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Genco takes on shareholders as shipper looks to exit bankruptcy
Lawyers for bankrupt Genco Shipping & Trading Ltd on Tuesday insisted the dry bulk shipper is not being undervalued during the closing of a trial pitting the company against angry shareholders who wanted better treatment in the restructuring.
The four-day trial in U.S. Bankruptcy Court in Manhattan posed the question of how to value a shipping company. The answer will determine what is left for Genco shareholders after its lenders and other creditors are repaid.
Financial advisers at Blackstone, which was retained by Genco to value the company, argued the shipper was worth between $1.36 billion and $1.44 billion based on the market value of its ships and other assets. Shareholders put the value at $1.91 billion based on financial performance and other factors.
“The issue ... is not how a ship would be valued if it was sold, because no such sale is taking place,” Steven Bierman, a lawyer for the shareholders, said in closing arguments.
Since Genco’s Chapter 11 filing in April, shareholders have found themselves at odds with the company and just about all its creditors. They are the only opponents to a restructuring that would reduce debt by $1.2 billion, split most of the company’s equity among more senior creditors and give existing shareholders $30 million in warrants.
Judge Sean Lane gave no indication how he may rule, but said he would issue a decision by July 2.
Far from mom-and-pop investors, the shareholders are hedge funds that routinely invest in distressed assets and litigate in hopes of boosting their recoveries. An official committee to vouch for the shareholders includes Aurelius Capital Management, Och-Ziff Capital Management and Mohawk Capital.
Genco and its lenders painted the shareholder complaints as sour grapes, saying they are getting warrants only because Genco convinced reluctant lenders to provide some payout.
“Equity is not entitled to any recovery,” Dennis Dunne, a lawyer for the lenders, said on Tuesday. “And yet they have some.”
Under Genco’s valuation, the company is worth around $80 million less than what it owes creditors; under the shareholders’ valuation, it is worth at least $95 million more than its debts.
Blackstone’s Tim Coleman said his firm looked to net asset value - or assets minus liabilities - as the only sensible methodology for a shipper.
If Blackstone’s valuation was low, “we’d have a line out the door like at a Starbucks” of potential investors, Coleman said.
The shareholder group’s valuation was done by Rothschild’s Neil Augustine, who looked to earnings and discounted cash flow. Bierman said that shippers routinely consider various factors in their own forecasts.
Genco, controlled by its chairman, the shipping magnate Peter Georgiopoulos, is the latest in a line of shippers to file for bankruptcy amid a glut of vessels. Nautilus Holdings Ltd filed for bankruptcy in White Plains, New York, on Monday, while Excel Maritime Carriers, Overseas Shipholding Group and Georgiopoulos’ own General Maritime have filed in recent years.
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