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THE PERFECT STORM: The BLT Restructuring Story
Connecticut Maritime Association Luncheon
February 18, 2016
Prologue – Fair Winds & Following Seas: 1981-2007
• Hadi Surya founds Berlian Laju Tanker in 1981 (BLT) as a time-charter operator;
firstly securing cargo requirements and then chartering-in the ships to perform
• In the 1980s BLT begins transition to owner-operator purchasing 2nd hand tonnage
• 1990: BLT lists on the Jakarta Indonesia Stock Exchange (IDX)
• 1998: BLT acquires Gold Bridge Shipping of Hong Kong
• 2006: BLT lists on the Singapore Stock Exchange (SGX)
• December 2007 – BLT acquires Chembulk Tankers for $850M and is acclaimed as
the world’s 3rd largest owner-operator of stainless steel chemical tankers
2
If you have too much cargo, there is always a solution ….
If you don’t have enough cargo, there is no solution – Stolt-Nielsen Chartering Mgr. 1985
Chapter 1 – The Gathering Storm: 2008-2011
• 2008: Sub-prime mortgage crisis triggers global economic meltdown ending the good chemical tanker market of the previous 5 years
• 2009 – 11: Oil prices increase from mid-$40s to ~$100/BBL
• 2008-11: BLT takes delivery of 13 Japanese stainless steel chemical tanker NBs
• US$ declines significantly vs. JPY making the NBs 25-33% more costly at delivery
• NBs are financed almost entirely through sale and lease-back arrangements
• BLT increases debt load via various bond offerings
• 2011: Refinance of the 39 owned ships (BLT-GB-CBT) by DNB led 7-bank MLA
• The sustained chemical tanker market trough, coupled with rising oil prices, substantial finance cost and the mounting debt prove too much for BLT to endure
3
“The trick to making money in shipping is to have a cheap ship”
– Stolt-Nielsen Managing Director 1985
Chapter 2 – The Storm is Upon Us!
February 2012 – Creditors commence enforcement tactics:
Three lessors repossess 5 bareboat leased tankers following defaults
Another lessor files maritime law Rule B in US Federal Court in Hartford, CT
Two bunker suppliers arrest two BLT tankers while performing Chembulk voyages
Some other BLT tankers arrested by various creditors in various jurisdictions
• A few of BLT’s customers suspend business relationship/void COAs
• Facing a difficult reality, an air of disbelief pervades across BLT Group BUs
4
• January 25, 2012 – BLT announces suspension
of stock trading and debt-standstill !
• FTI Consulting appointed as restructuring
advisors by MLA syndicate
• Early January 2012 – BLT informs MLA syndicate
of impending cash crunch
• MLA mandates all revenues to DNB earnings acct
Chapter 3 – Maintaining Stability
February 2012
• The Chembulk Tankers BU continues
to be fully solvent going concern, but ...
• Numerous in-person meetings and
conference calls with customers
• Business disruptions are minimal as
Chembulk business partners remain
supportive.
• MTI Network engaged by Chembulk to
assist with and manage PR
• Chembulk engages direct dialogue with
MLA lead bank DNB
• CBT CEO circulars assure customers,
vendors and staff that “all is well”
5
Chapter 4 – Hove to and Damage Control
6
Everything going to be OK!
• Borrelli Walsh appointed by BLT as its
restructuring advisor and Cos Borrelli
is named Chief Restructuring Officer
• Borrelli requests hands-on assistance in Jakarta from Chembulk management team
March 2012
• Borrelli immediately “quarantines” the
solvent Chembulk and Gold Bridge
BUs from BLT
• Other damage control measures to
“stop the bleeding” are implemented
• Jack Noonan and COO Dan Dahlgard begin the first of alternating month-long
assignments in Jakarta which will continue into early 2015
• Damage control measures implemented, a mood that “all will be OK” sets in
Chapter 5: Commencing Navigation Out of the Storm
• Key vendors – i.e. bunker suppliers, tugboat
companies, port agents etc. – are engaged
• Payment schedules/plans are established
• Remaining bareboat leases reworked into
new BB or or time charters with CBT
• Commence transition process from GBLT
(BLT in-house ship mgt) to 3rd party
technical managers for owned ships
7
It’s not personal. It’s strictly business.
I’m going to make them an offer they
can’t refuse
• Fifteen loss-making ships are sold, scrapped or redelivered to their owners
• The first draft of the restructuring plan is presented to the MLA on June 30th
• Unprofitable COAs are not renewed at expiration
• BLT offices in Shanghai, Dubai and Mumbai are closed
April – June 2012
Chapter 6: Salvage Operations – The PKPU
• On July 2nd, an Indonesian bank invokes a PKPU – literally translated meaning
“suspension of payments” – on BLT
• The PKPU process safeguards BLT’s assets and must be concluded within 270 days
• During the process, new payment plans cannot be made, assets disposed of or new
loans obtained without the Jakarta court-appointed Administrators’ consent
• The restructuring plan is submitted to participating creditors for approval
• If approved, the plan becomes binding on all participating creditors irrespective whether
they voted for approval or not
• If creditors reject the plan, or if the PKPU process is not concluded within the 270 days,
the company is required to be liquidated.
