Deal of the Year – 2002 Restructuring

You got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.” These words, sung by the legendary Kenny Rogers and written by Lionel Ritchie, are a startlingly accurate description of restructuring shipping deals. As the country ballad suggests, there is no single blueprint for achieving a successful restructuring. What you do depends on cards you’ve been dealt.

This year’s Restructuring Award goes American Marine Advisors of New York for their role in two very different deals– deals that we think typify AMA’s ability to engage in a dirtunder-the-fingernails dogfight and also execute the disposal of a business franchise. In our view, it is this combination of skills that has allowed the merchant bank to earn its dominant role in this critical niche. So long as the maritime industry remains highly leveraged and volatile, restructurings will occur and AMA has proven itself to be a “first call” for stakeholders in deals that go bad.

In the first broken deal, AMA represented the bondholders in their action against reefer turned containership owner/operator Enterprises Shipholding. The Enterprises deal was, without a doubt, the most contentious of all the maritime high yield restructurings we have seen in recent years. More than just a case of the Asian Crisis pushing over leveraged bond-issuing companies into financial restructuring, Enterprises bondholders began preparing for battle 18 months before the company actually missed its coupon payment, decrying that the company “stole” bondholder value by fraudulently selling new- building container ships to affiliated companies at bargain prices. Adding insult to injury, Enterprises management offered to assist the bondholders by selling the vessels, for a fee of $20m after they had defaulted.

What impressed us about this deal was that AMA was able to use its understanding of how shipping and shipowners operate to put commercial pressure on Enterprises shareholders. From understanding the disposal of the newbuildings, to managing the media, to piercing the veil of ostensibly unaffiliated companies, to affecting arrest of the containerships in the ports around the world even though they represented unsecured creditors, AMA was able to make trading partners and vendors so nervous that Enterprises reached into its pocket for a $0.50 settlement. If there was any disappointing element of the deal to AMA and its bondholders, it was that during the nine months that it took to conclude the deal, the container market had a precipitous drop and values plunged making the financial recovery lower than it might have been.h The second transaction includes AMA’s work on selling the Delta Queen steamboat business owned by bankrupt American Classic Voyages.

For those of you for whom the details are fuzzy, AMA was mandated for this assignment by the US Maritime Administration when Sam Zell controlled American Classic Voyages defaulted on about $800m of Title XI bonds. After canvassing the market, AMA developed a list of about 100 potential buyers. When the day of the auction finally came, seven interested parties spent an entire day bidding in an open outcry fashion led by AMA’s Paul Leand; the auction commenced with a stalking horse bid of $3.75m and moved in $150,000 increments to its final price of about $80m.

The winning bidder was a company called Delaware North, a global leader in hospitality, retail and food service, whose holdings include the Fleet Center in Boston. Delaware North paid $80m, 4x 2000 EBITDA, for the business. To put this in context, Morgan Stanley indicated that financing for LBOs fell to 3.8x at the time AMA sold the company. How AMA was able to take a company that had ceased operations (very damaging for a company that depends on confidence of consumers, credit cards companies, travel agents, etc.) and sell it to a substantial company for the kind of healthy valuation generally assigned to a going concern, is nothing short of astounding.

Honorable Mention

Amer

What do you get when you combine Coco Vroon, Kristian Siem, Ravi Mehrotra, Alan Ginsberg, Gary Wolfe, Jim Lawrence, Greg Petrick and Judge Arthur Gonzales of the US bankruptcy court? A heck of a good holiday party, for one thing, but also one of the most mutually beneficial of all the shipping high yield restructurings. This entire restructuring, while certainly acrimonious, was a bit like “the gang that couldn’t shoot straight,” with both sides making one tactical and procedural gaff after the next. But in the end, the final deal was negotiated principal to principal and with very good results for both sides.

