Harkand Finance holders vote to accelerate callable bonds due 2019

By Angela McDaniels

Tacoma, Wash., May 10 – The holders of Harkand Finance Inc.’s senior secured callable bonds due 2019 voted to accelerate the bonds, according to a notice from bond trustee Nordic Trustee ASA.

Bondholders voted at a meeting on May 10. There were enough bondholders present to form a quorum, and the resolution obtained 99.39% of the votes.

As previously reported, on March 16, the bond trustee declared the bonds to be in default and exercised its right to replace the board of directors. At the time, it said it would not declare the bonds to be due for immediate payment but reserved the right to do so.

On April 29, the bond trustee called the bondholder meeting, asking for bondholder approval to accelerate the bonds, to appoint financial advisers, to approve compensation for the new directors, to allow for operation or chartering of the company’s vessels or other transactions related to the vessels, including the sale of the vessels, and to use any funds in the debt service account or liquidity account subject to a security interest to cover costs and expenses connected to the enforcement of the bondholders rights under the security interests.

The proposals have been approved.

Restructuring plan

Separately, the bond trustee proposed a restructuring plan. As of May 9, enough bondholders had cast written votes in favor of a restructuring proposal for it to pass.

The company’s vessels have been relocated to Gibraltar. Now that the bondholders have approved the restructuring, the trustee will establish a special-purpose vehicle to secure recovery for the bondholders.

The trustee will arrange for the vessels to be sold in a judicial sale, and the special-purpose vehicle will make a bid for the vessels. The special-purpose vehicle plans to acquire the vessels free and clear of all liens in exchange for the issuance of new senior secured bonds (the “recovery bonds”) and then find a purchaser for the vessels.

The special-purpose vehicle will issue the recovery bonds to the bondholders in an amount equal to the principal amount and interest outstanding on the 2019 bonds. Then the 2019 bonds will be redeemed and the claims against the issuer will be released.

The recovery bonds will

• Have an 8.4% interest rate payable in cash or in kind;

• Be paid down as the special-purpose vehicle receives proceeds from selling the vessels. The final maturity date will be 3.5 years after the issue date, with an option for the special-purpose vehicle to extend the maturity if the vessels are not sold;

• Not be subject to scheduled amortization payments, but they will be subject to a semiannual cash sweep mechanism if the special-purpose vehicle has more than $10 million of cash;

• Be callable at par at any time; and

• Have a first-priority mortgage over the vessels, light reporting requirements and no financial covenants.

Based in Aberdeen, Scotland, Harkand Finance owns and charters vessels. The company originally issued the bonds to help finance the purchase of vessels now acquired by its subsidiaries and currently on charter to other members of the Harkand group.

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