Trevor Turbidy explains how this company was once $400 million in the red, but thanks to an aggressive turnaround strategy, it’s back in the black.

When Trevor Turbidy joined Trico Marine Services, Inc. as CFO in August of 2003, he didn’t need a calculator to figure out the company was in financial distress—with $400 million in debt, it was a restructure waiting to happen.

“When I came on board, I had to get my hands around the liquidity situation. Trico Marine didn’t have a robust infrastructure, it hadn’t assimilated several acquisitions, and management hadn’t been studying the numbers,” said Turbidy. The main problem, he added, was although the company had $60 million in cash and appeared to be in great shape to shareholders, most of that money was trapped overseas and couldn’t pay off US debt. “Our biggest challenge was generating cash flow to service US debt.”

Trico Marine Services, simply put, is a boat rental company serving the oil and gas industry. Its fleet of 65 boats ranges from 180- to 220-foot crew boats and supply vessels to large, deepwater capable, multi-purpose vessels that can be rented by the day or leased on long-term contracts. The vessels operate in the Gulf of Mexico, the North Sea, Latin America, the Caribbean, and West Africa, transporting drilling materials, supplies, and crews.

Trevor Turbidy

Out of the red
After thoroughly analyzing the company’s financials, the board recognized the need to implement a comprehensive restructuring plan in April of 2004. At that point, the company had $250 million in unsecured debt on top of $150 million in bank debt and other senior secured debt. “We began discussions with our bondholders to turn that debt into equity, and we wanted to keep it out of court,” said Turbidy. But the bonds were not consolidated in the hands of just a few bondholders, so it needed to pursue an in-court consensual restructuring. As a result, Trico hired investment bank Lazard Fréres and bankruptcy law firm Kirkland Ellis as financial and legal advisors.

Trico Marine spent three months assembling a debtor-and-possession facility to create adequate liquidity during bankruptcy, “but it turns out we didn’t need it. We turned our debtor-in-possession facility into an exit facility and endured the shortest bankruptcy of any public company in the southern district of New York—we filed on December 21, 2004, and our reorganization plan was confirmed on January 19, 2005,” said Turbidy.

But the company wasn’t out of the woods yet. Trico Marine was still carrying $150 million in debt, and EBIDTA had fallen to $15 million from $25 million the prior year. Luckily, the market started to pick up in the second quarter of 2005, causing day rates in the Gulf of Mexico and the North Sea to increase. With that as a catalyst, the company set out to achieve three goals: 1) refinance exit facility, which was stifling growth through its restrictive covenants, 2) get back on the NASDAQ, and 3) strengthen the balance sheet by reducing debt and increasing equity.

“We accomplished all three of those goals and sold in excess of $100 million of common stock in October 2005. Between that and cash-flow generation, the business was finally stable,” said Turbidy.

Market shift
Once the financial picture was turned around, Trico Marine transferred vessels from the Gulf of Mexico to other international markets—a move employees and shareholders resisted as companies were paying as much as $10,000 per day to rent a Trico vessel in the Gulf of Mexico, while day rates in West Africa and other markets were averaging $7,500. The strategy was to lower the volatility of cash flow by seeking attractive long-term contracts and de-emphasizing its dependency on mature markets.

“The Gulf of Mexico was indeed a great market, but we wanted to stabilize EBITDA for the long-term, not maximize it for the short term. By focusing on West Africa and Southeast Asia, we could put more boats into long-term contracts and profit from a much higher rate of return in the long run,” explained the CEO.

Recently, the company engaged in a joint venture with Chinese Oilfield Services Limited (COSL), a subsidiary of China National Offshore Oil Corporation. Trico Marine received a 49% interest and $18 million in cash for the vessels it contributed, while COSL contributed solely capital for 51% ownership. According to Turbidy, Southeast Asia has the highest projected growth rate in the oil and gas services industry while it has among the lowest increases in production over the last decade.

As a result of its focus on international markets, Trico Marine will soon have 11 vessels in West Africa, as opposed to four in 2004, and it will have a total of 14 vessels in Southeast Asia as compared to none prior to the joint venture. The strategic move also enabled the company to put its excess, unprofitable vessels to work. Two years ago, the company had 19 unused 180-foot supply vessels—today, it has one. “We either sold the vessels that weren’t competitive or put them back to work in the growing market,” said Turbidy.

Diving into deeper waters
After years of financial struggles, Trico Marine is finally in a position to reinvest in its fleet, which is older than its competitors’. The company has three deep-water vessels under construction and is installing technology in its older vessels. According to Turbidy, the industry is moving from shallow waters to deeper waters, meaning companies are forced to invest in larger, more complex vessels with the capability to withstand rough seas.

To successfully compete in a changing industry, Trico Marine is investing in dynamic positioning, a system that automatically maintains a ship’s position using GPS tracking and the ship’s own propellers and thrusters. The technology maintains a ship’s position over a fixed point or relative to another vessel, allowing for the ship to anchor or moor without having to physically tie up. As a result, Trico Marine can operate in deeper waters and harsher environments without putting its crews, vessels, or the rigs they service in danger.

Trico Marine has also invested in several back-office systems. In the past, the company relied on hard-copy reporting and accounting, but it is now increasing efficiency, timeliness, and accuracy with an improved global information system.

Turbidy noted that when he joined the company, there was no way to identify regional profitability versus across-the-board profitability. But now, the company can easily keep track of each vessel’s performance and obtain daily market figures. “It’s a dramatic shift from where we were a few years ago. Our people are focusing their time on interpreting data rather than gathering it,” said Turbidy.