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Who Wins?
We understand that the lead bankers involved in the Omega Navigation bankruptcy are pushing for a Chapter 7 liquidation believing that they can come out whole. This is natural as the alternative is a substantial conversion of their debt to equity, realizing a write-off and mark to market accounting on the equity. Given the young age of the fleet and market prospects in the product sector, the re-structuring scenario is far more likely.
Wall Street We Have a Problem
Like a phoenix arising from the ashes of U.S. Shipping Partners L.P., American Petroleum Tankers Holding LLC (“APT”) has come to the market offering $275 million First Priority Senior Secured Notes due in 2015. The company’s equity sponsors, Blackstone (75%) and Cerberus (25%) intend to use the proceeds of the offering to escrow $169.9 million for the construction and acquisition of the last two of five 49,000 DWT product tankers ordered at NASSCO, the M/T Empire State and M/T Evergreen State, to refinance the existing senior secured loan facility of $96.6 million and pay $8.5 million in transaction fees and expenses. The notes are rated B1 and B+, highly speculative, by Moody’s and S&P respectively.
The company’s fleet of five product carriers is the youngest in the Jones Act Fleet. The first three vessels, Golden State, Pelican State and Sunshine State, are chartered to major oil companies, BP, Marathon and Chevron respectively with the last two to be delivered upon completion to the Military Sealift Command (“MSC”). The charter terms vary with the Golden State and Pelican State on 7-year and 3-year charters respectively. The Sunshine State is on a 9-month charter and, as is typical with the MSC, the last two vessels are on 1-year charters with annual options to avoid a full five-year commitment. The five-year tenor of the notes likely reflects the charter profile.
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Done Deal?
We have heard rumors recently that US Shipping Partners LP has reached agreement with Blackstone and Cerebrus with respect to the joint venture USS Products Investor LLC. We understand that in exchange for a cash payment Blackstone and Cerebrus have assumed control of the entity and have replaced USS LP as the manager. Details are meager.
When the Cure Is Worse than the Disease
As part of its Chapter XI filing, U.S. Shipping Partners (“USSLP”) filed on April 29th a Plan Support Agreement, which as its name suggests outlines the terms under which the partnership agrees to use its commercially reasonable efforts to obtain Bankruptcy court approval of the pre-arranged Chapter 11 plan of reorganization and the secured lenders agree to cooperate in that regard.
Under the terms of this agreement, all existing partnership and other equity interests are cancelled and extinguished. The partnership will be reorganized as a Delaware corporation and new common stock and warrants to purchase new common stock shall be issued to the senior secured lenders and the holders of the second lien notes.
Strained Bedfellows
If things were not bad enough, U.S. Shipping Partners’ joint venture with Blackstone to build five U.S. flag product carriers is in the process of unraveling as the latter tries to protect its investment. Under the various operative documents, Blackstone has declared a Board Reduction Event and a Manager Termination Event, the effect of which would be to remove USSLP’s subsidiaries as the managing member of the joint venture and the manager of the vessels under construction. Adding to the woes, the lenders to the joint venture gave notice of default under the credit facility and their intention to foreclose on the M/T Golden State, the first vessel delivered to the joint venture by NASSCO.
USSLP is contesting these claims through a lawsuit and in the interim has filed a motion for a preliminary injunction enjoining Blackstone and the banks from taking these steps. The hearing is set for April 30th, the same day as the latest extension of the forbearance agreement expires. In the interim, the court has issued a temporary restraining order precluding the parties from foreclosing upon the vessel and replacing USSLP as manager.
Suspended – U.S. Shipping Partners L.P. Investors Forego Dividend
After making 14 regular quarterly distributions, totaling $6.14, to its limited partners through the 1st quarter of this year, U.S. Shipping Partners L.P. (“USLP”) announced on Wednesday that it in light of its review of strategic alternatives and its negotiations with its lenders to amend certain financial covenants under its senior credit facility that it will not pay a distribution on its units for the quarter ended June 30, 2008. Payments to the GP and subordinated units have been suspended since the 4th quarter of 2007.
K-Sea GP: Slice and Dice
How many ways can you take a company public? When it comes to an MLP, there are at least two, as evidenced last week by K-Sea GP Holdings LP’s (“GP Holdings”) announcement that it plans an initial public offering of common units.
Formed in December 2007, GP Holdings’ sole cash generating assets are partnership interests in K-Sea Transportation Partners L.P. (“KSP”). KSP is a publicly traded limited partnership that provides marine transportation, distribution and logistical services for refined petroleum products in the United States. KSP currently operates a fleet of 73 tank barges, one tanker, and 59 tugboats that serves major oil companies, oil traders and refiners.
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