General Maritime Corp., the second- largest U.S. owner of oil tankers, can draw $30 million of a $75 million loan that will require it to file a plan of reorganization in 75 days or sell all its assets.
U.S. Bankruptcy Judge Martin Glenn in Manhattan court today approved the company’s request to borrow funds from Nordea Bank Finland Plc and other lenders. The company, which operates in over 230 ports of call in over 70 countries, filed for bankruptcy yesterday after falling oil demand and a surplus of ships led to two years of losses.
The loan “is critical for the survival of the company,” General Maritime’s bankruptcy counsel, Kenneth Eckstein, told Glenn today.
General Maritime hopes to file a reorganization plan in January, Eckstein said in court today. If the company doesn’t outline the terms of a plan within 75 days from its Nov. 17 filing, it must sell all its assets through an auction, under the requirements of its $75 million loan, he said. Oaktree Capital Management LP, a lender, would be the so-called stalking horse, or starting bidder, for that auction.
General Maritime owns 30 vessels and charters three, giving it a total carrying capacity of 5.3 million deadweight tons. Its vessels are registered in Bermuda, Liberia or the Marshall Islands. Its publicly held securities include 121.5 million common shares and $300 million in unsecured 12 percent notes due 2017, according to court papers.
“There are various milestones,” required by the loan, Eckstein said, adding that the company will use its time in bankruptcy to seek a financial sponsor. Moelis & Co. is serving as the company’s financial adviser.
A group of General Maritime Corp. noteholders opposed a request for the loan. Its terms would “serve to prematurely limit or foreclose the rights of unsecured creditors or any official committee appointed to represent their interests,” the group said in court papers filed today.
The ad-hoc group, which doesn’t have formal standing in the case, owns over $185 million in 12 percent senior notes due 2017. It includes Capital Research and Management Company, J.P. Morgan Investment Management, Inc., J.P. Morgan Securities LLC, Stone Harbor Investment Partners LP and Third Avenue Focused Credit Fund.
General Maritime already has a rough plan to restructure with certain lenders; negotiations leading up to its bankruptcy led to a “restructuring support agreement” under which lender Oaktree Capital Management LP agreed to make a $175 million equity investment.
Glenn ordered that papers detailing the support agreement be filed publicly in court papers.
The agreement will convert all of the company’s debt into stock in a newly created company, and lenders would agree to vote in support of a plan of reorganization under certain terms, according to court papers. Supporting lenders in the agreement include those to a $550 million loan made in May 2011, and a $372 million loan made in May 2010, according to court papers.
The noteholder group said in its objection that junior secured lenders to a $200 million loan, which includes an affiliate of Oaktree, shouldn’t benefit from protections given to Nordea Bank and other lenders to the $75 million “debtor-in- possession” financing. Such loans allow companies to keep operating in bankruptcy and give them a higher priority to be repaid.
They also said a $75,000 reserve set aside to fund investigations into any claims the estate might have is too low.
General Maritime and its lenders agreed to slight changes in the loan today before it was approved, including a clause which said unsecured creditors can challenge that cap.
Freight rates for oil carriers have fallen to the lowest in at least 14 years, prompting General Maritime to warn in a Sept. 30 regulatory filing that it might file bankruptcy.
Separately, Glenn granted the company’s requests today to pay critical foreign vendors, pay employee wages, continue its insurance programs, and take other steps typical at the outset of a bankruptcy.
General Maritime said its $75 million loan may be increased by $25 million subject to the agreement of lenders and certain other conditions. Fees for the loan will total around $2.3 million, according to court papers. The company’s non-bankrupt affiliates will be transferred around $3 million per month, General Maritime said.
General Maritime has been restructuring its balance sheet since at least March, when it took out the $200 million loan from Oaktree to refinance 2005 debt and amend 2010 debt, according to the most recent annual report, filed in March.
The New York-based company listed assets of $1.71 billion and debt of $1.41 billion today in a Chapter 11 petition in U.S. Bankruptcy Court in Manhattan.
To contact the reporter on this story: Tiffany Kary in New York at firstname.lastname@example.org;