Bloomberg News

General Maritime Files for Bankruptcy After Freight Rates Slump

November 30, 2011

Nov. 17 (Bloomberg) -- General Maritime Corp., the second- largest U.S. owner of oil tankers, filed for bankruptcy protection from creditors after falling oil demand and a surplus of ships led to two years of losses.

The New York-based company listed assets of $1.71 billion and debt of $1.41 billion today in a Chapter 11 petition in U.S. Bankruptcy Court in Manhattan. Lender Oaktree Capital Management LP agreed to make a $175 million equity investment and a group led by Nordea Bank Finland Plc will provide as much as $100 million in financing to help the company through reorganization, General Maritime said.

“There will be others joining them” in bankruptcy, Nigel Prentis, a London-based analyst at HSBC Shipping, said by phone today. “If you look at the listed universe of tanker companies, you are seeing their share prices have just collapsed this year. The stock market has given up on them.”

Freight rates for oil carriers have fallen to the lowest in at least 14 years, prompting General Maritime to warn in a Sept. 30 regulatory filing that it might file bankruptcy. Single- voyage rates for very large crude carriers, hauling about 20 percent of the world’s oil, averaged $7,627 a day this year, compared with $32,006 in 2010, according to the London-based Baltic Exchange, which publishes costs along more than 50 maritime routes.

Angeliki Frangou, who heads three shipping companies controlling more than 100 vessels, said this month that bankruptcies within the industry will accelerate. Korea Line Corp., Korea’s second-largest operator of dry-bulk ships, sought U.S. bankruptcy protection in February. Time-chartered operators Britannia Bulk Plc, Armada (Singapore) Pte Ltd. and Transfield ER Cape also have filed for bankruptcy.

Ship Glut

The sovereign-debt crisis in Europe is curbing lending to the industry, Frangou, the chief executive officer of Navios Maritime Holdings Inc. and two related companies, said in a Nov. 10 interview. At the same time, a glut of ships has depressed the price of vessels hauling oil, dry-bulk raw materials and refined petroleum products.

The global fleet of very large crude carriers has expanded about 9 percent to 570 ships in the past two years, the most since 1983, according to London-based Clarkson Research Services Ltd., a unit of the world’s largest shipbroker. Owners ordered the greatest number of new vessels since the 1970s between 2006 and 2008, when charter rates surged to as much as $289,000.

Oil Demand

Those tankers started joining the fleet just as global demand for oil fell by the most in 27 years, according to data from London-based BP Plc. The International Energy Agency, the Paris-based adviser to 28 nations, in September reduced its forecast for 2012 crude demand by 0.4 percent to 90.7 million barrels a day. It was the biggest cut since April 2009.

Seaborne oil shipments into the U.S. were forecast to drop to 6.9 million barrels a day, or 17 percent of crude this year, an 11-year low, according to Clarkson. Tankers are going unused partly because domestic production in the U.S., the world’s largest petroleum market, is at an eight-year high.

The depressed shipping rates mean owners of vessels bought at higher prices are unable to cover operating costs and repay loans, Frangou said. General Maritime, which operates in the Caribbean, South and Central America, the U.S., Western Africa and the North Sea, has a fleet of 31 double-hull tankers, according to its website.

“Operations are to continue without interruption” the company said in a statement. “General Maritime expects to substantially reduce its funded indebtedness and enhance its liquidity profile.”

‘Easier to Accept’

General Maritime’s new financing agreement with lenders may reassure companies that hire oil tankers, said Erik Folkeson Jensen, an analyst at First Securities ASA in Oslo.

“Charterers will be a bit reluctant toward companies that might get their ships arrested because they have failed to pay down debt or make interest payments,” Jensen said by phone. “Now that General Maritime has been given a deal, it might be easier for charterers to accept General Maritime vessels.”

Like Frangou, Norwegian shipping billionaire John Fredriksen and New York-based Wilbur Ross, chairman of private- equity firm WL Ross & Co., are looking to acquire distressed shipping companies. Fredriksen said in May that he would consider buying tankers within “a year or two” as rates slide. Ross, who invested in shipping for the first time three months ago, said in August that deploying “another few hundred million” in the industry “is certainly easy to do.”

Balance Sheet

General Maritime has been restructuring its balance sheets since at least March, when it took out a $200 million loan from Oaktree Capital Management to refinance 2005 debt and amend 2010 debt, according to the most recent annual report, filed in March.

Chief Executive Officer John Tavlarios said in July that the company made transactions to increase its liquidity, as it announced a loss excluding some items of $36.8 million for the quarter ended June 30, more than double the $14 million loss in the same period a year earlier.

Among the largest unsecured creditors listed in court papers were Bank of New York Mellon Corp., trustee for holders of $300 million in 12 percent callable bonds due in 2017.

The notes fell 1 cent to 9 cents on the dollar as of 10:01 a.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The debt has plunged from 101.5 cents in December 2010 and is at the lowest on record.

Share Decline

In August, General Maritime led declines in oil-tanker stocks as analysts predicted a return to recession in the U.S. would delay any rebound in charter rates for tankers until after 2013. On Aug. 22, the company said it had received a delisting notice as its share price failed to meet the New York Stock Exchange’s minimum requirements.

The shares closed yesterday at 16 cents, down 95 percent this year. Trading was delayed today.

Peter C. Georgiopoulos, founder and chairman of General Maritime and also chairman of Athens-based Aegean Marine Petroleum Network Inc., holds more than 5 percent of General Maritime, according to the bankruptcy petition.

Oil-tanker companies may demolish the most ships since 2003 to reduce the glut and lift charter rates. Owners might break up 5 percent of the fleet within 18 months, said Michael Pak, an analyst at Clarkson Capital Markets LLC in Houston.

Ship Scrapping

Scrapping won’t be enough to make ships profitable. Freight derivatives, traded by brokers and used to bet on future rates, anticipate a 68 percent jump to $12,817 a day in 2013 compared with this year’s average so far. That’s still 43 percent of what Frontline Ltd., the biggest operator, says it needs to cover costs.

Moody’s Investors Service cut its credit grade on General Maritime’s debt to Caa3 in September, citing the increasing likelihood of a restructuring because of “weak sector fundamentals.” Lower freight rates also are reducing the market value of tanker vessels, cutting another source of liquidity, the Moody’s analysts wrote.

Prices for new vessels have plunged as much as a third from a record three years ago, while used ships lost 38 percent of their value, according to data from Clarkson.

The case is In re General Maritime Corp., 11-15285, U.S. Bankruptcy Court, Southern District of New York (Manhattan).

--With assistance from Richard Bravo and Pierre Paulden in New York, Michelle Wiese Bockmann and Isaac Arnsdorf in London and Joe Carroll in Chicago. Editors: Stephen Farr, Tim Coulter

To contact the reporters on this story: Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net; Tiffany Kary in New York at tkary@bloomberg.net; Alaric Nightingale in London at anightingal1@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net


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