The End Becomes a New Beginning Again – TBS Files

Last week TBS International, with the support of its lenders, filed a pre-packaged Chapter 11 plan of reorganization and has obtained most importantly DIP financing of $42.8 million from its existing lenders, Bank of America, DVB Bank, Toronto Dominion Bank and Credit Suisse. Under the plan the company will restructure its secured debt and pay in full the allowed claims of unsecured creditors. The plan is expected to be approved within 60 days. Under the terms of the agreement, all of the company’s operating subsidiaries will be transferred to a new entity that will be principally owned by the lenders, effectively wiping out the existing equity.

Resurrected – TBS Deleverages

On Wednesday, TBS International plc announced agreements with its bank lenders on terms to reduce its leverage. TBS and its main bank syndicates led by Bank of America and DVB Group Merchant Bank have agreed to exchange the current outstanding senior debt for new senior debt and equity. The terms provide for the full repayment of the amounts owed to the syndicates over a significantly extended maturity period, while keeping current management in place. TBS’ other lenders Credit Suisse and AIG have agreed on similar terms. The transaction led by The Royal Bank of Scotland was concluded with the bank agreeing to accept redelivery of the six collateral vessels in exchange for a full release of all amounts owed to that syndicate. Unfortunately, the terms of these agreements do not provide for any residual value in the common and preferred equity. We suppose you can call this a negotiated pre-packaged bankruptcy without the courts and the expense.

At Last!

We were wrong and for that we blame Joe Royce and his management team, who over an extensive period successfully re-negotiated new covenants in their loan agreements without having to issue a high yield bond to reduce the bank exposure as we surmised. But then again, as an industry insider suggested, given their credit and the uncertainty surrounding the negotiations, it may not have been possible or the price was too high.

TBS International successfully concluded the negotiations this week and amended its credit facilities with the three syndicates led by Bank of America (“BofA”), The Royal Bank of Scotland and DVB Group Merchant Bank as well as its loan agreements with AIG Commercial Equipment, Commerzbank, Berenberg Bank and Credit Suisse. Objective success will be determined on whether TBS remains in compliance with the new covenants going forward. Currently, the company expects to be in conformance with the financial covenants through maturity of the facilities. The important outcome of the agreements is that long-term debt, which had been previously classified as short-term, as the debt was considered callable due to the borrower’s inability to cure the breaches within a twelve month period, is again being classified as long-term debt.
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Pricing May No Longer Be an Issue

Yesterday, TBS International announced that it had secured a waiver of certain covenants from its lenders for an additional 30-day period so that negotiations of new or amended credit facilities could continue. The lenders consist of syndicates led by Bank of America, The Royal Bank of Scotland and DVB Group. There are also loan agreements with AIG Commercial Equipment, Commerzbank, Berenberg Bank and Credit Suisse.
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We Have Not Yet Gotten Past Restructurings

K-Sea Transportation Partners announced last week that late in December, its subsidiary, K-Sea Operating Partnership had entered into amendments of both its revolver and term loan facilities. The revolving credit facility is led by KeyBank, Bank of America, Citibank, Citizens Bank and HSBC. The amendment to the revolver provides for a reduction of the lenders’ commitments from $200 million to $175 million, subject to a maximum borrowing base equal to 75% of the orderly liquidation value of the vessel collateral, and eliminates the $50 million accordion feature. In addition, the agreement calls for the acceleration of the maturity date by 2 years and additional security. The fee to amend the agreement was $1.275 million.
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Whither the Banks?

While we, in shipping, focus daily on the macro picture, primarily the world economy and micro data, such as commodity prices, steel production, oil prices, charter rates, etc, in order to gauge what is happening, it may well be that the health of our industry is, for the moment, more directly correlated to the condition of the banking industry, particularly in light of the supply side issue. While the capital markets have filled a void in the availability of capital in the interim, the question remains as to whether the banks will be back and if so when?

In his excellent report, What We Have Learned from the Large Financial’s Results, Paul Miller of FBR Capital Markets provides insights into the earnings and the credit and financial condition of a select group of the largest U.S. banks including Bank of America, JPMorgan, Citigroup and Goldman Sachs based upon their most recent quarterly reports. We believe the results of these company’s are indicative of the general condition of the banking world. His key takeaways are as follows:
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On the Road Again

On Monday, Navios Maritime Holdings (“Navios”) announced that it and, its wholly-owned finance subsidiary, Navios Maritime Finance (US) Inc. intend to offer, through a 144A private placement, $375 million of first priority ship mortgage notes due in 2017, subject to market conditions.

This marks Navios’ second entry into the high yield market having issued previously 9 1/2% Senior Notes due in 2014 in December 2006. The new notes will in fact be guaranteed by all of the subsidiaries that guarantee the existing notes, so, in fact, the new notes will be secured by first mortgages on 15 drybulk vessels aggregating approximately 1.1 million DWT.

Net proceeds will be used to repay borrowings under Navios’ existing credit facilities as well as to provide financing to complete the acquisition of two new vessels expected to be delivered in late 2009 and early 2010. Both of these vessels will then become part of the collateral package.

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Fixing Debt

Also, last week, Commercial Barge Line Company (“CBL”), a direct wholly owned subsidiary of American Commercial Lines Inc. (“ACL”) announced the private placement and pricing of its $200 million 12 1/2% senior secured second lien notes due July 15, 2017. The notes were issued at a price of 95.181% yielding 13.13%. Concurrent with this offering, CBL and ACL will close on a new four-year $350 million senior secured first lien asset-based revolving credit facility.

The proceeds of the notes and the credit facility will be used to repay ACL’s existing credit facility, to pay certain related transaction costs and expenses and for general corporate purposes.

The book-running managers for the notes were Bank of America, UBS, SunTrust and Wachovia.

For the Right Credit, Anything Is Possible

Euronav announced this week that it has signed a $300 million senior secured facility with Nordea, Calyon, Societe Generale, Bank of America and Scotiabank acting as lead arrangers; Nordea, Calyon and Societe Generale acting as bookrunners and Nordea as sole facility agent. Skandinaviska Enskilda Banken, Dexia Bank, Fortis Bank Belgium and Ethias acting as co-arrangers. The credit facility will finance two VLCCs: the Olympia (2008 – 315,981) and the Antarctica (2009 – 315,981 dwt) and four Suezmaxes: the Cap Felix (2008 – 158,764 dwt) and the Cap Theodora (2008 – 158,800 dwt) and two newbuilding Suezmaxes: hull 1743, to be named Felicity, (159,000 dwt) and scheduled for delivery in June of this year and hull 1744, to be named Fraternity (159,000 dwt) scheduled for delivery in November of this year.

Managing Expectations

Over the weekend, TBS announced it had secured waivers of certain covenants with respect to its outstanding credit facilities with its syndicate of lenders led by Bank of America, its syndicate of lenders led by The Royal Bank of Scotland and its syndicate of lenders led by DVB Group Merchant Bank, as well as its loan agreements with AIG Commercial Equipment, Commerzbank AG, Berenberg Bank and Credit Suisse (the ” Financing Facilities “).

The company initiated discussions with its lenders to obtain waivers as a result of the current market conditions with a specific focus on the market value of vessels. The Financing Facilities were modified to provide a waiver through December 31, 2009 of loan-to-value and other financial covenants, provided that the company satisfies new covenants, including minimum end of month cash balances of not less than $40.0 million and a minimum ratio of EBITDA to interest expense. In addition, TBS prepaid all the principal installments that would have been due under the term loan facility this year. This reduced the total non-construction related debt to $$247.5 million.

The company is now in position to report its earnings with a clean opinion from its auditors.