Noble Group's Top Creditors Seek to Draw a Line Under Crisis

(Bloomberg) -- Noble Group Ltd. plans to introduce the schemes of arrangement that underpin its restructuring this week, a key step in the creation of a new company that senior creditors signaled will hold to the highest standards of corporate governance after a drawn-out crisis.

The schemes, which buttress the $3.5 billion debt-for-equity rescue, will be introduced in courts in London and Bermuda by Sept. 21, the commodity trader said on Monday. In a separate release, the company’s ad hoc group, or AHG, of senior creditors said they expected “Old Noble” to file for insolvency, while its successor entity revives the core business overseen by a tough new board.

After years of crisis, losses and defaulting, Noble Group has been putting in place the final elements of the rescue, which will see control handed to the senior creditors. Last month, Noble won shareholder backing for the plan, and it’s said more than 85 percent of senior creditors are in support. Completion of the overhaul will likely bring fresh scrutiny on whether the slimmed-down company can both turn a profit and service its reduced debt burden while also moving on from the claims of impropriety that marked its implosion.

The ad hoc group “believes that the current management team, coupled with a new governance structure, is well-positioned to execute on the proposed turnaround,” Joseph Swanson, senior managing director at Houlihan Lokey Inc., a financial adviser to the creditors that are backing the rescue, said in a letter. Candidates for the new board “must be committed to international best practices and the highest levels of ethical comportment.”

New Structure

Under Noble’s revamp, 70 percent of the equity in a new company will go to the senior creditors, 10 percent to management and the rest to existing stockholders. The debt burden will be halved. After asset sales, Noble has shrunk back to its roots and it’s now focused on coal, LNG and freight.

Iceberg Research -- a long-time foe of Noble led by a former employee, Arnaud Vagner -- has said the debt-for-equity proposal won’t revive the trader’s fortunes and has criticized Noble’s management and accounting, including claims profits were overstated. In response, Noble Group has consistently stood by its accounts and defended its actions.

The ad hoc group said members had weighed up the merits of winding down the business or selling the trader to a strategic investor, but both options were rejected in favor of keeping Noble together as a rejuvenated standalone business. In reaching that decision, the group checked out the claims against Noble Group, including suggestions its accounts weren’t rigorous enough.

‘Public Critics’

As part of their review, “the AHG and its financial advisors conducted a financial and business diligence exercise giving specific attention to matters raised by public critics,” Swanson’s letter said. “The new board will conduct a comprehensive review of corporate accounting and risk-management policies as part of its commitment to best practice governance arrangements.”

Noble Group is in the process of finding a new chairman to replace incumbent Paul Brough, and has said the successful candidate will come from outside the company. In their letter, the AHG said there’d been good progress on drawing up the new board, including a slate of independent directors.

“It is important to note that for the AHG, the balance sheet write-downs over the past 12 months conservatively recalibrated asset valuations,” Swanson’s letter said. “The AHG looks to the new board to take a similarly conservative approach to non-cash accruals specifically, and accounting matters generally.”

In an indicative outline released in March, Noble had aimed for the rescue to be done by July but that timeline slipped after it faced opposition from some shareholders and it revised the terms. The restructure should be completed in two to three months, the company said at the shareholder meeting.

“They have missed some deadlines on the restructuring path, so it’s now rushing to turn a page in its history,” said Ang Chung Yuh, senior fixed-income analyst at iFAST Corp. in Singapore. “It remains to be seen if the new entity can service the debt load. We can only tell if the same management can deliver the turnaround, when we get the first few quarters of results.”

Moody’s Investors Service has also highlighted the challenges. While the agency recently raised Noble’s corporate family credit score two steps to Caa1 as the rescue was on track, it also said that score reflects a “high level of uncertainty surrounding the company’s ability to turn around its operations.”

©2018 Bloomberg L.P.