The struggling product tanker carrier Torm looks to be a few weeks away from finalizing a deal with the around 40 owners of the company's net debt of close to USD 1.4 billion - a deal that would see Torm return as a new company with US-based private equity fund Oaktree Capital Management as controlling shareholder, and with a restored balance where the value of Torm's combined fleet of 80 vessels has been adjusted according to the debt.
Torm's executive management will have to present the finalized bank agreement at the carrier's General Assembly on March 26th at the latest.
In comments to ShippingWatch, CEO Jacob Meldgaard expresses optimism about the prospects of finalizing the deal, though the carrier is still negotiating with some of the debt's owners. He points to the three key stages that will bring Torm into the clear over the coming weeks:
"We're not far from each other, but we still need to cross the finish line. With more than 40 owners of our debt, this is a complicated process, but we're looking to create a future platform where all these debt-holders impair their part of the debt, and thus their stakes in terms of the market value of our ships. I think that's fair to ask. The lenders have to see that the best thing for them is to give up hopes of recovering the part of their receivables that exceeds the market value of the ships, thus impairing their receivables," he says, adding:
"The next stage is about determining how much of the lenders' debt that will be converted into equity. This will reduce Torm's debt significantly, so that there is de-facto equity in the company," says Jacob Meldgaard.
The final step in the process will be the actual merger with Oaktree's fleet of 31 product tankers. These ships are currently operated by Torm, and the carrier will take over the value of the ships, thus making Oaktree a major shareholder in Torm.
"That's hopefully where we'll end up. Then the process will be over and we'll have a streamlined company that has made it through the financial crisis after a long journey that also brought adjustments to Torm. So I'll be surprised if the debt owners fail to see that what they're entering is worth more than the alternative, which is nothing."
"We will regain our strategic freedom as one of the biggest product tanker carriers in the world, and we'll achieve a balance between our debt and asset value at a time when the market is somewhat normalized in terms of ship prices. This could of course change again, but with an agreement we would get a significant built-in buffer in case ship values drop again. I'm very comfortable with the security included in the deal we're currently negotiating," says Jacob Meldgaard.
Oaktree Capital Management is seen as the biggest international private equity fund in shipping, and the fund has invested billions in newbuildings in the crude oil segment, among others.
Torm's deal will be settled when 75 percent of the value of the debt and more than 50 percent of debt owners accept the new conditions in the restructuring.
"I'm very convinced that we will seal this deal," says Jacob Meldgaard.
The book value of Torm's fleet stood at around USD 1.2 billion by the end of 2014, while the market value of the fleet, based on broker estimates, came to USD 859 million.