Wall Street has Torm in a speculative iron grip

Wall Street hedge funds that acquired Torm debts this past spring are trying to squeeze as much as possible from the new restructuring agreement that the five banks behind the carrier have agreed on. The funds' backers include Goldman Sachs and Citigroup.

Torm once again finds itself caught in a game where major foreign capital interests are trying to gain as much as possible from their commitments to the Danish carrier.

As such, it was a number of Wall Street hedge funds, but also stakeholders from London's financial district, that made the carrier issue a brief to the Copenhagen Stock Exchange last week - according to which the conclusion of the brief did not have any particular impact. A somewhat unusual occurrence, as listed companies are only obligated to notify the stock exchange in case of important events.

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However, after several banks, including Nordea, Deutsche Bank and French PNB, divested their debts in Torm during this past spring, numerous speculative hedge funds of varying sizes have entered the field, looking to make fast gains. The funds are often described as more aggressive and speculative than long term private equity funds that often have time frames spanning several years.

Now the group of hedge funds with debt in Torm are rejecting the agreement aimed at a corporate restructuring and debt conversion which the five banks that own around 60 percent of the debt have agreed on.

Wall Street funds

And the resistance from the hedge funds meant that Torm was in non-compliance with the milestones set forth and outlined by the carrier, namely that Torm should reach an agreement with the banks and hedge funds by November 20th. Consequently, the company decided to inform the stock exchange of this development, adding that "such milestone default is not expected to be enforced whilst negotiations are on-going."

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Torm declines to identify the specific hedge funds involved, though it is fairly well-known in the market that Goldman Sachs and Citigroup are behind some of the funds holding stakes in the carrier. The two major Wall Street players are notorious for acquiring debt, as was the case in Torm this spring, with the intention of dividing the claim between customers while keeping part of it for the bank. At this time, the hedge funds are gambling in an effort to secure bigger gains from the new restructuring agreement. One possibility could be to acquire more warrants.

Torm confident in agreement

Negotiations continue between Torm, the five banks and the hedge funds, and the carrier remains confident that the parties will reach an agreement before the end of the first quarter next year, CFO Mads Peter Zacho tells ShippingWatch. The goal is to lock down a consensus agreement that involves all stakeholders, which implies that the hedge funds must approve the agreement.

"We're confident that we'll reach an agreement with all parties before the end of the first quarter 2015."

And the carrier needs to do so, as Torm's working capital facility will expire at this deadline, just as Torm has senior debt maturing after this period.

The model Torm is working on at this time involves impairing the debt to the value of the fleet, while ensuring that the banks' and hedge funds' remaining debt can be either converted into equity or continue as debt in the carrier.

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