The owners of the Seabras-1 cable conneting New York and São Paulo, Seabras 1 Bermuda Ltd (“Seabras Bermuda”) and Seabras 1 USA LLC (“Seabras US” and, together with Seabras Bermuda, the “Companies”), filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Filings”) in the United States Bankruptcy Court for the Southern District of New York on December 22, 2019, saying that an underwhelming number of customer contracts rendered it unable to make payments on its $150 million in secured debt obligations. Seaborn Networks, the operator of the Seabras-1 cable system, is not part of the Filings and will continue to be the operator of the Seabras-1 cable system throughout the Filings process.
According to FCC notices on the Seabras-1 submarine cable landing license, Seabras US owns the portions of Seabras-1’s wet segment in U.S. territory and in international waters, representing 96 percent of Seabras-1’s wet segment. Seabras 1 Brasil Ltda. (Seabras Brazil) owns the portion of Seabras-1’s wet segment in Brazilian territory. Seabras US and Seabras Brazil are landing parties for Seabras-1 cable system in the U.S. and Brazil respectively.
Seabras US is a wholy owned subsidiary of Seabras Bermuda.
For the landing and operation of Seabras-1 cable system in Brazil, the Companies established two legal entilties in Brazil, Seabras 1 Holdings Brasil Ltda (Seabras Holdings Brazil) and Seabras 1 Brasil Ltda. (Seabras Brazil). Seabras US and Seabras Bermuda own 99% and 1% of shares of Seabras Holdings Brazil respectively. Seabras Holdings Brazil and Seabras US own 99% and 1% of shares of Seabras Brazil respectively.
When it commissioned the construction of the Seabras-1 cable, Seabras anticipated entering into indefeasible rights of use with customers, which typically require large, upfront customer payments in exchange for long-term access to the cable. Instead, shifts in the undersea telecommunications industry and unplanned competition led to an increase in short-term leases of one or two years, which typically come with monthly payments from customers. The consequences of this changed market meant that the original amortization schedule and maturity date contemplated under the secured debt facility no longer reflected the reality of the company's business or industry.
The secured debt facility, which has more than $149 million outstanding, was issued by Natixis to fund construction of the cable. The debt is secured by liens on all of Seabras' assets. In March 2014, Seabras and Natixis entered into a fully underwritten USD 290 million senior secured project financing debt for the development and installation of Seabras-1 cable system.
According to Seaborn Networks, the total project cost of the Seabras-1 cable system is approximately USD 500 million. In addition to the secured debt facility by Natixis, Partners Group's equity investment represents the remaining project funding for the Seabras-1 cable system. According to FCC notices on the Seabras-1 submarine cable landing license, Partners Group holds 51.17% indirect voting interest in Seabras Bermuda and Seabras USA through various enities.
Seabras was unable to make a required payment on that debt in September 2019, it wouldn't have been able to make an $11 million payment due in March 2020. As customer receipts come in throughout 2020, the company said it would be able to make those payments by the end of 2020 but would not be able to pay further commitments as they come due.
The Chapter 11 case is being filed to effectuate a restructuring of Seabras' debt.
In their press release, the Companies do not anticipate, nor do they wish to explore, any sale efforts through the processes contemplated by the Filings. The Companies expect to complete the process relating to the Filings within the next few months and to emerge within the second quarter of 2020, subject to all required approvals.
Seaborn Networks (“Seaborn”), being the operator of the Companies’ business, i.e., the operator of the Seabras-1 cable system, is not part of the Filings and continues to be the operator of the Companies’ business. Seaborn is not owned by the Companies, but Seaborn is one of the indirect shareholders of the Companies.
Seaborn’s work in this regard is not expected to be impacted by the Filings; and the Companies expect that Seaborn will continue to provide all SG&A and Operations & Engineering services for the Companies. Seaborn itself has no borrowed money indebtedness and is a healthy business.
Through the Filings process, Seaborn’s management and workforce is expected to remain as it is today. Customers and suppliers should expect to work with all of the Companies’ entities, and with Seaborn, as usual throughout the Filings process.
Seabras emerges from Chapter 11 and comes under the ownership of Partners Group
On 30 June 2020, a hearing was held in which the US Bankruptcy Court for the Southern District of New York confirmed the joint plan of reorganisation of Seabras 1 USA LLC and Seabras 1 Bermuda Ltd.
Under the terms of the new plan and restructuring, the outstanding debt of the two companies has been reduced, the date in which the debt it due to fully paid has also been extended by approximately six years to September 2028.
As a result, all Class A shares of Seabras Group LLC and its subsidiaries including the two companies, have been acquired from SNH Networks (formerly known as Seaborn Networks Holdings, LLC) by entities managed by global private markets investment manager, Partners Group, on behalf of its clients.
And Seabras Bermuda acquired 100% of Seaborn Management, a third-party services provider that manages the day-to-day operations of the Seabras-1 cable, also from SNH Networks.
Essentially, bringing together all Seaborn and Seabras entities under the newly consolidated Seabras Group, under the ownership and management of Partners Group.
Coinciding with the completion of the consolidation and restructuring, Larry Schwartz, former CEO of Seaborn, and Roger Kuebel, former CFO of Seaborn, have left Seaborn and the Seabras Group.
In the interim, Pete Hayes and Don Shassian, members of the Partners Group-appointed Board, will serve as Interim CEO and Interim CFO, of the Seabras Group. While Andy Bax, the COO of Seaborn, will remain in the same role.