoc committee whose purpose is to seek to negotiate a deal with the issuer to be presented for approval by the bondholder community as a whole. The ad hoc committee may
enter into non-disclosure agreements with the issuer to gain access to information (which often is required to be disclosed to the wider market at a later stage) and appoint legal and/or financial advisors (for which the issuer is often required to pay) to assist them in negotiations with the issuer. The number of bonds held by such ad hoc committees may vary, but committees holding
more than two-thirds of the total bonds will have a particularly efficient negotiating position, as it is within their power to decide the outcome of the negotiations for the bondholders. In cases where disagreements arise between fractions of bond-holders, the issuer may again find that the Nordic Trustee may act as a neutral third party to facilitate discussions and exchange
information.

Where bonds are secured on a first lien basis in a project finance or fleet finance structure, the bondholders will typically be the driving force in the negotiations with the issuer. However, where bondholders are secured on a second lien basis (often behind a first lien bank financing) or unsecured, then the negotiating position of the bondholders and the dynamics can be quite
different. In such cases, the bondholders often find themselves in a situation where negotiations are primarily taking place between the issuer/borrower and the senior secured bank lenders, and the bondholders are invited to the table only at a late stage and presented with a proposal as a fait accompli.

The approval phase of the restructuring involves a public decision procedure where all  bondholders are invited to vote for a resolution at a bondholder meeting (where bondholders regularly only provide a proxy to the Nordic Trustee to vote on their behalf) or through a written resolution procedure. Any decisions relating to the waiver or amendment of the bond terms will need to be approved by two-thirds of the voting bonds (excluding bonds held by the issuer or its
affiliates). Once that majority is achieved, the bondholders may pass any decision related to the bonds on behalf of the bond-holders, including reduction of principal or interest and conversion of the bonds into other capital classes. Since the discussion and formal approval may happen at
different stages, it is quite common for the issuer to obtain voting under-takings from individual bond-holders to make sure a particular proposal will be passed before it is made public. 
In the resolution approving the restructuring, the bondholders will regularly give the Nordic Trustee authority to accomplish the implementation phase and, in that respect, enter into amendment agreements and make other arrangements as required.

Failed Restructuring and Enforcement In cases where restructuring attempts fail or are not viable
options, the bondholders and the Nordic Trustee may find it necessary to accelerate the bonds and enforce any security provided for the bond issue. The Nordic Trustee is given authority to make such decision at its own discretion if required to protect the interests of the bondholders. However, in practice, the Nordic Trustee will be reluctant to do so – unless time is of the essence
and it is not feasible to refer the decision to the bondholders (for example, in order to arrest a vessel which, following an event of default, is about to enter a jurisdiction where it will be impossible or very difficult to enforce the bondholders' mortgage). The normal route is, therefore, that enforcement is initiated following a decision from a simple majority of the bond- holders
(sometimes based on the decision of an ad hoc committee holding the required amount of bonds communicated to the Nordic Trustee).

Summary

The Norwegian High Yield Bond Market is currently a scene for restructurings provoked by the continued depressed state of the oil and oil service markets.  The climate of negotiation for these restructurings may vary depending on various factors, including the level of distress being experienced by the issuer, whether the issuer is Nordic or international, whether the bonds are secured or unsecured, and the incentives of the investors in the particular bondholder
community. The bondholder's ability to amend the bond terms by passing a resolution with a majority of two-thirds of the voting bonds, and the Nordic Trustee's hands-on administration of the bond terms, can present an efficient way to implement a negotiated restructuring. However, in order to reach that stage, it is important to have an under-standing of the dynamics of both the
underlying market in which the issuer operates and the Norwegian High-Yield Bond Market.