Freshly Minted – April 20, 2000

HIGH YIELD

Bond market has been quiet with most actively traded bonds being Navigator Gas whose restructuring is imminent.

TBS

Sometimes a game is over before it is actually played. In the case of TBS, the way the original deal was structured made restructuring it particularly challenging. Here’s what we mean: under the restructuring terms disclosed last week, TBS shareholders seem to have negotiated a very favorable deal for themselves. The company was able to swap $110 million in notes for $50 million in new notes and some preferred and common shares while maintaining affiliate relationships through which to generate additional fees. So why did TBS get such a sweetheart deal when other bondholders have been able to extract maximum value from shipping issuers? One reason is because TBS’s bond deal included only the vessel owning subsidiaries and not the company’s network of liner companies, including TBS Pacific Liner Ltd., TBS Latin America Liner Ltd. and TBS North America Liner Ltd. Since the enterprise value of the TBS relies less on the ships and more on the liner companies and their contracts, which were not included in the bond deal, simply seizing the assets was not an attractive alternative, or threat. As a result, bondholders had somewhat limited options, they could go through the costly process of arresting the ships and selling them without contracts in a relatively thin sale and purchase market, or they could work with management. Neither scenario would yield maximum value and bondholders seem to have chosen the later, perhaps because it involves less risk and less additional capital. At the end of the day, no two high yield shipping restructurings are the same, but each will be recorded in the play book for investors next time around.

DAN STEN OLSSON AND THE IMPORTANCE OF CONTEXT

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