Overseas Shipholding chooses equityholders' proposal over lender deal

By Caroline Salls

Pittsburgh, May 2 - Overseas Shipholding Group, Inc. terminated the plan support and equity commitment agreements with some of the lenders under its $1.5 billion credit agreement after receiving a "more favorable" proposal for an alternative plan of reorganization from holders of existing equity interests, according to an 8-K filed Friday with the Securities and Exchange Commission.

The company said it decided that the equityholders' proposal is better for creditors and interestholders than the lender plan.

An amended plan was filed on Friday with the U.S. Bankruptcy Court for the District of Delaware that reflects the equityholders' proposal.

Exit financing

In addition, Overseas said it received alternative exit financing proposals from three lenders designed to support the equityholders' plan, including a proposal from Jefferies Finance LLC. As a result, the company said it exercised its right to terminate the $935 million exit financing commitment from Goldman Sachs Bank USA.

The commitment executed by Jefferies will provide two five-year $600 million term loans and two 41/2-year $75 million revolving loan facilities.

Interest on the term loans will be either Base rate plus 425 basis points with a 2% floor or Eurodollar plus 525 bps with a 1% floor and either Base rate plus 375 bps or Eurodollar plus 475 bps, respectively.

Interest on the revolvers will be either Base rate plus 350 bps or Eurodollar plus 450 bps and either Base rate plus 150 bps or Eurodollar plus 250 bps, respectively.

The company said the exit financing will provide the funding necessary to satisfy the equityholders' plan's cash payment obligations, the expenses associated with closing the financing and working capital to fund operations after emergence from Chapter 11 bankruptcy.

Equity commitment

On Friday, Overseas entered into equity commitment agreements that set the terms of a rights offering and additional sale of holdback securities for a total offering amount of $1.5 billion.

The agreements include two separate classes of new common stock and penny warrants to purchase the new class A shares and class B shares under subscription rights to be distributed to holders of outstanding equity.

Under the amended plan, the subscription rights are expected to go to existing equityholders of record as of 5 p.m. ET on June 2.

From and after the record date, Overseas will halt all trading of the existing shares and intends to seek the removal of its trading symbol from the over-the-counter "pink sheet" market. From and following the record date, the company will disregard any transfers of existing shares, and the subscription rights will not be transferrable.

The company said each subscription right will entitle a holder that is an accredited investor or qualified institutional buyer and that votes in favor of the plan to purchase 11.5 class A shares or class A warrants for $3 per security.

All holders of existing shares as of the record date that are not participating eligible holders, including any eligible holder that decides not to participate in the rights offering, will receive one new class B share or class B warrant in exchange for their subscription right.

Overseas said holders of the class B shares and class B warrants will also have the future right to receive a share of up to 10% of the net recoveries of the company's claims asserted against Proskauer Rose LLP and some of its members.

The class B shares and the class B warrants are convertible, at the option of the holder at any time, into class A shares and class A warrants, respectively, and will automatically convert on the 10th business day after the entry of a final order related to the litigation and the distribution of any net litigation recovery.

According to the 8-K, each commitment party agreed to exercise its subscription rights in full, to backstop a portion of any remaining securities related to unexercised rights following completion of the offering and to purchase a portion of a further additional number of class A shares and/or class A warrants offered to the commitment party.

The disclosure statement for the amended plan and the equity commitment agreement are subject to approval by the bankruptcy court at a hearing scheduled for May 23.

Amended plan terms

Under the amended plan:

• All administrative claims, priority tax claims, other priority claims, secured vessel debtor-in-possession claims, secured vessel claims, other secured claims, credit agreement claims and "other unsecured" claims will be unimpaired;

• Overseas Shipholding will retain its Cexim vessels and DSF vessels and pay Cexim and DSF claims in full;

• Holders of the company's 8¾% debentures will be paid in full in cash, including any applicable contractual interest;

• The company's 8 1/8% notes and 7½% notes will be reinstated, including payment of any applicable contractual interest;

• The reorganized debtors will enter into exit financing consisting of $1.2 billion in term loans and $150 million in revolving loan facilities;

• Admiralty lien claims and personal injury claims, including numerous asbestos claims, that have not otherwise been disallowed and expunged will be unimpaired and may be asserted against the applicable reorganized debtors, subject to those debtors' rights and defenses;

• A $1.5 billion rights offering will be paid to all OSG equity interestholders;

• Holders of subordinated debt claims and subordinated equity claims will receive a share of the proceeds of any residual director and officer insurance and, to the extent the claims exceed that share, cash equal to the amount of the claim;

• Holders of old OSG equity interests will receive subscription rights for new class A securities. Those who do not participate in the offering or are not eligible to receive rights will receive new class B securities and up to 10% of the net proceeds from any professional liability action;

• Intercompany claims are unimpaired and will be reinstated or discharged and satisfied at the option of the debtors; and

• Intercompany equity interests are unimpaired and will be reinstated.

Plan comparison

In comparison, the terms of the lender plan included:

• Administrative claims, priority tax claims, other priority claims, secured vessel DIP claims, secured vessel claims, other secured claims and other unsecured claims would be paid in full;

• Overseas Shipholding would retain its Cexim vessels and DSF vessels and pay Cexim and DSF claims in full;

• Credit agreement claims would be satisfied through the distribution of stock and Jones Act warrants in the reorganized company and the right to participate in a $300 million rights offering, which would be supported by a subscription commitment from some holders of credit agreement claims;

• Holders of the company's 8¾% notes would be paid in full in cash, including any applicable contractual interest;

• The company's 8 1/8% notes and 7½% notes would be reinstated, including payment of any applicable contractual interest;

• The reorganized debtors would enter into exit financing consisting of a $735 million senior secured term loan facility and a $200 million revolving credit facility;

• Admiralty lien claims and personal injury claims, including numerous asbestos claims, that have not otherwise been disallowed and expunged would be unimpaired and could be asserted against the applicable reorganized debtors, subject to those debtors' rights and defenses;

• Holders of subordinated claims and old equity interests would receive a combination of reorganized Overseas Shipholding stock and Jones Act warrants with a value equal to $61.4 million;

• Intercompany claims would be unimpaired and reinstated or discharged and satisfied at the option of the debtors; and

• Intercompany equity interests would be unimpaired and reinstated.

Overseas Shipholding, a New York-based tanker company, filed for bankruptcy on Nov. 14, 2012. The Chapter 11 case number is 12-20000.

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