We estimate that the circa 30% return achieved by Vroon/Siem (they bought their 68% slug of the Amer for $0.52 and sold it for $0.68 one year later) bonds was the highest since CSFB and Alpha Shipping – a friendly deal between David Matlin and George. The result was equally good for the company; commercial and technical operations of Amer Reefer went uninterrupted at all and the company’s major shareholder, Mr. Ravi Mehrotra, retained 100% ownership, thanks to a loan facility from Nordea, some credit support from Lauritzen’s Cool Pool and the cash that accumulated in the company during the 18 months that the bonds didn’t pay interest – a win/win for the final parties involved.

The other element of this deal that we found noteworthy was the approach taken by the bankruptcy judge. Although many speculated that Siem and Vroon initially bought into the Amer deal to take over the company, Judge Gonzales (who is currently handling the Enron bankruptcy) maintained a staunch company- friendly approach during the year in bankruptcy, encourageing the parties to settle and keep the company intact.

The Cost of Restructuring

New York law firm Thatcher Profitt and Wood filed a motion for payment of their legal bills associated with their defense of Millenium Seacarriers during the handysize bulk owner’s bankruptcy. The documents filed in the Southern District of New

York covered only the period January 15 to April 30, 2002. The total amount of compensation sought was $914,079.70 and the document also requested $71,599.09 in reimbursable expenses. Deirdre Dillon at the firm was the top biller at $181,150. She was closely followed by Chris Graham who billed $178,165, Jonathan Forstot at $120,911, Nicole Reninger who billed $117,928 and Louis Curcio who billed $103,235.

Interestingly, Mr. Curcio worked the most hours 540.7 and had the lowest blended hourly billing rate at $190.93. Chris Graham took the high honors on the Blended rate at $555.73. Chris and Jonathan were the partners on the case.

Low biller was Gary Silverstein who charged $167.50, for half an hour’s work. Brendan Zahner billed a total of $95,559 and his admission to the Bar was pending at the time. Overtime meals cost $5,496.

Save the Date! Restructurings for 2003

American Commercial Barge Line

A quick perusal of the American Commercial Barge Lines 3Q02 filing shows a company that’s heading back under the knife for some more restructuring in the coming months. In fact, restructuring advisors out there might be interested to know that ACBL has agreed to propose a restructuring plan to its senior lenders prior to December 28, 2002. ACBL was already restructured once this year in a deal whereby Sam Zell-controlled Danielson Holdings (AMEX: DHC) contributed $58.5 million of their bonds as equity and crammed down the company’s equity holders in exchange for $9m worth of DHC stock and then paid down $25m in bank debt.

Precious Shipping

The dry bulk owner looks set for another restructuring in early 2003 when the company’s redeemable convertible debentures are converted into PSL shares at a price equivalent to 95% of PSL’s closing market price in the month preceding the conversion. According to our calculations, RCD holders may be entitled to about 56m shares unless someone runs up the stock between now and then – which is likely. Since the current capital of Precious is 52m shares, the various European and Asia financial institutions that own the bonds may gain control of the company through the conversion –but then what?

Northern Offshore

In November 2002, John Fredriksen controlled Northern Offshore appointed US investment bank Houlihan Lokey Howard & Zukin to advise it in restructuring talks with bondholders, after warning it will again miss its interest-payment deadline and default on its $340m, 10% notes. Northern has some

$ 57m in short-term debt coming due but very little cash.

Navigator

“The more the merrier,” is an expression that is generally not used in the context of debt restructurings. That’s why the long awaited reorganization of this deal, which was dead on arrival but has been surviving on the life support of escrowed funds and a CSFB credit line, is going to be so messy.

Cenargo

According to Cenargo’s most recent 6k filing, the company will not make it’s 12/31/02 coupon payment. Wayland Advisors, which now controls the former Millennium Seacarriers fleet, is one of Cenargo’s biggest bondholders. Based on the speed with which Wayland Investments skinned the equity interests at Millenium Seacarriers, Cenargo should be getting fit for armor right about now.

Restructuring Quotables

Victor Restis ” I will do everything to protect myself from.. .these vultures which have destroyed my company.” Lloyd’s List

Kostas Koutsoubelis “The buyers were two French companies and the shareholders in those two companies will fight, I am sure. But we don’t know who was the buyer…we just spoke to the broker and the lawyers.” Reuters