August 12, 2022 – Altera Infrastructure L.P. and 37 affiliated debtors (fka "Teekay Offshore Partners L.P.," and together “Altera*” or the “Debtors”) filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of Texas, lead case No. 22-90130 (Judge Isgur). The Debtors, "a global energy infrastructure services partnership primarily focused on the ownership and operation of critical infrastructure assets in the offshore oil regions of the North Sea, Brazil and the East Coast of Canada," are represented by Matthew Cavenaugh of Jackson Walker LLP. Further board-authorized engagements include: (i) Kirkland & Ellis as general bankruptcy counsel, (ii) FTI Consulting, Inc. as restructuring advisors, (iii) Evercore Group L.L.C. as financial advisors, (iv) Quinn Emanuel Urquhart & Sullivan LLP as restructuring counsel and (v) Stretto as claims agent. 

*Altera's preferred units trade on the New York Stock Exchange under the symbols "ALIN PR A", "ALIN PR B" and "ALIN PR E", respectively.The Debtors are controlled by Brookfield Asset Management which purchased what was then known as Teekay Offshore in January 2020 and rebranded the acquired business as Altera.

The Debtors’ lead petition notes between 1,000 an 5,000 creditors; estimated assets between $1.0bn and $10.0bn; and estimated liabilities between $1.0bn and $10.0bn ($1.6bn of funded debt, see table below). Documents filed with the Court list the Debtors’ three largest unsecured creditors as (i) The Bank of New York Mellom (as Trustee for $289.2mn of unsecured bonds), (ii) Marsh Limited ($2.4mn insurance claim) and (iii) Rena Quality Group AS ($1.1mn trade claim).

In a press release announcing their Q2 2022 results, the Debtors reported revenues of $296.2mn and net loss of $40.0mn, or $(0.11) per common unit, for that quarter. The Aberdeen, Scotland-based Debtors also noted that they had opted not to make a July 15th interest payment on their 8.50% senior unsecured bonds ($276.0mn principal, maturing in July 2023) with a 30-day grace period in respect of the missed payment expiring on August 14th.

In a 6-K filed in respect of Q1 2022, the Debtors had earlier commented as to their liquidity and going concern prospects: "As at March 31, 2022, the Partnership had a working capital deficit of $381.3 million. The Partnership's working capital deficit has increased from $276.4 million as at December 31, 2021, primarily due to a $165.6 million increase in scheduled maturities and repayments of outstanding borrowings during the 12 months ending March 31, 2023, which were classified as current as at March 31, 2022, partially offset by a $59.0 million decrease in accounts payable and other.

During 2021, the Partnership completed various measures to improve its debt maturity profile and enhance its liquidity and financial flexibility, including but not limited to exchanging $769.3 million of Brookfield debt with 2022 to 2024 maturities into debt with interest paid in kind and with a 2026 maturity, discontinuing distributions on the Series A, Series B and Series E Preferred Units, issuing $180.0 million of new 2025 bonds in the shuttle tanker segment and refinancing the Petrojarl I FPSO unit. See Notes 10, 11 and 15 for additional information. While these measures improved the Partnership's liquidity position, the Partnership continues to explore its liquidity management opportunities and seek to improve and extend its debt profile….it is still critical that the Partnership will need to obtain additional sources of financing…"

Goals of the Chapter 11 Filings

The Steinsland Declaration (defined below) provides: “Through these chapter 11 cases, the Debtors seek to re-profile the obligations under the Bank Facilities to better match anticipated vessel-level cash flows, achieve an overall deleveraging through the equitization of more than $1 billion in junior debt obligations (comprised
of the IntermediateCo Obligations and the Altera Parent Unsecured Notes), and eliminate Altera Parent’s preferred and common equity.

