ENTERPRISES SHIPHOLDING CORPORATION: Walking the Tightrope

by Kevin Oates

For reasons set forth below, we believe that there is a good chance that there will not be available cash for Enterprises Shipholding Corporation (“Enterprises”) to pay the next high yield bond coupon due in May 2000 of $7.75 million. If we are correct, this will present Enterprises with a choice of three options. Firstly they could pay the coupon using “outside” cash – by further encumbering vessels, by selling vessels or by injecting fresh equity. Secondly they could ask the bondholders for a modest restructure – perhaps a coupon deferral – until such times as the market improves and the new deliveries scheduled during 2000 and early 2001 are earning much needed cash flow. Or thirdly they could try to negotiate hard with the bondholders and buy out perhaps with a cents per dollar scenario but risk losing the company they have worked so hard to develop.

Enterprises Shipholding Corporation raised $175 million of high yield paper in May 1998 as a quality company with strong management and a healthy balance sheet. They were as close as you could get within Greek shipping to an industrial shipping group. They were perceived to be a company that was going places and having already experimented with an aborted IPO a high yield bond issue seemed a natural step. Two years later many things have changed. The company has become an example of how the interests of shareholders are often poles apart from the requirements of servicing debt.

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