• On March 14th creditors approve the plan which is then sanctioned by the Jakarta court
• The MLA had not participated in the PKPU but instead tried unsuccessfully to sell its debt
8
“If I owe you 100 pounds, I have a problem; if I owe you one million, the problem is yours.”
– John Maynard Keynes 1883-1946
July 2012 – March 2013
No Chapter 7
The PKPU process was successful and BLT was spared
from liquidation.
===========
Therefore no need for a Chapter 7!
9
Chapter 8: Riding Out the Storm
April 2013 – January 2014
• The PKPU ruling is recognized under US Chapter 15 and Singapore Section 210 and is deemed internationally sanctioned
• In return for MLA support of the PKPU approved plan and an infusion of working capital, it is granted share pledges over the Chembulk Tanker operating platform
• Having bottomed out, the chemical tanker markets gradually but steadily begin to improve
• Sensing an increased value in its security over the remaining 27 owned ships and the Chembulk platform, MLA banks begin to tender for sale their debt in BLT
10
“This is my boat. We're gonna ride this thing out, not for fun, for safety.
Do what I've always done: go with the flow.” – Sebastian Junger: The Perfect Storm
Chapter 9: Underway and Making Way
February – April 2014
• Member banks in the MLA begin to successfully market their share of the debt
• KKR leads the way buying a percentage similar to lead bank DNB (~30%)
• York Capital follows suit and buys a sizeable share
• Together KKR and York jointly own the majority of the debt (ultimately ~85%)
• A number of other PE firms and investment banks purchase smaller tranches
• All 7 banks in the original MLA exit as these PE firms and banks ultimately buy and
own all of the secured debt in BLT, providing them with:
• Security over 27 owned ships – 23 chemical tankers and 4 LPG carriers – and
• Share pledges over the Chembulk operating platform inclusive of 7 leased ships with
purchase options, 5 time-chartered ships and all of the COAs.
11
“One man’s trash is another man’s treasure.” – 17th century English proverb
Chapter 10: Change of Command
• May 2014 – April 2015: Negotiations take place between BLT and KKR & York for a
Restructuring Support Agreement (RSA) providing for the conversion of debt to
equity in a new company to retain the name Chembulk Tankers.
• April 24th – the RSA is successfully concluded
• August 14th – BLT’s creditors overwhelmingly (85%) vote to approve the RSA
• November 17th – BLT’s shareholders overwhelmingly (70%) vote to approve the RSA
• November 30th – the owned ships and Chembulk operating platform are successfully
transitioned out of BLT
• December 1st – Chembulk Tankers and its 39-ship fleet commence operations as an
independent company, with KKR & York as its majority shareholders
• BLT emerges from restructuring a considerably smaller, but solvent, going-concern.
12
Epilogue: The Value of the Security
14
“Money itself isn't lost or made, it's simply transferred from one
perception to another.”
• The MLA originally held security over 27 ships, but
not over Chembulk’s operating platform
• Enforcement on the ships would have netted much less than what was ultimately
achieved, with those buyers benefitting instead of the MLA syndicate
Laws of Conservation of Mass and Energy:
…. They can be neither created nor destroyed – High School Chemistry 101
As per Gordon Gekko perhaps the Laws of
Conservation do apply to money ….. or intrinsic value
• Absent the platform, the value of the MLA’s security
was a fraction of the par value of the debt
• Chembulk Tankers would have likely been dissolved resulting in:
The intrinsic value not destroyed but “transferred from one perception to another.”
- The time-chartered ships and purchase options going back to the head owners
- The COAs going to other owners and operators
- The management team and staff being employed elsewhere
Summary: Sailing into the Eye of the Storm
• Acquiring Chembulk Tankers at the very peak of asset-valuations
• Embarking on an aggressive Japanese NB program during a period when:
the US$ was falling vs. the JPY and forex risk was not properly managed
the chemical tanker market had peaked and was in decline
oil prices, and therefore voyage expenses, were rising
the over-supply of tonnage, including many NBs, was foreseen but disregarded
• Irrational optimism that market conditions would sufficiently improve
• Capital was inexpensive and easily obtained from eager providers
The Takeaway
The principal of cargo procurement before tonnage procurement was ignored
BLT didn’t have cheap ships
15
Summary: Making it out of the Storm – Why the Restructuring Worked
• The appointment of restructuring advisor Borrelli Walsh
• Damage control measures implemented before it was too late, including:
strict cash management protocol
ensuring uninterrupted supply of bunkers and other key services
• Disposal of EBITDA-negative tonnage and discontinuing unprofitable COAs
• Rationalization of G&A infrastructure: office closures, headcount reduction
• The PKPU 270 day deadline forced timely creation of a credible restructuring plan
• Customer and vendor support providing for “business as usual”
• Getting out in front of the news – be it bad or good / keeping customers informed
• Debt so large that any enforcement action would mean “zero” for most creditors
• A fleet and commercial operating platform worth keeping in-tact
• The vision of KKR & York to buy the debt and to reach a consensual plan with BLT
16