Danish Ship Finance has financed a total of 10 ships in the fleet of stock listed American tank shipping company OSG. But unlike the majority of the banks and creditors in the shipping company, which filed for protection from bankruptcy under Chapter 11 on November 14th, Danish Ship Finance has a 1st priority claim on the ships, according to the published petition filed by OSG in Delaware on November 14th 2012.
According to the OSG petition, Danish Ship Finance represents a group of lenders with USD 266 million in outstanding debt, for the 1st priority claim on the 10 ships. Export-Import Bank of China has a similar claim on the OSG ships, for USD 312 million.
On the other hand, a large group of banks and creditors look set for completely different and very serious problems if Overseas Shipholding Group (OSG), one of the largest tanker shipping companies in the world, breaks down completely.
OSG has unsecured credit facilities for a total of around USD 2 billion, according to the petition. Everyone but Danish Ship Finance and Export-Import Bank of China are unsecured creditors, though there is a small consolation for these creditors as OSG has a number of non-pledged assets that they can claim.
Violated loan conditions
According to the petition, Danish Ship Finance notified OSG on October 31st 2012 that the shipping was not complying with the so-called covenants of the credit agreement, that is, the relationship between debts and assets. The credit facility from “The Danish Ship Finance Loan Agreement” was amended back in March 2012 to include an addition stating that OSG had to reduce its credit by USD 18 million on January 1st 2013, at the latest.
Danish Ship Finance does not comment on specific customer arrangements, but Norwegian analysts Fearnley speculated back in August that “China Export-Import and Danish Ship Finance, which make up a total of USD 550 million, are breaking covenants regarding the relationship between debt and assets,” and that OSG “could need another USD 100-150 million in fresh capital or securities by the beginning of 2013.”
The tax case
OSG’ biggest lender is the major Norwegian bank DNB, and estimates say that the bank faces lengthy negotiations with its lenders and the many shipping companies that have chartered ships to the OSG tanker fleet. The “smoking gun” in the complicated legal game concerning the fate of the shipping company is said to be the case of OSG’s tax situation, which according to the shipping company’s own information throws a shadow of doubt over the financial results dating back three years.
According to OSG CEO Morten Arntzen (photo), the tax case was a decisive factor in the decision to file a Chapter 11 petition, as it prevented the shipping company from presenting a credible financial report for the 3rd quarter. The specifics of the tax case remain unclear; all that is known is that the case concerns the shipping company’s international operations.
OSG bank loans (Unsecured credit line)
|Lender||Revolving credit ($m)||Forward revolving credit ($m)|
|Bayerische Hypo- Und Vereinsbank||77.9||0|
|Alliance & Leicester||46.8||0|
|Bank of Ireland||31.2||0|
|Bank of Scotland||31.2||0|
Total $1.5bn $900m
Source: Lloyds List