Genco Shipping sinks into bankruptcy

June 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Genco Shipping and Trading Limited, and a number of its subsidiaries, filed for pre-packaged Chapter 11 bankruptcy protection on 21 April, citing debts of around $1.48bn. The company, owned by New York shipping tycoon Peter Georgiopoulos, noted in its bankruptcy filing it had already received approval from lenders and bondholders for the plan. However, Genco stressed that its subsidiary Baltic Trading, which operates as an entirely separate company, will not be affected by the filing. Baltic will continue to trade as normal.

Genco has announced it too intends to continue to operate as normal throughout the bankruptcy procedure. The company believes it has enough cash on hand to continue operations, and, as a result of funds that it will continue to generate, won’t need to rely on any bankruptcy financing.

The company’s bankruptcy, filed at the US Bankruptcy Court in Manhattan, New York, will reduce Genco’s overall debt by around $1.12bn. In court documents, Genco listed assets worth around $2.45bn. The company also said it expects to implement the plan and emerge from bankruptcy quickly, although it didn’t give a specific timeframe.

Genco currently owns or operates 53 vessels, making it one of the largest drybulk shippers in the world. The company’s fleet transports iron ore, coal, grain, steel and other products worldwide. However, most of Genco’s ships are chartered to third parties and accordingly the company is susceptible to the fluctuating rates in the market. These fluctuations have dramatically impacted Genco’s revenue stream in recent years. As a result, the company reported total revenues of $277.5m in 2013, a decrease of nearly 50 percent from 2010. Due to its declining revenue and unsustainable debt pile, Genco hired Blackstone Advisory Partners LP in February to explore a wholesale debt restructuring.

According to Genco’s restructuring plan, the company’s lenders will exchange debts of around $1.06bn for an 81.1 percent equity share in the newly reorganised Genco. Two further senior credit facilities will also be amended by the reorganisation plan. The two facilities worth $253m and $100m respectively will be amended to extend their maturity dates to August 2019.

The largest creditor listed in the company’s Chapter 11 filing is Bank of New York Mellon, which holds approximately $125m of Genco’s debt. Genco’s other largest unsecured creditors are Wallem Ship Management, owed $7.8m; Chengxi Shipyard of China, owed $2.6m; Anglo Eastern Ship Management of Hong Kong, owed $2.2m; and V Ships UK, owed $1.4m.

The company’s convertible bondholders will receive 8.4 percent of Genco’s new equity should the reorganisation plan be granted court approval. General unsecured claims against the company would not be reduced by the plan; current equity holders would receive seven year warrants for 6 percent of Genco’s new equity struck at a $1.29bn valuation.

Under the reorganisation plan, Genco also proposes a $100m rights offering for its new shares. The offering would be backstopped 80 percent by the company’s credit facility lenders and 20 percent by bondholders. Accordingly, this offering would rely on those groups agreeing to acquire any un-purchased shares. The New York Stock Exchange halted trading on Genco stocks immediately following the announcement and began the process of de-listing the company’s stock. “We believe the financial restructuring will provide an expedited path to significantly strengthen Genco’s balance sheet and improve the Company’s financial flexibility,” said Genco’s chief financial officer, John Wobensmith. “Our operations are strong, and once our restructuring is completed, we believe we will be well-positioned for continued growth and success.”

Genco’s bankruptcy filing is the latest in a series of filings in the shipping industry. A number of other shipping companies, including Excel Maritime, Overseas Shipholding Group and TMT Group, have filed for Chapter 11 bankruptcy in recent years amid an industry-wide slump.

Richard Summerfield