Peter Georgiopoulos’s Genco Shipping & Trading Ltd., an operator of dry-bulk cargo ships, filed for bankruptcy as weakness in charter rates made it difficult for the company to pay its creditors.
The shipping industry has suffered from a glut of vessels after buying too many before the 2008 global recession, driving down rates and saddling companies with debt, said Erik Nikolai Stavseth, an Oslo-based analyst at Arctic Securities ASA.
“They were all victims of the exuberance we saw in the shipping market in the mid- to late-2000s,” Stavseth said in an interview before the bankruptcy filing. “High leverage on expensive assets is what killed them.”
Genco, which owns or operates vessels that transport iron ore, coal, grain, steel and other products worldwide, listed assets of $2.4 billion and debt of $1.5 billion in a Chapter 11 filing today in U.S. Bankruptcy Court in New York, where the shipper is based.
The company said in a statement today that it will cut about $1.2 billion in debt through a bankruptcy process that won’t hinder shipments or affect operations.
“The financial restructuring will provide an expedited path to significantly strengthen Genco’s balance sheet and improve the company’s financial flexibility,” Chief Financial Officer John Wobensmith said in the statement.
Georgiopoulos’s General Maritime Corp., which operates in more than 230 ports in more than 70 countries, filed for bankruptcy in November 2012. Its restructuring gave Oaktree Capital Management LP most of the company’s new stock.
Other ocean-transport companies have sought bankruptcy protection since the financial crisis, including Overseas Shipholding Group Inc. in 2012 and Excel Maritime Carriers Ltd., which filed last year and emerged from court protection Feb 14.
Genco’s assets include stakes in Baltic Trading (BALT) and Jinhui Shipping & Transportation Ltd. The company said Baltic Trading isn’t included in today’s Chapter 11 filing. A year ago, debt was $300 million higher than the market value of the assets, Omar Nokta, a New York-based analyst at Global Hunter Securities LLC, said in a Feb. 24 report.
In an April 3 regulatory filing, Genco said it had reached an agreement with a majority of lenders that includes converting a 2007 credit line into about 81 percent of the equity in the reorganized company. The company said today that is still the plan.
About $1.1 billion was outstanding on that loan on Sept. 30, according to data compiled by Bloomberg. The company’s $125 million of convertible securities would be swapped for 8.4 percent of the equity, according to the April 3 filing. Current equity holders would get seven-year warrants for a 6 percent stake.
Genco and 57 subsidiaries will file a “prepackaged” reorganization plan with support from creditors and 83 percent of noteholders, according to the statement. The company has enough cash to support operations during the process and won’t need an additional loan during bankruptcy, it said.
In today’s statement, Genco said it will conduct a $100 million rights offering for 8.7 percent of the pro forma equity of the reorganized company.
Before the filing, Genco hired Blackstone Advisory Partners LP to explore a debt restructuring. Lenders agreed to waive default after Genco missed a $3.1 million interest payment on its convertible bond, according to a filing with the U.S. Securities and Exchange Commission. Genco made the payment on March 20.
The dry-bulk shipping market is recovering from the biggest glut in history, according to Clarkson Plc, the world’s largest shipbroker. The fleet has swelled 84 percent since 2008 while trade advanced 31 percent, according to Clarkson’s data.
Genco owns 53 dry-bulk carriers, consisting of nine Capesizes, eight Panamaxes, 17 Supramaxes, six Handymaxes and 13 Handysizes, according to its website. Capesizes are the largest, and Handysizes the smallest, by carrying capacity.
The case is In re Genco Shipping & Trading Ltd., 14-bk-11108, U.S. Bankruptcy Court, Southern District of New York (Manhattan).