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March 7, 2012

U.S. Chapter 11: What Everyone Should Know Hal Malone Jefferies Maritime Group. March 7, 2012. Jefferies & Company, Inc. Key U.S. Bankruptcy Provisions: Chapter 7, Chapter 11 and Chapter 15. U.S. Bankruptcy Process (Chapter 11) is Available to Non-U.S. Companies.

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March 7, 2012

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  1. U.S. Chapter 11: What Everyone Should KnowHal MaloneJefferies Maritime Group March 7, 2012 Jefferies & Company, Inc.

  2. Key U.S. Bankruptcy Provisions:Chapter 7, Chapter 11 and Chapter 15

  3. U.S. Bankruptcy Process (Chapter 11) is Available to Non-U.S. Companies • Many market participants believe Chapter 11 only applicable to U.S. listed or U.S. based companies • Recent experiences of Omega Navigation and Marco Polo demonstrate that Chapter 11 is an option for most international shipping companies • Chapter 11 keeps companies afloat as operating entities while eliminating unattractive contracts and restructuring debts • Management / board receives initial 120 day period to file reorg plan • Automatic global stay preventing creditor action • Bankruptcy process can be good for both companies and creditors

  4. Key Terms / Concepts • Global Automatic Stay • Exclusivity Period • Debtor-in-Possession (“DIP”) Financing • Use of Cash Collateral • Cash Collateral Budget • Adequate Protection • Plan of Reorganization • Pre-Packaged Plan • Consensual Plan • “Cramdown” Plan • Impaired Consenting Class

  5. Key Benefits to Companies of U.S. Chapter 11 • Company has exclusive right to file a plan of reorganization • Management generally remains in control during the process • Additional financing is often made available in the form of a debtor-in-possession (“DIP”) facility • Company can reject unprofitable contracts • Company can force counterparties to honor attractive contracts even if language provides for cancellation in bankruptcy • Ability to bind minority in a class vote (i.e. requires 2/3 of similarly situated creditors instead of 100%) • Ability to sell certain assets or the entire business free and clear of all liens

  6. Key Benefits to Creditors of U.S. Chapter 11 • Transparent process with access to material company information • Right to seek adequate protection of collateral / assets • Ability to bind hold-out creditors (i.e. requires majority or 2/3 of similarly situated creditors instead of 100%) • Aggressive enforcement of global stay means trade creditors will not arrest ships • Ability to eliminate leakage to junior constituents and eliminate unprofitable contracts • Specific cases where creditors may want to use Chapter 11: • Above market charters-in • Subordinated sellers’ credit

  7. Chapter 11 Drawbacks • Expensive for all parties • Creates uncertainty as to outcome • Can be lengthy and time consuming process • Highly public, which may impact market perceptions of company • Can encourage adversarial / litigious behavior • Potential to add additional parties to complicated negotiations • May allow external parties to influence results

  8. Benefits of Pre-Packaged vs. Freefall Chapter 11 • Preserves enterprise value proactively • Quicker, less disruptive and cheaper than freefall Chapter 11 • Process could be completed as quickly as 45 days after a filing • Predetermined outcome reduces “bankruptcy taint”

  9. New Investor / Capital Provider Perspectives • Investors are keen to enter the sector • Creditors not aggressively calling defaults currently as they do not want to be shipowners • However, creditors will begin seizing vessels as asset values rise, thereby capturing upside • New investors may treat management favorably, including potentially management carried interest in profits

  10. Reality Bites…

  11. Jefferies Key Points of Contact • Maritime Group • Hamish Norton (Global Head of Maritime Group) • hnorton@jefferies.com • +1 (212) 323-3330 • Harold Malone (Senior Vice President) • hmalone@jefferies.com • +1 (212) 284-4691 • Restructuring & Recapitalization Group • Steven Strom (Global Head of Restructuring & Recapitalization Group) • sstrom@jefferies.com • +1 (212) 284-4688 • Tero Jänne (Managing Director) • tjanne@jefferies.com • +1 (212) 284-1723

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