Bloomberg News

OSG Awaits U.S. Loan Decision After Ships End Iran Trips

February 21, 2012

(Updates with closing share price in 15th paragraph.)

Feb. 15 (Bloomberg) -- The U.S. Maritime Administration has a Feb. 18 deadline to decide on a $241.8 million loan guarantee application from the New York-based owner of a supertanker that called at Iran’s biggest crude-export terminal last month.

Overseas Shipping Group is seeking the federal loan guarantee through a subsidiary to help pay for two tankers built at U.S. shipyards. The application comes at a time when the Obama administration is working to tighten sanctions against Iran.

OSG’s application, under review for two years, is part of a backlog that three U.S. senators cited in a Jan. 30 letter to Transportation Secretary Ray LaHood complaining about delays at the Maritime Administration. The agency, a unit of the Transportation Department, has a statutory obligation to make a decision by Feb. 18, Maritime Administration spokeswoman Kim Riddle said in an e-mailed statement.

OSG’s Overseas Rosalyn, which can carry about 2 million barrels of oil, arrived at Kharg Island on Jan. 27 and departed the next day, satellite tracking data shows. The supertanker left about 16 feet deeper in the water, according to information filed by the ship’s captain, an indication it loaded cargo.

Three other OSG-owned ships, operated as part of a pool managed by Limassol, Cyprus-based Tankers International LLC, have called at Kharg Island in Iran in the past year, according to shipping data compiled by Bloomberg.

European Union Ban

The Overseas Rosalyn’s docking came four days after the European Union agreed to ban the purchase, transport, financing and insurance of Iranian oil. With about 95 percent of the tanker fleet insured under rules governed by European law, fewer vessels are able to load in Iran.

The Maritime Administration didn’t respond to questions about whether it was aware of OSG vessels’ contacts with Iran and whether those contacts would be considered in the evaluation of the company’s application under the so-called Title XI loan guarantee program.

Riddle, the agency spokeswoman, said that she couldn’t discuss a pending application.

OSG Chief Executive Officer Morten Arntzen said in a Feb. 10 e-mailed statement that the company “complies with all applicable laws and regulations” governing its vessels. “As these laws and regulations change, OSG will comply with the changes,” Arntzen wrote. Tankers International told ship owners that its vessels will no longer sail to Iran, he said.

Tankers Chairman

Arntzen serves as chairman of Tankers International, Charles Burgess, a spokesman for OSG in New York, said in an e- mail yesterday. Arntzen holds “a non-executive position” at Tankers International, Burgess said. “He plays no role in the day-to-day activities” of the company.

“All operational decisions and commercial management of the fleet is handled by the Tankers International management team,” Burgess said.

OSG disclosed in an SEC filing that its ships call on ports in countries “identified by the U.S. government as state sponsors of terrorism, such as Iran. Although these sanctions and embargoes do not prevent OSG’s vessels from making calls to ports in these countries, potential investors could view such port calls negatively.”

The company “will not comment on the separate issue of our pending Title XI application,” Arntzen said in an e-mail yesterday.

OSG will report a loss of $178.6 million this year, down from $204.4 million in 2011, according to the median of five analyst estimates compiled by Bloomberg. The company announced a suspension of a quarterly dividend “to preserve liquidity and maintain financial flexibility,” according to a Feb. 9 statement.

The company’s shares fell 70 cents, or 6.2 percent, to close at $10.54 in New York trading.

Tighter Restrictions

President Barack Obama is working with the EU to tighten restrictions on companies doing business with Iran after the UN’s International Atomic Energy Agency said in November it had evidence that the country has studied how to make an atomic bomb.

The government in Tehran says its nuclear program is for civilian purposes and that documents held by the IAEA purporting to show designs and tests of weapon components are fakes.

With certain narrow exceptions, American companies are prohibited from doing business, directly or indirectly, with Iran, according to the Treasury Department’s Office of Foreign Assets Control. Restrictions on commerce have been tightened or expanded repeatedly since 1987, when President Ronald Reagan imposed an embargo on Iranian imports in response to Iran’s support for international terrorism and aggressive actions toward Persian Gulf shipping.

Senate Pressure

The applicability of those sanctions is less clear when U.S. ships or other assets are managed by offshore intermediaries, according to Joshua Zive, a Washington-based regulatory compliance attorney at Bracewell & Giuliani LLP.

“It will turn on interpretations of fact that could lead enforcement officials to believe or not believe that the U.S. company had knowledge of how the assets would be used at the time they were turned over to the foreign entity,” Zive said.

John Sullivan, a spokesman for OFAC, which administers Iran sanctions, declined to comment on OSG-owned ship activity in Iran.

The Maritime Administration has been criticized by lawmakers for delays in evaluating applications under the loan guarantee program, which is intended to assist domestic shipbuilding.

The Jan. 30 letter, signed by Senators Daniel Inouye, a Democrat from Hawaii, Patty Murray, a Democrat from Washington, and Thad Cochran, a Republican from Mississippi, didn’t mention any applications by name.

The senators said that “in recent years, the program has become less ‘user friendly.’”

Pending Applications

It pointed out that “two applications currently pending are well into their second year of consideration, with one in its twenty-third month.” That latter reference applies to the OSG application.

The letter focused on the timeliness of the maritime agency’s review process, Inouye spokesman Peter Boylan said in an e-mail yesterday. “We did not write in support of any Title XI application,” he said. LaHood “cannot comment on a loan application that is still under review,” said Riddle.

In its pending application, OSG is seeking mortgage financing for two shuttle tankers. The Overseas Cascade and the Overseas Chinook were built in Philadelphia, according to OSG’s website.

Previous Approval

Another OSG subsidiary received approval of a $210.9 million loan guarantee on May 17, 2011, for construction of two articulated tug barge units in Alabama, Florida and Mississippi. That transaction “has not closed” maritime agency spokeswoman Riddle said in her statement.

OSG’s current application is among four pending requests in the loan guarantee program totaling $904.7 million, according to the Maritime Administration website.

The Title XI program enables U.S. companies to qualify for fixed rate financing over a longer term than is possible without the federal guarantee, said John Graykowski, maritime agency deputy and acting director from 1994 through 2000.

Applications are reviewed by the Maritime Administration, a Department of Transportation credit council, an independent financial analyst named by DOT and the White House Office of Management and Budget, according to the Senators’ letter.

--With assistance from Lisa Caruso in Washington. Editors: David Ellis, Mark Rohner

To contact the reporter on this story: Andrew Zajac in Washington at azajac@bloomberg.net

To contact the editor responsible for this story: Bernie Kohn at Bkohn2@bloomberg.net.


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