US Shipping cedes control over product tanker alliance

Rajesh Joshi, New York - Tuesday 9 June 2009

US SHIPPING Partners has stepped down as managing partner of its joint venture with private equity group Blackstone, ending the company’s involvement with a series of product tanker newbuildings under construction at Nassco in San Diego.

The decision to concede defeat leaves Blackstone with full control over the joint venture formed to operate the five product tankers, in which Blackstone and US Shipping Partners have a 60:40 relationship.

Blackstone also gets to keep the seed equity of $70m ploughed into the venture by US Shipping Partners, which is currently in Chapter 11 bankruptcy proceedings.

However, Blackstone now has sole responsibility to find some $225m of financing for the fourth and fifth newbuildings, and would have to find a new shipmanager for the ships.

US Shipping Partners chief executive Ronald O’Kelley told Lloyd’s List the decision to concede defeat was taken in part to save the troubled Jones Act tanker firm cash, seeing as Blackstone was outspending US Shipping on lawyers.

The decision is also dictated by US Shipping’s own need to implement fiscal prudence as it comes through bankruptcy protection, with a plan that the company believes would revive it as a going concern.

After its flotation in 2004, US Shipping became involved with an ambitious nine-tanker product tanker newbuilding order at Nassco worth some $1bn, including options. A joint venture with Blackstone was formed to operate the first five firm orders.

US Shipping has said in court papers that it invested $70m of its own equity, while Blackstone initially came up with $105m. Blackstone then provided a $325m revolving credit facility to the joint venture, with which to finance the first three newbuildings.

US Shipping was designated shipmanager, responsible for crewing and operations, as well as the newbuilding supervisor for the newbuildings.

The first of the newbuildings was delivered in January this year and is on a timecharter with BP. The second ship has also been delivered, and is to commence a timecharter with Marathon next month.

The fourth and fifth ships, due for delivery next year, have charters with the US Navy Military Sealift Command. However, the third ship, due in November, has yet to find a charterer, partly because of the legal wrangling between the joint venture partners.

US Shipping entered financial turbulence in the spring of 2008, and its troubles with servicing a $333m debt facility and $100m in bonds eventually led to the company filing for bankruptcy protection in April this year.

Blackstone claimed that US Shipping’s bankruptcy and the troubles that led up to it have tainted the joint venture, and nullified the joint venture’s chances of finding lenders who would cover the financing of the remaining two newbuildings.

Blackstone sought to remove US Shipping from the joint venture on this basis. US Shipping disputed this claim, saying four of the five tankers already have lucrative charters, which is the sole consideration any prudent lender would find of relevance.

US Shipping, whose roots as a shipowner date back to the time when Hess operated ships, also said its standing as a responsible shipmanager was crucial for the joint venture’s success, especially in view of Blackstone’s total lack of shipping experience.

In the event, the settlement with Blackstone leaves US Shipping with a significant hole in its ambition, in that the company now has no product tankers.

Mr O’Kelley said the first order of business now is to get the company out of its Chapter 11 process. With some three-fourths of its first and second lien holders who are owed $333m and $100m respectively having signed off on the reorganisation plan, he expects the company to be out of Chapter 11 protection by October 1.

The two categories of lenders would get 50% equity stakes each in the new company after the reorganisation. Mr O’Kelley said the new shareholders remain interested in nurturing the company’s ambition of operating product tankers.

Blackstone’s agreement with US Shipping binds the former to offer US Shipping the right to make the first offer should Blackstone decide to sell the Nassco ships.

Comments

RSS

Only registered users can write comments!

< Prev		Next >

Last Updated on Tuesday, 20 October 2009 19:01

States

Main Menu

US Shipping cedes control over product tanker alliance

!joomlacomment 4.0 Copyright (C) 2009 Compojoom.com . All rights reserved."

Share it!

Translate This Site