Facing a looming $1.5 billion maturity on its main credit line next February, Overseas Shipholding Group has hired Chilmark Partners and Proskauer Rose for financial and legal advice, respectively, regarding a potential Chapter 11 filing, according to multiple sources. The lenders behind the credit line have retained Lazard and White & Case to prepare for potential restructuring talks. OSG is one of the largest publicly traded oil tanker companies.
The company announced in a public filing today that a lingering tax issue, which caused a board of director to resign last month, has rendered the last three years as well as this year's financial statements unreliable.
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The company has been struggling to manage its liquidity against a weak shipping tanker market. While the company eliminated its dividend earlier this year to preserve cash, OSG has so far only lined up a smaller $900 million replacement credit facility to address the mandatory February refinancing. To bolster liquidity, OSG fully drew upon the $1.5 billion revolver in July. The company disclosed $227 million of cash on its balance sheet as of June 30.
OSG may have less time to negotiate an out-of-court deal than implied by the February date. Stricter financial covenants governing the new $900 million credit facility, which would exclude treasury stock from net worth calculations, kick in at the end of the year.
Banks in the lending syndicate are becoming increasingly nervous with the lack of progress in negotiations and weak oil tanker market. Some lenders are already folding their hands and cutting bait.
Multiple sources say one lender recently sold its $60 million piece of the $1.5 billion revolver at 85 cents on the dollar. Another chunk of the revolver north of $100 million is actively being shopped to large hedge funds as well.
According to public filings, the syndicate banks originally committing the $1.5 billion include the following: DnB NOR Bank, Nordea, Citibank, HSBC, Lloyds TSB, Bayerische HDnB NOR Bank, Nordea, Citibank, HSBC, Lloyds TSB, Bayerische Hypo-und Vereinsbank, Royal Bank of Scotland, HSH Nordbank, Swedbank, Deutsche Schiffsbank, Fortis, Sumitomo Mitsui, Santander, Bank of Ireland, Calyon and ING.
While OSG's near-term and replacement revolvers have been closely held until recently, distressed investors are angling to find an appropriate entry point to extract value from the company.
The company's unsecured bonds due 2018 and 2024 have historically had more trading liquidity. Dealers were quoting these bonds at around 31 cents on the dollar this morning, down 10 points from Friday.
These trading levels suggest bond investors pricing in a default as the unsecured bonds would rank equally in seniority when bondholders press for their economic claim on the company's assets. Given the liquidity issues and difficult near-term oil tanker shipping environment, bondholders would likely not receive coupon interest payments in a potential OSG bankruptcy and not recognize differences in bond coupon and maturity.
(Editing By Jon Methven)