Genco plan confirmed; valuation and good faith objections overruled

By Caroline Salls

Pittsburgh, July 2 – Genco Shipping & Trading Ltd.’s plan of reorganization was confirmed Wednesday by the U.S. Bankruptcy Court for the Southern District of New York, and the judge agreed “for the most part with the debtors’ views on valuation and concludes that the equity holders are not entitled to any recovery,” according to court filings.

Judge Sean H. Lane also rejected equity committee arguments that that plan was not proposed in good faith given “problematic valuation methods” the committee said were used by Genco’s management.

According to Lane’s confirmation issues ruling, the company and its supporting creditors countered that the proper valuation demonstrates that “equity is entirely out of the money and is fortunate to receive the recovery contemplated by the plan.”

The plan’s recovery for equityholders is based on the restructuring support agreement negotiated by the majority of Genco’s creditors before the Chapter 11 case was filed, the ruling said.

The judge said he was asked to decide whether Genco’s value, as calculated using these various methodologies, exceeds the $1.48 billion amount that would entitle equity holders to any recovery. Lane said the company has established that the value does not exceed that amount.

Pre-packaged plan terms

As previously reported, Genco filed Chapter 11 to implement a pre-packaged financial restructuring that is expected to reduce its total debt by $1.2 billion and enhance its financial flexibility.

The filing was made in accordance with the company’s restructuring support agreement with some of the lenders under its $1.1 billion 2007 secured credit facility, its $253 million secured credit facility and its $100 million secured credit facility and some holders of its 5% convertible senior notes due Aug. 15, 2015.

The terms of the restructuring include the following:

• The 2007 facility lenders will convert all of their pre-bankruptcy senior secured debt into 81.1% of the equity of the reorganized company;

• All of the company’s obligations under the $253 million and $100 million facilities will be replaced by new senior facilities with extended maturity dates through August 2019 and covenant modifications;

• Genco’s obligations under the convertible senior notes will be converted into 8.4% of the equity of the reorganized company;

• All other general unsecured claims will be reinstated and paid in the ordinary course of business;

• All equity interests in the company will be cancelled, with holders receiving seven-year warrants for 6% of the new Genco equity that would otherwise be provided to the holders of 2007 facility claims and convertible note claims; and

• Genco will conduct a $100 million rights offering for 8.7% of the equity of the reorganized company. The 2007 facility lenders will have the right to participate in up to 80% of the rights offering, with their portion backstopped by some of the lenders, and eligible holders of convertible notes will have the right to participate in up to 20% of the rights offering, with their portion backstopped by some of the noteholders.

Wednesday’s confirmation order also granted approval of the disclosure statement for the plan.

Genco, a New York-based transporter of iron ore, coal, grain, steel products and other drybulk cargoes, filed for bankruptcy on April 21. The Chapter 11 case number is 14-11108.

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