Friday, January 27, 2012

Berlian Laju Tankers defaults on US$ 418 million senior debt and lease payments

Just a few months after major loan restructuring as well as new large leasing deal that led to a credit upgrade, Berlian Laju (BLT) has frozen their debt repayments and is facing a serious financial crisis. The major issue will be recapitalization and restructuring. It may follow its Indonesian compatriot, Arpeni Pratama, into US Chapter 11 proceedings.

If you look at the BLT balance sheet over the years, it has never been a tremendously profitable company. Their expansion was heavily financed by debt. They acquired assets at high prices in the boom years. Accordingly, BLT was the darling of the banking community because it was 1.) too big to fail and 2.) in need of money and willing to pay more than sounder companies to get it. Lenders could get loan pricing with BLT that would be impossible with mature peer chemical tanker operators like Stolt or Odfjell.

The rating agencies had downgraded BLT to CCC by this time last year. BLT was upgraded to B- in spring 2011 after a massive $685 million restructuring plus another $90 million leasing deal. Fitch brought the rating back to CCC last December and very recently C.

The lenders do not appear to have done a very good credit analysis given this massive default less than 12 months later. Indeed they even gave BLT additional funds, increasing their loan exposure to the beleaguered company. There was apparently no request for a significant increase of capitalization nor does there appear to have been any demands for asset sales to reduce exposure. It was very clear that BLT would face serious funding problems in 2012 both for capital expenditure needs and as well as US$ 122 million bond maturities to be refunded.

Now the recapitalization issue is likely to be paramount for BLT. Will the controlling Indonesian shareholder family follow the footsteps of Big John Fredriksen and put up substantial capital of their own to save the company and retain control? Alternately, will they chose the route of Peter Georgiopoulos and find a private equity partner like Oaktree and risk losing control of the company?

One thing that BLT could do to raise cash and deleverage would be to sell their Chembulk operation, one of their most valuable assets. Doug MacShane (the founder and previous owner of Chembulk) is already rebuilding MTM (MTM controlled the Chembulk operation prior Doug MacShane’s divestiture) with fleet expansion at prevailing low tanker prices. MTM’s Singapore subsidiary continued the technical management of the vessels for some time after BLT acquisition. MTM could easily start poaching Chembulk’s customers, with whom Doug MacShane has had 20 to 30 year relationships and where they might feel more comfortable.

Stolt Tankers has the money to buy BLT’s Chembulk operation, if they wish. So could its rival Odfjell, who could potentially secure Lindsay, Goldberg backing. Linday Goldberg, a first class NY-based private equity firm, is already a 49% partner in Odfjell’s chemical storage business.

This possible spin off would allow the Indonesians to concentrate on their cabotage business, Buana Listya, and concentrate on FPSO contracts in its home market. BLT also has smaller chemical tankers suitable for the Asian market as well as a fleet of LPG vessels, some fitted for ethylene.

We will see shortly what route BLT takes to get out of this financial impasse.

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