OSG Sails Out of Chapter 11 Amid Interest Fight: BankruptcySherri Toub
Aug. 7 (Bloomberg) -- Overseas Shipholding Group Inc., a tanker company providing energy transportation services for crude oil and petroleum products, implemented a Chapter 11 plan on Aug. 5 that was approved when U.S. Bankruptcy Judge Peter J. Walsh in Delaware signed a confirmation order July 18.
The company closed on its exit financing arrangement, led by Jefferies Finance LLC, on Aug. 5. The package consists of two term loan facilities and two revolving loan facilities, totaling $1.35 billion, according to a company statement.
OSG said it will make initial distributions to holders of allowed claims and equity interests by Aug. 19, according to court papers.
According to OSG, there was “only one true contested issue” with respect to the plan that wasn’t resolved at the confirmation hearing -- an assertion by some holders of reinstated bonds that they are entitled to interest on overdue interest.
Holders of the 8.75 percent debentures and the 7.5 percent notes, through their respective indenture trustees, and the official committee of unsecured creditors, argued the governing documents provide for payment of interest on overdue interest at each security’s coupon rate, according to court papers.
OSG contends that the notes documentation fails to provide for payment of interest on overdue interest.
The disputed indentures permit the parties to elect to provide for such interest in the relevant securities, but the parties didn’t make that election and failed to set forth a rate at which such interest would be paid, OSG said in court papers.
OSG also rejected the indenture trustees’ argument that noteholders should receive statutory interest at the rate of 9 percent if the court finds they’re not entitled to interest on overdue interest.
“The notion that any investor would purchase bonds that would essentially provide OSG with an interest-free loan following a payment default defies logic,” Bank of New York Mellon Corp., as the 8.75 percent debentures trustee, said in court papers filed Aug. 5.
BNY Mellon said OSG’s argument fails because the governing indenture doesn’t require holders to look to the security to determine entitlement to interest on overdue interest. OSG’s interpretation would impermissibly render provisions of the indenture “superfluous,” according to BNY Mellon.
Wilmington Trust NA, as trustee for the 7.5 percent notes, echoed many of the same arguments.
The creditors’ committee said the disputed issue is a “straightforward question of contractual interpretation.” Under a “plain and unadorned” reading of the indentures and the securities, the bondholders are entitled to recover interest on overdue interest, the committee said.
The confirmation order provides that the disputed amount would be reserved if the issue wasn’t resolved before the consummation of the plan.
Walsh will consider the parties’ arguments at a hearing scheduled for Aug. 14, according to court records.
OSG sought court protection in November 2012 with more than 100 vessels, making it one of the largest publicly-owned tanker organizations worldwide. As of the bankruptcy filing, it was the only major industry player with both a significant U.S. flag and international flag fleet, according to court papers.
The case is In re Overseas Shipholding Group Inc., 12-bk-20000, U.S. Bankruptcy Court, District of Delaware (Wilmington).
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Eagle Bulk Shipping Files Chapter 11 with Prepackaged Plan
Eagle Bulk Shipping Inc., a provider of ocean-borne transportation services for dry-bulk cargoes, filed a Chapter 11 petition in U.S. bankruptcy court in Manhattan yesterday to implement a debt-reduction plan already accepted by the requisite majorities of its secured lenders.
The plan, which provides for a consensual restructuring of the company’s capital structure, will eliminate approximately $975 million of secured debt and enable unsecured creditors to “ride though” on an unimpaired basis, meaning they’ll be unaffected, according to court papers.
The company has received affirmative votes for the debt-reduction plan from lenders holding more than 85 percent of the secured loans outstanding, constituting more than two-thirds of the total lenders, according to the statement. These amounts are sufficient to confirm the plan.
The company asked for a joint hearing on Sept. 10 to consider adequacy of the disclosure materials, already used to solicit votes, and approval of the plan. Both the plan and disclosure statement accompanied the petition.
If the plan is approved by U.S. Bankruptcy Judge Sean H. Lane, the secured lenders will convert a substantial majority of the approximately $1.2 billion in outstanding debt into 99.5 percent of the new equity in reorganized Eagle Bulk, subject to dilution. They will also receive cash in an undetermined amount from the proceeds of an exit financing facility. The projected recovery for this class is 64 percent to 71 percent, according to the disclosure statement.
Under the proposed plan, all existing equity interests in Eagle Bulk will be canceled. Equity holders will receive 0.5 percent of the new equity in reorganized Eagle Bulk, subject to dilution. They will also receive seven-year warrants to acquire an additional 7.5 percent of the new equity in the reorganized company, according to court papers.
The secured lenders were the only class entitled to vote. Equity holders were deemed to reject the plan, despite the new equity they will receive. General unsecured creditors will “ride through” and, as such, didn’t need to vote.
Eagle Bulk obtained a commitment for as much as $50 million of bankruptcy financing from some of its pre-bankruptcy secured lenders, $25 million of which can be tapped upon entry of an interim order. Subject to Lane’s approval, the company will also be able to use cash representing collateral for the secured lenders’ claims, according to court papers. Wilmington Trust (London) Ltd. is the security trustee.
