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UPDATE 2-Weak rates, high costs tip Overseas Shipholding into bankruptcy

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Published: Wednesday, 14 Nov 2012 | 3:31 PM ET
By: Swetha Gopinath

* Third-biggest U.S. bankruptcy this year by assets - tracker

* Company says has cash to continue operating as usual

* Says does not need debtor-in-possession financing

Nov 14 (Reuters) - Debt-laden Overseas Shipholding Group Inc (OSG), the world's No. 2 independent tanker operator by fleet size, filed for Chapter 11 bankruptcy protection on Wednesday after talks with lenders over a $1.5 billion facility foundered.

Weak rates and high bunker fuel costs have forced many shipping companies to restructure, including Norway-listed Frontline, Italy's Deiulemar Shipping, Indonesia's Berlian Laju Tanker and Sanko Steamship in Japan.

Overseas Shipholding said it had more-than-adequate cash to continue operating as usual and did not require debtor-in-possession financing.

But Wells Fargo Securities shipping analyst Michael Webber said above-market charter-in rates, including those from Capital Product Partners LP, could be at risk.

About 35 percent of Overseas Shipholding's fleet is chartered-in, or leased, from companies including Oslo-based American Shipping Company ASA, Wilbur Ross-backed Diamond S Shipping and DHT Holdings Inc.

These companies have already written down the value of their contracts with the company, or have begun to look for new customers for their vessels. ID:nL3E8LT8M5 3/8

The $4.15 billion in assets listed by Overseas Shipholding makes it the third-biggest U.S. bankruptcy this year, behind Residential Capital LLC, with assets of $15.68 billion, and Eastman Kodak Co, with $6.24 billion, according to Bankruptcydata.com.

ALL AT SEA

Overseas Shipholding warned last month that it may seek bankruptcy protection as well as re-state results for at least three years after it uncovered a tax issue.

The tanker operator has been struggling to plug a funding gap of $300 million ahead of the maturity of a $1.5 billion revolving loan next February and had arranged a replacement facility of $900 million.

Overseas Shipholding, whose market value had dwindled to $34.93 million as of Tuesday, had cash and equivalents of $226.6 million as of June 30, according to Thomson Reuters data.

On Wednesday, the company listed total assets of $4.15 billion and liabilities of $2.67 billion as of June 30.

Overseas Shipholding had said in August that it was in talks with its main banks, including DnB NOR Bank, Swedbank AB, Citibank NA, HSBC Bank Plc and Credit Agricole Corporate and Investment Bank .

The company, which operates about 112 vessels, has reported a loss for 13 straight quarters.

It has said the tax issue arises from the fact that while it is domiciled in the United States, it has substantial international operations. Allen Andreas, a director and member of the audit committee, resigned in September over the issue.

The magnitude of the company's potential tax liability will clearly shape the duration and nature of its restructuring, said a shipping industry analyst who did not wished to be named.

The case is In re: Overseas Shipholding Group Inc, U.S. Bankruptcy Court, District of Delaware, No:12-20000

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Nov 14- Debt-laden Overseas Shipholding Group Inc, the world's No. 2 independent tanker operator by fleet size, filed for Chapter 11 bankruptcy protection on Wednesday after talks with lenders over a $1.5 billion facility foundered.
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