“Absent receiving the benefits that the restructuring promises, the debtors have no viable strategy to exit from Chapter 11 or to escape liquidation,” TBS International said in documents filed with the U.S. Bankruptcy Court in White Plains, N.Y.
The company obtained $42.8 million in bankruptcy financing from a group of four secured lenders, which TBS International’s financial adviser called the “sole reason” the company hasn’t already liquidated. No one but the secured lenders was willing to provide this financing, he said.
For that reason, TBS International said it doesn’t have the ability “to cramdown a result on the prepetition secured lenders that preserves value for equity security holders.” Besides, equity holders wouldn’t receive a recovery in a liquidation either, the shipping company said.
The response came after equity holders said TBS International’s assets were undervalued by the plan and that it hasn’t market tested its assets. Therefore, the company can’t show that the Chapter 11 restructuring is better for shareholders than a liquidation of TBS International’s assets, they said. The Bankruptcy Code requires that the recoveries under a Chapter 11 restructuring not be less than would be received in a liquidation.
Equity holders Father Securities Ltd. and Maxim Naumov had called for TBS International to try to market test its assets with an auction rather than hand the company over to lenders. But TBS International said it and its financial adviser have “searched extensively but unsuccessfully” for alternative restructurings.
“Everyone involved with the company wishes that there were more going concern value to preserve. However, there is not, and the objections do not provide any factual or legal basis to deny approval of the disclosure statement or confirmation of the plan,” TBS International said.
The current plan exchanges secured lenders’ $175 million in debt for 90% equity in the company plus $151 million in new loans while canceling equity holder interests. The plan has the support of creditors, who are being paid in full.
TBS International was formally delisted from the Nasdaq Stock Market effective March 5 because it no longer qualified, Nasdaq said. Its plan proposes restructuring as a private company.
The Yonkers, N.Y., company entered Chapter 11 in February under the weight of $220 million in debt with $369.7 million in assets.
-By Stephanie Gleason, Dow Jones Daily Bankruptcy Review