Jan. 26 (Bloomberg) -- European shipowners will increasingly seek bankruptcy protection in the U.S. in 2012 as they attempt to retain control of their fleets while negotiating with lenders, said law firm Cadwalader, Wickersham & Taft LLP.
Filing for Chapter 11 protection in U.S. courts means no receivers are appointed to run a company and reaching agreement with banks is easier, Gregory Petrick, a partner at the firm, said at a conference in London today. A company needs agreement from half the creditors representing two-thirds of its borrowings to ratify any debt reorganization arising from a Chapter 11 filing, he said.
“Those advantages owners have discovered, and we expect to see increasing moves to Chapter 11 filings for European-based shipping companies,” Petrick said. “It gives the owner breathing room to ride out the cycle.”
Owners are seeking to avoid insolvency as a global excess of dry-bulk vessels, tankers and container ships cuts earnings and drains cash flows. U.S. oil-tanker operator General Maritime Corp. filed for bankruptcy protection in November and Frontline Ltd., controlled by billionaire John Fredriksen, split itself in two after saying that month it was close to running out of money. Omega Navigation Enterprises Inc. and Marco Polo Seatrade BV, managed from Greece and Amsterdam respectively, sought Chapter 11 protection last year.
More than 13 shipping companies worldwide reorganized operations in the U.S. in the past 18 months or filed for bankruptcy protection, Petrick said. Financial pressures on shipowners are rising, he said.
“Owners are in love with their ships and they give up control very reluctantly, but if you face the cold facts of the market, you can achieve an out-of-court settlement,” Petrick said. “It’s a much better resolution than filing in court.”
Most lenders and shipowners conclude reorganization accords privately and such agreements through courts are the “tip of the iceberg,” Tony Rice, a London-based partner at law firm Holman Fenwick Willan LLP, said at the conference.
European banks that fund about 75 percent of the global shipping-loan portfolio of more than $500 billion have less control in U.S. bankruptcy cases, Petrick said.
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