Playing Chicken with George

by Matt McCleery

We think that George Economou of Alpha Shipping will tender for his $175 million in unsecured ten year notes for about $0.35 within the next four weeks. In the following analysis, we will tell you why we think bondholders should negotiate to increase the call to $0.45 and then accept. Mr. Economou has indicated that he is unwilling to work for the bondholders throughout this cycle without the prospect of a return for himself. Therefore, the Alpha fleet is going to be liquidate – it is simply a question of who takes the keys.

In our opinion, if bondholders allow emotion to eclipse arithmetic, they will find themselves in a further deteriorating market with wasting assets, capital unemployed for as long as two years, and value squandered through transaction costs and lawyers – all in pursuit of a return no greater than that which they could have wired into their accounts immediately, should a tender offer be made. In a song entitled “The Gambler”, the legendary Kenny Rogers sings, “you got to know when to hold ‘em, know when to fold ‘em.” In our opinion, bondholders should probably “fold ‘em.” With bondholder consent untenable, the infusion of additional equity insensible, and Citibank’s willingness to use its balance sheet unlikely, it seems that a bank-financed tender is the only realistic solution.

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