Eagle Bulk Shipping, Genco Shipping Working With Advisers To Pare Debt
Shipping Companies Enlist Restructuring Advisers After Creditors Sold Large Blocks of Debt
Two shipping companies have enlisted restructuring advisers after key creditors sold large blocks of debt to distressed investors amid balance sheet concerns.
Battered by rough seas in the industry over the past couple of years, New York based dry-bulk shippers Eagle Bulk Shipping Inc. EGLE -7.53% and Genco Shipping & Trading Ltd. GNK -4.63% are working with advisers to pare down their debts, according to people familiar with the matter.
Eagle Bulk, with a debt load of about $1.2 billion, tapped restructuring advisers at investment bank Moelis & Co. and law firm Milbank, Tweed, Hadley & McCloy LLP within the past few days.
The hirings come about a month after Royal Bank of Scotland Group RBS +0.73% PLC sold its roughly $800 million debt position in Eagle Bulk at close to 90 cents on the dollar, people familiar with the transaction said, adding that investment firms Oaktree Capital Management, Centerbridge Partners LP and Canyon Partners LLC bought the majority of the debt.
It is unusual for investment firms to buy debt of distressed companies at such high prices, these people added, but a lack of activity in the distressed market could be a catalyst. Distressed investors are known for buying debt at very discounted rates, sometimes as low as pennies on the dollar and up to around 75 cents on the dollar.
Many shipping companies borrowed to grow their fleets when shipping activity peaked in 2008. They are now struggling to make loan payments since the rates they charge to transport goods have fallen, though there has been some pickup more recently. The shares of both Eagle Bulk and Genco have fallen dramatically in recent years, and they currently have market values of about $60 million and $110 million, respectively.
Though it is still early days, people familiar with the matter say an Eagle Bulk bankruptcy protection filing in early 2014 is a possibility, in particular a so-called prepackaged plan.
Genco, another vessel owner with around $1.5 billion of debt, has enlisted restructuring lawyers at Kramer Levin Naftalis & Frankel LLP and interviewed restructuring bankers weeks ago, these people said. It faces an amortization period on its term loan in early 2014 and may not have enough cash to make the payment, they said.
Roughly three weeks ago, Norwegian bank DNB AS DNB.OS +0.58% A sold around $600 million of Genco debt, also close to 90 cents on the dollar, these people said. Centerbridge was one of several investment firms that purchased the debt, some of these people said.
A DNB spokesman confirmed the bank sold its full Genco exposure but declined to comment on price or buyers. "This was a very large commitment for DNB given the long term challenges within the dry bulk market," the spokesman wrote in an emailed statement. "When the offer was on the table we could not let this opportunity pass."
Eagle Bulk, which owns 45 vessels built between 1997 and 2011, mostly focuses on "Supramax" vessels, large dry bulkers that typically transport coal, steel or ingredients like grain, sand and gravel. Vessel names include Thrush (2011), Crowned Eagle (2008) and Condor (2001), according to Eagle Bulk's website.
Genco, meanwhile, has a mixed fleet of dry-bulk carriers, ranging from smaller "Handysize" to larger "Capesize" vessels.
The average daily charter rates of Supramax vessels to transport goods has grown to nearly $16,000 per day, a level many hadn't seen since 2011, according to data from shipping service provider Clarksons reviewed by The Wall Street Journal. It dropped as low as roughly $7,000 earlier this year and had been hovering between $7,500 and $10,000 up until the fall, according to the data. In 2007, the rate peaked at $70,000, according to the data.
"The market as of late has improved tremendously," said Svein Engh, a managing director at lender CIT Group Inc.'s maritime finance unit. "The one thing a lot of people aren't certain about is whether this is sustainable improvement or just a seasonable blip again."
Shipping companies have been struggling over the last couple of years.
In July, Excel Maritime Carriers Ltd. EXMCQ -2.56% filed for bankruptcy protection with a plan to hand itself over to a syndicate of top secured lenders led by Oaktree.
A month earlier, the bulk-transportation unit of STX Group, STX Pan Ocean Co., filed for court receivership in South Korea, similar to a U.S. Chapter 11 bankruptcy-protection filing. The June filing was due in part to STX Group's failure to sell the unit amid a prolonged slump in the industry.
Overseas Shipholding OSGIQ -2.49% Group Inc., one of the largest publicly traded tanker owners, filed for bankruptcy in November 2012, sinking from a massive debt load and a big tax hit.
In November 2011, oil-tanker operator General Maritime Corp. filed for Chapter 11 bankruptcy protection in efforts to slash its debt and boost its liquidity. It emerged in May 2012.