In December 2013, faced with a highly-leveraged capital structure with over $1.2 billion of secured debt and potential looming defaults under its loan documents, Eagle Bulk considered various alternatives, including a refinancing. At the end of February, the company determined that the only viable path forward involved a standalone effort with its secured lenders and began to negotiate a potential restructuring, according to court papers.
Lane presided over the Chapter 11 case of Genco Shipping & Trading Ltd., also an operator of dry-bulk vessels. Genco implemented a prepackaged reorganization plan July 9 that was approved when Lane signed a confirmation order on July 2.
Headquartered in Manhattan, Eagle Bulk operates a fleet of 45 modern vessels flagged in the Marshall Islands. The fleet is constituted mostly of Supramax-class vessels, meaning they can transport about 50,000 to 60,000 deadweight tons, equipped with enhanced capabilities to load and unload dry-bulk cargo in ports that don’t otherwise have the requisite infrastructure, according to court papers.
Since its initial public offering in June 2005, the company’s common stock has been publicly traded and listed on the NASDAQ Global Select Market, according to court papers.
The petition lists assets of as much as $950 million and debt of about $1.2 billion. Eagle Bulk’s operating and management subsidiaries were excluded from the Chapter 11 filing.
The case is In re Eagle Bulk Shipping Inc., 14-bk-12303, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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Revel Delays Auction One Week to Analyze Bids Received
Revel AC Inc., whose Atlantic City, New Jersey, casino was scheduled to go to auction this morning, said there would be a one-week delay because it wasn’t prepared yet to go forward.
Revel adjourned the auction to Aug. 14 to give it additional time to fully analyze and evaluate a “number of bids” that it received by the Aug. 4 deadline, according to court papers filed yesterday.
The 1,400-room hotel and casino filed a petition for Chapter 11 protection on June 19. The facility opened in April 2012 and emerged from a prior bankruptcy reorganization in May 2013, reducing debt by 82 percent, from $1.52 billion to $272 million.
The new petition shows assets and debt both exceeding $500 million.
The new case is In re Revel AC Inc., 14-bk-22654, U.S. Bankruptcy Court, District of New Jersey (Camden). The prior case was In re Revel AC Inc., 13-bk-16253, in the same court.
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Kid Brands Wants Bonuses for Workers to Complete Brand Sales
Kid Brands Inc., a designer and distributor of infant and juvenile products that wasn’t able to find a going-concern buyer for its ‘Kids Line’ and ‘CoCaLo’ brands, wants permission to pay bonuses to seven employees to help complete the pending sale of the brands’ intellectual property, inventory and accounts receivable.
If approved, the proposed performance-based plan would provide increasing levels of incentive payments to the participating employees based upon proceeds generated from the sale and liquidation of the brands’ assets, according to court papers.
The total amount payable under the proposed program ranges from $140,000 in the aggregate, if the minimum threshold of $14 million is achieved, to $360,000 in the aggregate if the maximum threshold of $18 million or more is achieved, according to court papers.
In no event will the aggregate bonuses awarded to all participating employees be greater than 2 percent of the proceeds, according to Kid Brands.
The identities of the potential participants weren’t disclosed in court papers.
At a hearing scheduled for Aug. 19, Kid Brands will ask permission to sell the ’Kids Line’ and ’CoCaLo’ brand names, Internet domain names, and associated goodwill to Crown Crafts Infant Products Inc. for $1.35 million plus the assumption of specified liabilities, unless a better offer surfaces at the sale hearing, according to court papers.
Achieving the thresholds for the bonus payments will be “difficult,” according to Kid Brands, given that the proposed sale of the brands’ intellectual property to Crown Crafts is only about 9 percent of the threshold proceeds that must be achieved for the first level of bonuses to be paid.
Kid Brands products are sold under brand names Kids Line, CoCaLo, LaJobi, and Sassy.
Rutherford, New Jersey-based Kid Brands reported a $31.7 million net loss in the first quarter on net sales of $38 million. Sales plunged 26 percent in this year’s first quarter compared with the same period last year. The operating loss in the quarter was $30.6 million.
Kid Brands filed a Chapter 11 petition on June 18, listing assets of $32.4 million and debt totaling $109.2 million. Unsecured liabilities were shown as totaling $54 million, including approximately $25.8 million owed to trade suppliers.
The case is In re Kid Brands Inc., 14-bk-22582, U.S. Bankruptcy Court, District of New Jersey (Newark).
MEE Apparel Confirms Liquidating Plan Following Sale
MEE Apparel LLC, a provider of youth apparel under the ’Ecko Unltd.’ and ’Unltd.’ brands before the business was sold to a company controlled by co-founder Seth Gerszberg, won court approval of a Chapter 11 plan of liquidation.
The bankruptcy judge in New Jersey signed a confirmation order approving the plan on Aug. 5.
