Under the reorganization plan, most of International Shipholding Corp. (ISH) would be acquired by SEACOR, and ISH also plans to sell a business that includes operations in Southeast Asia to a company affiliated with its current CEO, Erik L. Johnsen.
International Shipholding Corp. (ISH), which filed for protection from creditors on July 31 under Chapter 11, said it has filed a plan for reorganization and that a bankruptcy court has scheduled a hearing for Dec. 20 to consider its disclosure statement and to establish a Feb. 2, 2017 hearing date to consider confirmation of its plan of reorganization.
Under the plan, most of the company would be acquired by Fort Lauderdale, Fla.-based SEACOR. The company also plans to sell a business that includes operations in Southeast Asia to a company affiliated with Erik L. Johnsen, its current chief executive officer.
According to a filing with the Securities and Exchange Commission, SEACOR will provide a cash infusion of $10 million in exchange for 35.6 percent of the ownership interests in the reorganized ISH, and will follow that up by acquiring the remaining 64.4 percent, buying out a debtor-in-possession credit agreement that International Shipholding has.
“The proposed plan of reorganization provides that the company’s existing common stock will be cancelled and the existing holders will not receive any distribution,” ISH said.
In a disclosure statement for its reorganization plan, ISH reviewed its recent history, noting that it had operated in six segments of the shipping business, but in October 2015, it decided to narrow its focus to three lines of business: the operation of “Jones Act” vessels between points in the United States, the operation of five pure car-truck carriers (PCTCs), and a railroad car ferry between Mobile, Ala. and Coatzacoalcos, Mexico.
The three lines of business the company decided to divest included a dry bulk carrier business; a “specialty contract” business that included three mini-bulkers, one multi-purpose vessel, two tankers and four vessels chartered under the U.S. Maritime Administration’s Maritime Security Program contracts; and an “other” segment that included ship and cargo charter brokerage, ship management services and agency services.
Japanese liner carrier NYK, which operates its own fleet of car carriers, is a customer for ISH’s PCTC business, while Jones Act customers include Tampa, Fla.-based energy company TECO and the phosphate fertilizer manufacturer Mosaic.
The company said that through asset sales, it was able to reduce its gross debt obligations, in addition to regularly-scheduled principal payments, by around $82.3 million (from $242.9 million at the end of 2014 to $117.1 million at the end of the first quarter of 2016).
However, because of its financial position and weak conditions in the shipping industry, ISH said it was unable to refinance all of its existing indebtedness in the near term, come into compliance with its current facilities, or generate necessary liquidity, leading it to the filing of its request for Chapter 11 protection this summer.
Since filing for Chapter 11, ISH and its lenders “confirmed that the sale of all or substantially all of the debtors’ remaining assets would preserve and maximize the value of their estates and, accordingly, is in the best interests of their estates and creditors,” ISH said.
Through a financial advisor, Blackhill Partners, ISH said 68 prospective buyers were contacted and there were 10 “indications of interest” for either purchasing substantially all of ISH’s assets or one of its individual business segments.
After a comprehensive analysis, ISH said it determined it would execute a sale process for one of its four business segments, the specialty business segment, and propose its plan with SEACOR to reorganize the remaining business segments.
ISH said the specialty business segment “is comprised of various contracts and
agreements between company affiliates and third parties, as well as
certain notes receivable financing certain vessels owned by third
parties, in each case relating to the company’s provision of logistical
and seaborne transportation services in Southeast Asia and third-party
brokerage services related to these Southeast Asian operations.”
ISH received two offers for the specialty business, the best being from J Line, a company substantially owned by Erik L. Johnsen.
ISH said that after it received the offer from J Line, it went back to the other prospective purchaser to solicit a topping bid, but the prospective purchaser declined to increase its bid.
ISH said that it believes executing the purchase and sale agreement for the specialty business segment with J Line “was the best option for maximizing value for the estates.”
The disclosure plan for the Chapter 11 plan of reorganization sets out a sale process for the specialty business that includes a Dec. 8 bid deadline and a Dec.15 auction.
James Blue, the president of Private Harbor, an investment management and counsel based in Pepper Pike, Ohio, representing 9 percent of Series B. preferred stock, said in a letter to Stuart M. Bernstein, the U.S. Bankruptcy Court judge overseeing the ISH reorganization, that he finds the proposed acquisition of the specialty business “troubling.”
“Please tell me that you will not let ISH company insiders shift value from ISH to the buying company under your watch for what appears to be a complete con-job of how to remove value from one entity during a period of unusually difficult industry conditions and transfer it to a different company (owned by the same family) at a very low price,” Blue wrote to Judge Bernstein.
“My perceptions may be incorrect, but it seems like the Johnsen family is trying to ‘pull a fast one’ on their creditors by taking advantage of a temporary dislocation in the shipping business to buy illiquid and temporarily undervalued assets (under the guise of using the appearance of fairness via an ‘auction’) to personally enrich the Johnsen family to the detriment of the ISH stockholders.”
The statement could be debated – the proxy statement for ISH shows that the Johnsen family represented a big chunk of those stockholders – they owned 20.3 percent of the company’s common shares before the company filed for Chapter 11 protection.
International Shipholding files reorganization plan