…the Debtors have been proactive over the course of this year in approaching the holders of their funded debt obligations regarding a balance sheet restructuring, initiating negotiations with their secured bank lenders and Brookfield Business Partners L.P. (together with certain of its affiliates and certain of its and their respective managed funds and accounts, collectively, 'Brookfield') in its capacity as both secured lender and equity sponsor. After many months, these negotiations have proven successful. The Debtors have been able to achieve consensus with a diverse group of stakeholders and enter chapter 11 with the broad support necessary to efficiently implement a comprehensive balance sheet restructuring that will position them well for success in the future. While a group of unsecured noteholders does not presently support the restructuring, the Debtors intend to continue negotiations with them during chapter 11 to try to build additional consensus.”

Restructuring Support Agreement

The Steinsland Declaration (which attaches the RSA) provides: “As reflected in the restructuring support agreement dated as of August 12, 2022 (the 'Restructuring Support Agreement'), attached to this Declaration as Exhibit A, Brookfield (in its capacity as equity sponsor and holder of 100% of the IntermediateCo Obligations) and 71% of the Bank Lenders (the “Consenting Bank Lenders”) have agreed to support the Debtors’ restructuring.The Restructuring Support Agreement contemplates the following key terms, among others:

1. Brookfield will provide a $50 million new-money debtor-in-possession financing facility on a junior basis relative to the claims and liens of the Bank Lenders (together with the proposed roll-up of a portion of the IntermediateCo RCF, the 'DIP Facility') to fund these chapter 11 cases, which Brookfield has agreed to equitize, along with certain associated fees, upon emergence in connection with the restructuring contemplated by the Restructuring Support Agreement (unless repaid from the proceeds of an equity rights offering);
2. Brookfield will equitize all outstanding IntermediateCo Obligations in return for 100% of the common equity in reorganized Altera Parent, together with any equitization of the DIP Facility;
3. the Consenting Bank Lenders will agree to a comprehensive re-profiling of the Bank Facilities, including maturity extensions, interest and amortization relief,
   and other covenant relief, and will agree to the satisfaction of their Altera Parent guarantees in exchange for warrants to acquire their pro rata share of 7.6% of the new common stock of Reorganized Altera Parent (the “New Warrants”);^FN In the event that any class of Bank Lenders votes to reject the Plan, the Restructuring Support Agreement provides for the return of the collateral securing their Allowed Credit Agreement Claims (as defined in the Restructuring
   Support Agreement) or treatment otherwise in compliance with section 1129(b)(2)(A) of the Bankruptcy Code.
4. the Consenting Bank Lenders will agree to the Debtors’ consensual use of their cash collateral;
5. a corporate reorganization, the result of which will be a “siloed” FFTA structure providing for certain cross-guarantees to the Bank Lenders and direct ownership by reorganized Altera Parent of the Shuttle Tankers business and FPSO joint ventures; 
6. certain of the Consenting Bank Lenders and Brookfield will agree to provide commitments for an approximately $183 million new-money financing facility to
   fund the Debtors’ portion of the financing of the Knarr FPSO upgrade costs under the Knarr Contract;
7. the Altera Parent Unsecured Notes will be equitized in exchange for their pro rata share of the New Warrants;
8. general unsecured claims at subsidiary Debtors, trade and contract claims, and administrative and priority claims will generally be paid in full in cash in the
   ordinary course of business; and
9. all existing common and preferred equity in Altera Parent will be canceled without any distribution."

Events Leading to the Chapter 11 Filings

In a declaration in support of first day filings (the “Steinsland Declaration), Jan Rune Steinsland, the Chief Financial Officer of Altera Infrastructure Group Ltd. (“AIGL”), a non-debtor subsidiary of Altera Infrastructure L.P. (“Altera Parent”), provides: “Altera has recently faced declining revenues as a result of market headwinds, contract expirations, and the aging of its fleet, which has necessitated the recycling or sale of certain older vessels. These challenges have been exacerbated by significant payment obligations due under various interest-rate swap arrangements. While the recent rise in energy prices has helped, Altera’s ability to capture that upside is limited by the terms of its existing contracts and the fact that re-contracting its most significant assets requires substantial lead time and investment.

