Tuesday, February 4, 2014

Genco Shipping Comments

A couple good comments from the Genco restructuring thread:

Here's what we know: 1. The bank debt has secured every asset under the sun. Nothing can be sold or borrowed against without the banks getting proceeds. 2. The company doesn't have the cash to make the 4/1 amortization payment and still make covenants. 3. DnB NOR (admin agent) sold its entire position in the bank debt, somewhere between $500-600m.

Thus, the company needs the banks to play ball, and a large owner of the bank debt is not a bank. We can surmise that the bank debt holders want to own the company in some form. The bank debt may be "covered", but LTV of this paper is usually 70% or less. TBC...
In a Ch11 recap, there would typically be impairment of the debt in exchange for the equity (or a very large portion of it).

Assuming that the bank debt holders want a very quick resolution (get the company out of Ch11 with the equity before rates improve), the convertibles have nuisance value. As the converts are a small part of the cap structure, cut them in a bit on the equity (maybe warrants) and give them a chance to buy in some additional equity as well. Leave a 2-3% tip of NewCo equity to the old equity holders to get them to sign off. Then exit Chapter 11.

The End. Coming soon to a Southern District Court near you.
If the case is done in Chapter 11 and not out of court, it would be quite a stretch for the existing equity to receive any value if the convertibles were only receiving nuisance value.

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