General Maritime Corp made progress in its fight to secure a stable financial footing Monday by amending a series of credit agreements but the cash-strapped tanker owner may still be forced to seek bankruptcy protection if it fails to resolve liquidity issues.
New York-listed Genmar issued a warning that Chapter 11 bankruptcy proceedings were a possibility in a filing with the US Securities and Exchange Commission.
“The company continues to review its financing options and is currently considering various alternatives with respect to the restructuring of its capital structure, including seeking additional liquidity through potential additional amendments or refinancings of its existing indebtedness or waivers or extensions of its obligations there under, additional offerings of debt or equity, vessel sales, the sale of all or a portion of its business and/or commencing a voluntary proceeding to reorganize under Chapter 11 of the Bankruptcy Code,” it told investors Monday.
(Click HERE to read the filing in full)
The alert followed a statement in which the US owner outlined revisions to its $550m and $220m revolving credit facilities and its $372m term loan facility.
Under the adjusted terms of the $372m loan facility, Genmar says the amortization payment made on 30 September will be used to pay down the revolver loans in lieu of the term loans.
“The amount of the amortization payment may be reborrowed subject to the satisfaction of certain conditions,” the statement adds.
The owner also agreed to deliver regular liquidity and restructuring updates to its banks during the amendment period. Payments will be made on a monthly basis.
Going forward, Genmar says it has commenced discussions with lenders and other creditors concerning a potential restructuring of its indebtedness but offered no assurances that the company would be able to reach an agreement “on a consensual restructuring of its capital structure”.
"Management continues to take proactive measures to increase the company's financial flexibility during a challenging market environment,” said finance chief Jeffrey Pribor.
“We appreciate the ongoing support from our distinguished lending group and remain focused on pursuing opportunities to further strengthen our capital structure," he added.
In connection with transactions backed Oaktree, which rode to the rescue with $200m bailout earlier this year, Genmar says chairman Peter Georgiopoulos, who secured a stake in a limited partnership related to the investment, will assign his interest in the vehicle to Genmar.
“Mr. Georgiopoulos determined to take this step on his own initiative in order to eliminate any appearance that, as a result of this holding, his interests are not aligned with those of the company and to emphasize his focus on achieving a positive result for the company in the current environment,” the owner explained.
Backdrop
Monday’s late-breaking revelations follow mounting talk of Genmar’s inability to repay debt as a result of depleted cash reserves.
As TradeWinds has reported, the company has seen its share price collapse from almost $5.00 to $0.23 over the past year with the descent to ‘penny stock’ status triggering a warning from the New York stock exchange that it could be delisted.
The owner reported second quarter net loss of $24m lifting the loss for the first half to more than $55m with time charter cover for the second half of the year falling to 42% from as high as 75% at points in the past.
Genmar owns a diversified fleet of over 30 vessels of more than 5m dwt that span the VLCC, suezmax and aframax sectors with an average age of eight years. Chartered tonnage extends the range into the panamax and handysized range.
At its current share price Genmar has a market capitalisation of less than $40m although the company reports total assets of $1.78bn.
In a report on Genmar today RS Platou Markets reiterated a sell recommendation and warned the balance sheet is "fairly stretched" and the company needs a strong winter trading season.
A key Platou concern is that the tanker firm is funded through two bank facilities totaling $850m at Libor plus 400 basis points and two bonds totaling $500m with minimum interest rates of 12%.
But in the current tanker market interest costs were seven times higher than General Maritime’s earnings before interest, taxes, depreciation, and amortisation (ebitda) for 2012 so the cash position could quickly deteriorate.
The Moody’s rating agency cut Genmar's rating three notches to Caa3 just one level above default a month ago on the basis that exposure to the tanker spot market was threatening the company’s liquidity.
Moody's warned it could further downgrade the owner if it failed to meet debt servicing commitments or embarked on a debt restructuring.
Genmar was established as Maritime Equity Management in 1991 with an initial public offering coming a decade later. A merger with Arlington Tankers in 2009 and the acquisition of Metrostar Tankers last year substantially boosted the fleet but also debt levels.
Georgiopoulos, 50, a shipbroker-turned-banker-turned owner, is one of the more colourful shipping industry figures, hitting the gossip columns with his relationship and later marriage to fashion model Kara Young.
Georgiopoulos is also chairman of the dry bulk ventures, Genco Shipping & Trading and Baltic Trading, both of which listed last year as well as of the bunkering company, Aegean Marine Petroleum Network.
The tycoon made TradeWinds headlines in August when he pledged shares in his four public companies as collateral for a $20.5m personal loan from Greek oil billionaire, Dimitris Melisanidis, a business partner in Aegean Marine.
In the weeks ahead, attention will likely turn to interest payments linked to Genmar’s bonds, which are due mid-November.
