Thu 01/17/2019 05:15 AM
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Eletson is preparing for a debt restructuring as the Piraeus, Greece-based shipping company skipped a $16 million cash coupon due Tuesday, Jan. 15 on about $331.1 million 2022 notes, entering a 30-day grace period, sources familiar with the matter said.

The company is preparing to file for bankruptcy protection in the U.S. and, alternatively, it may strike a deal with its bondholders out of court, the sources said. A noteholder group advised by Paul Weiss represents a significant portion of the 2022 notes.

The restructuring preparations comes a year after Eletson skipped a coupon payment and later struck a bond exchange deal with noteholders. This bought the company some time but came at the cost of a growing debt principal balance.

The production tanker market has been improving, which would help Eletson’s financial performance once it addresses its $540.3 million debt load, according to sources.

Eletson engaged law firm Skadden Arps, sources familiar with the matter said. AlixPartners, Jefferies Financial Group and Moratis Passas advise Eletson, and Linklaters is advising Eletson lender Credit Agricole, Reorg reported. Eletson had previously engaged law firm Holland & Knight.

Eletson and creditors have been reviewing whether the noteholders may get recoveries in a restructuring beyond their collateral vessels, Reorg reported. Parties were analysing the restricted group’s links to a separate gas shipping joint venture with Blackstone as well as other assets in the product tanker group. The company’s ability to move those non-guarantor boxes further away from bondholders is limited, Reorg reported.

As part of its debt exchange, the shipping company added Marshall Islands-incorporated Agathonissos Finance as a co-issuer of its new notes compared with the old bonds. The other two co-issuers of the notes are EHI, a Liberian corporation, and Eletson Finance (US) LLC, a Delaware limited liability company. The guarantors of the notes at issuance were 13 product tanker special-purpose vehicles that each own one ship.

Eletson warned in the offer to exchange the notes that the claim under any Greek or Liberian ship mortgage would run behind preferred maritime liens, including those for supplies and other necessities provided in the U.S. The bondholders’ collateral ships are registered under the flag of Greece or Liberia. Eletson said a Greek or Liberian ship mortgage may be enforced against a vessel that is physically present in the U.S. The trustee may also need to effect control over the vessels to direct them to a desirable jurisdiction to arrest such vessels upon the occurrence of an event of default under the notes.

Vassilis Hadjieleftheriadis founded the family business in 1966 with his two sons and two sons-in-law, according to the company’s website. Until today, Eletson is still a family company, with the younger generations from the Hadjieleftheriadis family and their in-laws bearing the last names of Karastamati and Kertsikoff serving as chief executives. In 1969, the company bought its first tanker. In 1993, Eletson became the first European shipping company to borrow money in the U.S. high-yield market by issuing $140 million of 10-year notes, and repaid those bonds two years ahead of maturity at par. In 2013, the company tapped the U.S. capital market again for $300 million 9.625% notes.

Eletson and Skadden Arps did not respond to requests for comment.

Growing Bonds Balance

Last year’s debt exchange turned the 2022 notes interest into 12% per year of pay-in-kind from January to July, which added to the total notes outstanding and compounded with $14 million of missed coupon due a year ago. In July, the company exchanged almost all of its old 9.625% notes due 2022 into new bonds. The new notes have the same maturity as the old ones in January 2022 but require the company to pay a higher coupon if time-charter-equivalent rates increase.

The 2022 notes last traded at 37.25 cents on the dollar on Jan. 11, according to TRACE.

Gas Joint Venture

EHI and Blackstone Tactical Opportunities announced the formation of the liquefied petroleum gas shipping company in 2013. The entity had about $277.4 million of debt as of March 31, according to the notes exchange document reviewed by Reorg. The LPG joint venture owns 15 vessels, including five medium gas carriers, one handymax and nine handysize ethylene-capable vessels, according to the company’s third-quarter report.

Eletson said in June that its gas unit did not pay any dividend in 2017. The accrued $20.3 million dividend payable to Blackstone as of the end of the last year was not expected to be paid within the next 12 months. The dividend to Blackstone in 2016 totaled $15.3 million. The company said mid-year that it was also finalizing negotiations with its gas sector banks to provide debt amortisation relief for a year.

In December 2017, the company entered into an agreement with Blackstone for an additional capital commitment of $23.4 million with an expiration date of June 30 this year. Blackstone contributed $8.4 million to the entity at the end of last year, as the final portion of its original $125 million equity commitment.

The capital structure is below:

 
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