Thursday, November 17, 2011

General Maritime files Chapter 11

Hum, 2 days in a row announcement of a shipping company filing
Chapter 11.

Does not bode well for the industry.

From Bloomberg News

General Maritime Corp. (GMR), a transporter of crude oil via ocean tankers, filed for bankruptcy court protection from creditors amid low freight rates and a surplus of ships.

The New York-based company listed assets of $1.71 billion and debt of $1.41 billion in a Chapter 11 petition filed today in U.S. Bankruptcy Court in Manhattan. General Maritime, which operates mostly between the Caribbean, South and Central America, the U.S., Western Africa and the North Sea, has a fleet of 31 double-hull tankers, according to its website.

“Operations are to continue without interruption” after General Maritime reached agreements with key lenders, the company said in a statement after the bankruptcy filing. “General Maritime expects to substantially reduce its funded indebtedness and enhance its liquidity profile.”

Oaktree Capital Management LP will provide a $175 million equity investment and a group led by Nordea Bank Finland Plc will provide as much as $100 million in financing to help the company through reorganization, General Maritime said.

General Maritime joins other troubled shipping companies in bankruptcy, including Korea Line Corp. (005880), Korea’s second-largest operator of dry-bulk ships which sought U.S. bankruptcy protection in February. Time-chartered operators Britannia Bulk Plc, Armada (Singapore) Pte Ltd. and Transfield ER Cape have also filed for bankruptcy.

Balance Sheets

General Maritime has been restructuring its balance sheets since at least March, when it took out a $200 million loan from Oaktree Capital Management to refinance its 2005 debt and amend its 2010 debt, according to the company’s most recent annual report, filed in March.

Chief Executive Officer John Tavlarios said in July that the company had made transactions to increase its liquidity, as it announced a loss of $36.8 million for the quarter ended June 30, more than double the $14 million lost in the same period a year earlier.

Among the largest unsecured creditors listed in court papers were Bank of New York Mellon Corp. (BK), trustee for holders of $300 million in 12 percent callable bonds due in 2017.
Stock Fell

In August, the company led declines in oil-tanker stocks as analysts predicted a return to recession in the U.S. would delay any rebound in charter rates for tankers until after 2013. On Aug. 22, the company said it had received a delisting notice as its share price failed to meet the New York Stock Exchange’s minimum requirements.

The shares closed yesterday at 16 cents.

Moody’s Investors Service cut its credit grade on the company’s debt to Caa3 in September, citing the increasing likelihood of a restructuring because of “weak sector fundamentals.” The company’s “overreliance” on its cash balance, which was almost $59 million as of June 30, may cause it to fall out of compliance with a minimum liquidity covenant, Moody’s analysts said in the Sept. 1 note.

The company is likely to “have a difficult time achieving positive operating cash flow, which could threaten its ability to make cash interest payments,” the Moody’s analysts wrote. Weak freight rates will also pressure the market value of tanker vessels, cutting another source of liquidity, they wrote.

The company’s bonds steepened their decline in October after the company announced it had agreed to amend its $500 million revolving loan, its $372 million term loan, and its $200 million loan with affiliates of Oaktree. The changes waived General Maritime’s need to maintain a minimum cash balance.

The case is In re General Maritime Corp., 11-15285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

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