Genco Shipping & Trading Ltd. (GNKOQ), an operator of dry-bulk cargo ships, won approval of its restructuring plan from a judge who sided with the company in a valuation dispute with shareholders seeking bigger payouts.
Genco’s claimed value of $1.36 billion to $1.44 billion, the cornerstone of its plan to exit Chapter 11 protection and shed about $1.2 billion in debt, was approved today by U.S. Bankruptcy Judge Sean Lane in Manhattan. Lane signed an order authorizing Genco to implement the plan it reached with most creditors before filing for bankruptcy in April.
“The court agrees for the most part with the debtors’ views on valuation and concludes that the equity holders are not entitled to any recovery,” Lane wrote. “The court finds it telling that no equity holder, including large hedge funds on the equity committee, has expressed any interest in investing its own money in a transaction involving the debtor.”
The valuation was opposed by shareholders Och-Ziff Capital (OZM) Management Group and Aurelius Capital Partners LP. They argued that Blackstone Advisory Partners LP, which advised Genco, made incorrect assumptions about the company and industry to undercut some shareholders’ distributions.
Genco argued its highest valuation was less than the $1.48 billion required to pay all creditors in full before holders of the company’s equity would get anything.
Shareholders who opposed the plan sought a valuation by Rothschild Inc., which held that Genco’s actual value exceeded its claims by $97 million to $467 million. While Blackstone based its valuation on asset value, Rothschild used what it said were more realistic market conditions and projections, according to court filings.
Blackstone’s projections didn’t take into account that since 2008 more than $19 billion of private capital had been invested in the maritime industry “by sophisticated, return-driven investors,” Rothschild argued.
“The deployment of capital conflicts with Blackstone’s main thesis which drives its low valuation of Genco,” Neil Augustine, Rothschild managing director, said in a June 20 court filing.
A glut of vessels has driven down rates and saddled operators with debt, said Erik Nikolai Stavseth, an Oslo-based analyst at Arctic Securities ASA. The shipping fleet swelled 84 percent since 2008 while trade advanced 31 percent, according to London-based Clarkson Plc, the world’s largest shipbroker.
“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 Genco’s April 21 bankruptcy filing. “High leverage on expensive assets is what killed them.”
Genco said the reorganization plan resulted from intense negotiations in a distressed market, with most creditors backing the deal. In court papers, it called the objection by the official committee of equity holders “a lengthy tirade.”
The committee “attempts to dress up a garden variety valuation dispute with unsubstantiated allegations of foul play,” Genco said in a June 10 court filing.
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 its Chapter 11 petition, saying weakness in charter rates made it difficult for the company to pay creditors.
Before the filing, Genco hired Blackstone 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.
Genco’s pre-bankruptcy agreement with a majority of lenders called for converting a 2007 credit line into about 81 percent of the equity in the reorganized company. 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 an April 3 SEC filing. Current equity holders would get seven-year warrants for a 6 percent stake.
The case is In re Genco Shipping & Trading Ltd., 14-bk-11108, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
To contact the editors responsible for this story: Andrew Dunn at firstname.lastname@example.org Stephen Farr