Nautilus Holdings files for Chapter 11 bankruptcy

August 2014 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

Nautilus Holdings Inc has become the latest firm in the shipping industry to file for Chapter 11 bankruptcy protection, citing an unmanageable debt load of around $770m against assets of between $100m and $500m.

The firm and 20 of its subsidiaries filed for bankruptcy at the US bankruptcy court in Manhattan on 24 June, joining a number of other shipping companies. Genco Shipping & Trading Ltd, Overseas Shipholding Group Inc and Excel Maritime Carriers Ltd have all filed for Chapter 11 protection recently. In its court filing, Nautilus noted that its bankruptcy was brought about not only by its existing debt obligations, but also by a significant, and very damaging, drop in charter rates worldwide.

In recent years, international shipping rates have fallen markedly, which has been disastrous for many companies in the industry. Furthermore, a number of large new vessels have recently entered service; the arrival of these ships has been quite disruptive for the wider shipping sector. The entry of the new vessels has coincided with a difficult economic period for the industry. Unfortunately, these new developments have had a significant negative impact on the global shipping trade.

However, despite its financial difficulties, Nautilus believes that the wider downturn for the shipping industry is finally coming to an end. In its court documentation, the company noted that a number of industry analysts have been forecasting a rebound in shipping rates in the coming years. For this reason, Nautilus is confident that it will be able to survive going forward. The firm’s lawyer, Jay Goffman of Skadden, Arps, Slate, Meagher & Flom LLP, said “this company does believe that the worst is behind us”.

Nautilus’ bankruptcy filing covers the firm’s fleet of 16 container ships, the sizes of which range between 2500-teu and 7000-teu. The fleet is owned by separate units. Nautilus, which is owned by Synergy Management Services of Cyprus, believes the restructuring process will not adversely impact the wider operations of the ships or the company’s ability to serve its charterers. According to the firm’s filing, it still has a number of profitable charter contracts. Accordingly, Nautilus is believed to be well positioned to restructure its obligations successfully.

The company, based in Hamilton, Bermuda, but with offices in New York and Hong Kong, leases ships to a number of firms including AP Moeller-Maersk A/S, Evergreen Marine Corp Taiwan Ltd and Yang Ming Marine Transport Corp. James Masterharm of advisory firm Alix Partners has been named as the company’s chief restructuring officer. Mr Masterharm said Nautilus “intends to use the financial restructuring process in the United States with the goal to significantly strengthen Nautilus’ balance sheet and look forward to engaging with the company’s lenders to establish the appropriate capital structure for the company in light of current market conditions.”

Nautilus’ debt load of around $770m relates to six different loans secured by the firm’s fleet of vessels. The company has about $20m more in debt related to swap transactions. In order to help the company continue to operate as normal, Nautilus has already received a commitment of up to $5m in debtor-in-possession financing from Synergy Management Services, which owns more than half of Nautilus’ equity. According to the firm’s court documentation, Nautilus opted to file for bankruptcy protection at this time in order to provide “a centralised forum for the collective restructuring” of the firm’s various loan obligations. The company is believed to have around $64m in cash on hand.

Richard Summerfield