Genco Seeks Relief in Chapter 11 amid USD 1.2 Bln Debt

Genco Shipping & Trading Limited, an operator of dry-bulk cargo ships, together with certain of its subsidiaries, has filed voluntary Chapter 11 petitions to implement a prepackaged financial restructuring that is expected to reduce the company’s total debt by approximately $1.2 billion and enhance its financial flexibility.

GENCO AUGUSTUS

Under the Chapter of the U.S. Bankruptcy Code, a debtor is provided (generally) for reorganization, usually involving a corporation or partnership. A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time.

The decision is consistent with its previously disclosed Restructuring Support Agreement with certain of the lenders under the company’s $1.1 billion secured credit facility entered into in 2007, its $253 million secured credit facility, and its $100 million secured credit facility, as well as certain holders of the company’s 5.00% Convertible Senior Notes due August 15, 2015.

All operating entities are expected to continue normal operations during the pendency of the financial restructuring, according to the company. Baltic Trading and its direct and indirect subsidiaries are not included in the court-supervised restructuring, Genco said adding that Baltic Trading is a separate public company from Genco, with an independent Board of Directors and separate financing. Baltic Trading is expected to continue operating in the normal course.

“Today, with the strong support of our lenders and noteholders, we are moving forward with our previously announced restructuring plan,” said John C. Wobensmith, Chief Financial Officer. “We believe the financial restructuring will provide an expedited path to significantly strengthen Genco’s balance sheet and improve the Company’s financial flexibility. Our operations are strong, and once our restructuring is completed, we believe we will be well-positioned for continued growth and success. We continue to leverage our efficient cost structure and opportunistic time charter approach to manage through the drybulk shipping cycle.”

The terms of the restructuring include, among other things:

  •  The 2007 Facility Lenders will convert all of their prepetition senior secured debt into 81.1% of the equity of the reorganized company;
  • The entirety of the company’s obligations under the $253 million and $100 million facilities will be replaced by new senior facilities with extended maturity dates through August 2019 and certain other covenant modifications;
  • The company’s obligations under the Convertible Senior Notes will be converted into 8.4% of the equity of the reorganized company;
  • The reinstatement of all other general unsecured claims, which will be paid in the ordinary course of business;
  • The cancellation of all equity interests in the company, with such equity interests receiving seven year warrants for 6.0% of the New Genco Equity struck at a $1.295 billion equity valuation from the consideration that would otherwise be provided to the holders of Prepetition 2007 Facility Claims and Convertible Note Claims (each as defined in the Prepack Plan) in exchange for the cancellation or surrender of such equity interests; and
  • Genco will conduct a $100 million rights offering for 8.7% of the pro forma equity of the reorganized company. The 2007 Facility Lenders will have the right to participate in up to 80% of the rights offering, which portion will be backstopped by certain of the 2007 Facility Lenders, and eligible holders of Convertible Notes will have the right to participate in up to 20% of the rights offering, which portion will be backstopped by certain of the Convertible Noteholders.

“Genco expects that cash on hand, cash from operating activities, and cash expected to be made available under a cash collateral order will be sufficient to fund its projected cash needs during its financial restructuring, and therefore does not intend to seek debtor-in-possession (DIP) financing,” the company said.

Genco is waiting for court approval to proceed with its restructuring plan.

Kramer Levin Naftalis & Frankel LLP is serving as legal advisor and Blackstone Advisory Partners LP is serving as financial advisor to the company.

Press Release, April 22, 2014, Image: Shispotting

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