Tuesday, February 4, 2014

Previous Restructuring of a Georgiopoulos Shipping Company: General Maritime Corp

In the comments section of our post about a possible Genco shipping restructuring, people were talking about the restructuring of General Maritime, which was founded by the Genco founder and in which Oaktree was an investor.

Oaktree seems to have achieved a good outcome - and the existing stock was wiped out. First, Oaktree made a hard money loan in 2011:

"Oaktree dictated hard terms. The loan terms look very much like those only a company on the verge of bankruptcy, and therefore with few negotiating options, would agree to. Oaktree is getting a right to 19.9 percent of the company. The interest rate that Oaktree is charging fluctuates, but in June it was at 12 percent a year.

This is far from your typical subordinated debt deal, where a lender simply lends money at a rate of interest. General Maritime was in distress, but it also had assets like tankers that it could sell and did not appear to near insolvency. It also had at least another year before it needed to secure this financing.

Second, Oaktree has provided Peter C. Georgiopoulos, General Maritime’s chairman and owner of about 6 percent of its stock, 4.9 percent of the profit from the loan. It does not appear that Mr. Georgiopoulos paid for this interest.

Instead, it appears to be a reward bestowed by Oaktree — but a reward for what? This is the worst sort of conflict. The chairman is making money off his company’s distress. Because of the conflict, the company’s independent directors needed to approve the loan, which they did, but this is still poor optics at best."
This obviously didn't sit well with some other people.
"Institutional Shareholder Services, the proxy advisory firm, said on July 27 that the entire transaction, not just the most recent proposal, was 'thin gruel served cold - a clear and striking failure of governance by the entire board, not simply its chairman.'"
It wasn't long before the company was in Chapter 11. The other creditors were sorry they'd taken a seat at this table.
"General Maritime Corp. (GMR), the second- largest U.S. owner of oil tankers, won approval of financing agreements with Oaktree Capital Management LP after changing terms to address creditors’ objections.

U.S. Bankruptcy Judge Martin Glenn in Manhattan today approved a $75 million loan from lenders including Nordea Bank Finland Plc and a $175 million equity investment from Oaktree. Glenn questioned expense reimbursements and a breakup fee for Oaktree, a junior secured lender to General Maritime that will be the lead, or stalking-horse, bidder at an auction to sell the company.

'This has all the hallmarks of a loan-to-own structure,' Glenn said. 'Even if the committee is satisfied, I’m not necessarily satisfied.'"
Here's what the other creditors were saying:
"'Approximately three months ago, the debtors appeared before this court arm in arm with their old friend, Oaktree Capital Management, … toting a fully baked plan of reorganization that would deliver all of the equity and upside in these cases to Oaktree at the expense of the debtors' unsecured creditors,' lawyers for the committee said Tuesday in a filing in U.S. Bankruptcy Court in Manhattan.

The committee claims General Maritime 'contrived' with Oaktree to value the company at a 'friendly' price while releasing company insiders and Oaktree from any liability connected to lawsuits the creditors might pursue."
Ultimately, the plan was approved by the court:
"'The plan is fair and equitable,' Glenn said, noting that it restructures more than $1.3 billion in pre-bankruptcy debt. The plan’s terms will cancel all of General Maritime's old stock, giving nothing to holders of 121.7 million common shares. Secured debt will be repaid in full and converted to equity in the reorganized company, giving 98 percent of stock in a new firm to Los Angeles-based Oaktree.

General Maritime, which operates in more than 230 ports in more than 70 countries, filed for bankruptcy in November. The company listed assets of $1.71 billion and debt of $1.41 billion in its Chapter 11 petition. In February, when Glenn approved a draft of the plan, he told creditors to either prepare evidence for a fight over the final plan or negotiate an agreement.

An amended version of the plan resolved objections from most unsecured creditors, improving their estimated recovery from as much as 1.88 percent to a maximum of 5.41 percent. The majority of creditors voted in favor of the plan and Glenn overruled the three objections that remained at the opening of today’s hearing."
Everything that happened followed a well-established distressed debt M.O.:
  1. Determine an industry that has staying power (i.e. will be around in 20 years) that is under severe stress 
  2. Purchase the senior bonds of a company in that industry at distressed levels 
  3. File the company, and convert your senior ownership to a majority equity share 
  4. Clean up operations 
  5. Wait
Now, we seem to see the same pattern occurring in Genco.


Taylor Conant said...

So what do you think of Oaktree? Smart operators?

CP said...

Sure. Don't buy below them in the capital structure, that's for sure.