This has resulted in a mismatch between operating cash flows and the cost of the Debtors’ ongoing debt service. Cash flows currently generated from the FFTA assets are not sufficient to support the funded debt obligations."

DIP Financing

Brookfield will provide the Debtors with $50.0mn of new-money, debtor-in-possession (“DIP”) financing ($25.0mn with an interim DIP order) and the Debtors will also ask the Court for authority to roll up the $20.0mn outstanding under bridge financing provided by Brookfield in January 2022. The RSA attaches a term sheet in respect of the proposed DIP financing (see p.124 of Docket No. 17).

Interest and fees in respect of the DIP financing are to include: (i) interest of SOFR+11.00%, (ii) a commitment fee payable upon entry of the interim DIP Order of 1.50% of the aggregate amount of commitments (excluding the roll-up), (iii) an exit fee payable in cash upon the Maturity Date or any other repayment of the DIP Loans (including the roll-up) of 1.50% and (iv) a ticking fee of 5.5% on unused DIP Commitments (excluding excluding the roll-up) payable in cash upon entry of the Final Order.

Prepetition Indbtedness

As of the Petition date, the Debtors were liable for approximately $1.6bn in aggregate principal amount of funded debt obligations, and, through Altera Parent, had issued approximately $408.0mn of outstanding preferred equity. In addition, the entities comprising the Shuttle Tankers business, the FPSO joint ventures, and certain other non-Debtors are liable for approximately $2.1bn in additional funded debt obligations. The table below summarizes the prepetition capital structure of the Debtors and that of Altera Parent’s affiliated non-Debtor subsidiaries:

About the Debtors

According to the Debtors: “Altera Infrastructure L.P. is a leading global energy infrastructure services partnership primarily focused on the ownership and operation of critical infrastructure assets in the offshore oil regions of the North Sea, Brazil and the East Coast of Canada. Altera has consolidated assets of approximately $3.8 billion comprised of 44 vessels, including floating production, storage and offloading (FPSO) units, shuttle tankers, floating storage and offtake (FSO) units, long-distance towing and offshore installation vessels and a unit for maintenance and safety (UMS). The majority of Altera’s fleet is employed on medium-term, stable contracts."

The Declaration adds: "Altera is a leading international midstream services provider to the oil and gas industry, supplying critical infrastructure assets to its customers primarily in offshore regions of the North Sea, Brazil, and the East Coast of Canada. Altera has approximately 2,450 employees who either serve as crew or in onshore support roles for Altera’s 41 vessels around the world. 

Altera operates in five principal business segments:

1. the processing and storage of hydrocarbons through Altera’s four wholly owned and two joint-venture floating production, storage, and offloading vessels
   ('FPSO'), as well as the management of FPSOs owned by third parties;
2. the provision of supplementary storage capabilities through Altera’s two floating storage and off-take vessels ('FSO');
3. the deployment of eight long-distance towage vessels to assist with, among other things, the tow from yard to operating area and installation of large floating production facilities, storage units, exploration units, and other vessels ('Towage');
4. the operation of one unit to provide accommodations and maintenance and safety services to projects on offshore installations ('Accommodation' and together with FPSO, FSO and Towage, 'FFTA'); and 
5. the transportation of hydrocarbons from offshore oil field installations to terminals and refineries located onshore, as well as conventional tanking operations, using Altera’s 24 shuttle tanker vessels ('Shuttle Tankers').

The Debtors consist only of FFTA entities. The FPSO joint ventures and the Shuttle Tankers entities are not Debtors in these chapter 11 cases."

Capital Structure (see also Exhibit B to Docket No. 17 for the second more detailed/complete chart]

Altera’s corporate and capital structure, along with the goals of its restructuring process, are summarized in the chart below.

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