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November 14, 2012 7:36 pm
The crisis in the oil tanker market claimed its biggest victim on Wednesday when the US-based Overseas Shipholding Group filed for bankruptcy.
The company, which last reported profit in the first quarter of 2009, is the latest victim of the worst tanker market slump in a quarter of a century and is estimated to be the largest corporate failure in the shipping industry in more than two decades.
Morten Arntzen, OSG’s chief executive, said the markets were “extremely difficult” as a combination of overcapacity and a slowdown in global demand hit spot rates.
“The tanker market has been down for the best part of four-and-a-half years but in the last eight months in particular we have seen spot rates that have barely allowed us to cover our operating costs,” he said.
The voluntary filing came as little surprise after the largest US-listed oil tanker operator, with a fleet of 112 vessels, announced late last month that it was considering seeking protection from its creditors. At the time it revealed concerns about an unspecified “tax issue”, which meant that its financial statements as far back as 2009 “should no longer be relied on”.
Analysts said the emergence of unquantified potential tax liabilities would have made OSG’s drawn-out negotiations with its banks about restructuring its balance sheet almost impossible.
“The tax issue was probably the death knell because they didn’t even have reliable financials to use in discussions with their banks and to base the restructuring around,” said Jonathan Chappell at Evercore Partners in New York.
Mr Arntzen told the Financial Times that talks with its banks had broken down. “We have been unable to refinance the $1.5bn revolving credit facility, so we had an enormous cloud of financial uncertainty hanging over the company.”
The company’s fully drawn-down credit facility was due to expire in February and, while it had agreed a smaller $900m facility in May, it had struggled to plug a funding gap of more than $100m.
Mr Arntzen said the disclosure about the unreliability of the financial statements had “triggered defaults in various covenants” but said it was too early to say whether the company would face tax liabilities.
The company has entered Chapter 11 with gross debt of $2.67bn but said it had “adequate” cash to allow it to continue to operate. Mr Arntzen refused to disclose the size of the cash pile, which stood at more than $550m in July.
He said most of OSG’s creditors were unsecured debtors, including Citibank, DNB, HSBC, Lloyds TSB, Nordea, Norbank and RBS. OSG owns 67 of the 112 vessels in its fleet and listed the value of its total assets as $4.15bn in its bankruptcy filing. However, analysts have previously warned that the company has not written down the book value of its fleet to reflect falling residual prices.
On Wednesday, Moody’s put the value of OSG’s assets at $2bn and warned that any claims by creditors could be further undermined by eventual tax liabilities and shareholder lawsuits.
The filing comes almost exactly a year after General Maritime, the second-largest US-based operator, declared bankruptcy in a pre-packaged deal that it emerged from this year.
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