Evan Flaschen and Robert Burns of Bracewell & Giuliani tell TradeWinds WebTV that they have advised countless cash-strapped shipping clients against jumping the gun even though an overhaul in court would ultimately lead to a bigger payday for the duo’s firm.
Flaschen said Chapter 11 is often the right option when faced with the threat of ship arrests and frozen cash but noted the US bankruptcy court is “an emergency room and not a health spa” and suggested potential filers should consider all other options before pulling the trigger.
For shipowners that have decided a court supervised overhaul is the proper route Burns suggests hammering out a tentative restructuring plan “pre petition” with the support of key counterparties, when possible, before entering the system.
The advice is based on lessons learned during Bracewell’s involvement in the bankruptcy and eventual liquidation of Marco Polo Seatrade and a case tied to Omega Navigation Enterprises, which has been stuck in Chapter 11 limbo in Houston for over a year.
“The best way to get out of bankruptcy is to have a plan when you go in,” Burns said. “We hadn’t had that option in those cases but have been involved in other situations where we had much more lead time to prepare, [time to] work with lenders and other constituents beforehand.”
When asked how an insolvent shipowner with publicly traded debt should handle negotiations with complex creditor groups like bondholders Flaschen said identifying and understanding the dynamics and goals of different parties is key to reaching a consensual resolution.
“When you are dealing with bondholders you’re not in the world of maritime anymore but in the world of distressed debt,” he noted. “They view a piece of paper as an economic unit and their intention is to increase the value of that unit and sell it or it protect against a decrease in value.”
Burns believes more shipping companies will travel to the US in search of Chapter 11 protection from creditors in the near future but expects their approaches to be more methodical than their predecessors, which in turn could increase the likelihood of what he called "a successful workout".
Burns and Flaschen made TradeWinds headlines in late October when they clinched a deal to provide counsel to Overseas Shipholding Group’s bondholders on the back of a bankruptcy warning issued right before it filed for protection in Delaware.