The plan incorporates a global settlement among the official committee of unsecured creditors, Gerszberg’s Suchman LLC, and MEE that “paved the way” for the sale and MEE’s emergence from Chapter 11, according to the disclosure statement.
Suchman LLC, which financed the bankruptcy, paid $12 million of debt in lieu of cash to buy MEE. The sale was completed in May, according to court papers.
As part of the settlement, MEE was required to set aside $1 million for the benefit of general unsecured creditors at the completion of the sale, according to disclosure materials.
Unsecured creditors, which voted to accept the plan by the requisite majorities, are estimated to receive 2.5 percent to 3.33 percent on claims of about $30 million to $40 million, according to the disclosure statement. Gerszberg, Suchman, and their affiliates won’t receive any of the funds set aside for general unsecured creditors.
The costs of winding down the Chapter 11 effort will be paid first from the proceeds of the bankruptcy financing and second from Suchman, according to the disclosure statement.
As part of the settlement, Suchman agreed not to sue creditors for payments they received in the three-month preference period before bankruptcy.
MEE filed a Chapter 11 petition in April, citing declining sales and reduced profitability.
As of the filing, MEE had assets of about $30 million and liabilities of about $62 million.
The case is In re MEE Apparel LLC, 14-bk-16484, U.S. Bankruptcy Court, District of New Jersey (Trenton).
NE Opco Gets Fourth Extension of Plan Exclusivity
More than a year into its second bankruptcy, NE Opco Inc., which sold the National Envelope assets to Cenveo Corp. and others, won a fourth extension of its exclusive right to propose a Chapter 11 plan.
The bankruptcy judge in Delaware signed an order on July 28 extending the exclusive plan-filing period through and including Oct. 6.
In a request almost identical to its third, the company said it was now better-suited to determine the most appropriate resolution of the bankruptcy but needed more time for a “thorough evaluation” of the best course of action.
With the asset sales completed and the deadline for filing claims behind it, the company said it could now evaluate whether to exit bankruptcy “through either a plan or otherwise.”
In the company’s second Chapter 11 case begun in June 2013, it listed secured debt of approximately $148.4 million, including $55.7 million in second-lien debt that is 82 percent held by an affiliate of Gores Group LLC. The company also listed unsecured debt of about $20.3 million.
Headquartered in Frisco, Texas, the company had eight manufacturing facilities and about 15 percent of the U.S. envelope market as of the filing. Revenue of $427 million in 2012 resulted in a $60.1 million net loss, continuing an unbroken string of losses since 2007.
The new case is In re NE Opco Inc., 13-bk-11483, U.S. Bankruptcy Court, District of Delaware (Wilmington). The prior case was In re NEC Holdings Corp., 10-bk-11890, in the same court.
Southern States Cooperative Downgraded by Moody’s
Southern States Cooperative Inc., a retailer and wholesale supplier of agricultural products and services, was downgraded by Moody’s Investors Service yesterday on highly volatile earnings and cash flow.
Moody’s downgraded the corporate family rating to B2 from B1 as well as the second-lien note rating to B3 from B2. The ratings outlook is stable.
The downgrade reflects the increased volatility in operating performance and credit metrics that has occurred over the past three years, largely due to adverse weather conditions in the company’s markets, according to the report.
While volatility is factored into the company’s ratings, credit metrics have once again deteriorated to levels that are well outside expectations, Moody’s said.
The company’s revenue declined 8 percent in the first nine months ended March 31, and both free cash flow and earnings before interest, taxes, depreciation, and amortization were negative, according to the report.
Moody’s estimates that the company will likely end the fiscal year with leverage in excess of 7 times and thin interest coverage.
Annual revenue is estimated to exceed $2.1 billion, according to Moody’s.
Gambling Operator Yonkers Racing Downgraded by S&P
Yonkers Racing Corp., a New York-based gaming operator, was downgraded by Standard & Poor’s yesterday on weaker-than-expected operating performance in the first half of the year.
S&P lowered all ratings by one grade, including the corporate credit rating to B from B+.
Lowering its 2014 and 2015 forecast for earnings before interest, taxes, depreciation, and amortization, or EBITDA, results in debt leverage in line with a B corporate credit rating, according to S&P.
S&P lowered its issue-level ratings on the first-out revolving credit facility to BB- from BB, the first-lien term loan to B+ from BB-, and the second-lien term loan to CCC+ from B-, according to the report.
The rating company expects EBITDA to drop about 20 percent for the full year. Although operating performance in the first half was hurt in part by inclement weather, S&P expects discretionary spending will remain pressured for many of Yonkers Racing’s customers and result in continued declines in slot machine revenue for at least the next few quarters.
The outlook is stable, reflecting S&P’s expectation that EBITDA will stabilize in the low to mid $40 million range through 2015, which should create sufficient discretionary cash flow for debt reduction during the next few years.
The business risk profile is “vulnerable” and the financial risk profile is “highly leveraged,” according to S&P.
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