Tuesday, July 29, 2014

End run for Berlian Laju Tankers bankruptcy and reorganization and challenges ahead

With KKR and York Capital now owners of 65-70% of the bank debt in Berlian Laju Tankers (BLT), they are likely to come out with a sizeable equity stake in the company.  This would appear to resolve what was a very messy bankuptcy without any clear source of recapitalization or clear outcome when first declared.  Unlikely that the private equity firms would be prepared to accept further involvement of the Surya family in the business.  Obvious direction would be to rebuild the company with Jack Noonan as CEO, which was already built into the restructuring plans. 

Private equity is said to hold presently US$ 500 million of BLT senior debt, which is secured by first preferred mortgages on the vessels in the fleet. 

Only a few months before declaring bankruptcy protection, BLT had completed a massive US$ 685 million restructuring led by banks like Nordea and BNP Paribas.  New banks like Standard and Chartered participated in a large refinancing.  These bankers did not appear to do proper credit analysis of the risks, even willing to extend new money to BLT as part of the restructuring package or Standard and Chartered to refinance problem credits of other banks.  Their claims were that the Surya family was extremely wealthy and would stand by the company with their resources if needed.

The swift fall into bankruptcy thereafter opened controversy about where fresh funds were deployed. Delos, one of the creditors has alleged US$ 135 million diversion of funds.  In any case, the Surya family did not show interest in supporting BLT financially in difficulties.  There were calls at the time about the necessity of keeping them in the management, but this never made any sense to me.

In the end, the private equity firms are said to have bought out the bank debt at discounts between 70 to 80 cents on the US dollar.  BLT has been a zombie company since the declaration of bankruptcy in early 2012.  Since then, there has been a surge of newcomers and new investment in the chemical tanker industry.  Players like Celsius, Navig-8 with an Oaktree partnership and even Peter Georgopoulos have started a new order binge mainly in Chinese yards for stainless Dwt 20-25.000 tonnage, which was the mainstay of the Chembulk operation that BLT acquired from AMA with considerable mark up that eventually brought them down.  

Delos had invested in two BLT stainless units on a lease back deal prior the bankruptcy for which they have since repossessed but kept with the Noonan operation (former Chembulk) on employment.

KKR has been backing Borealis, who specializes in smaller chemical tanker tonnage trading regionally in north west Europe under North Sea Tankers commercial management.  Borealis has recently acquired the Crystal Pool as well as bought two small ethylene carriers at auction.  The BLT operation is not obviously compatible with Borealis.   

The challenge for KKR and York will be rebuilding and rebranding BLT under the former Chembulk operation in Connecticut.  They will have to contend not only with the slew of above-named new comers with more modern, fuel efficient tonnage, but also the chemical tanker majors like Stolt, Odfjell, and Jo Tankers allied with Tokyo Marine in Milestone Chemical Tankers in Singapore.  These are older, operators that have moved into a more diversified logistics provider business model and have built up over the years large contracted customer base with their brand image.  These groups have punted in defense of their earnings margins and need for competitiveness by ordering larger stainless tonnage Dwt 30-38.000 for the long haul routes that risk putting pressure on the freight rates of the smaller Dwt 20.000 units, even those of the newcomers.  

Stolt and Ofjell also have the back stop of a profitable chemical storage and terminals business sheltering them from the vagaries of the transport side.  All the mature groups have looked to diversify into other shipping sectors, particularly the LPG sector in the case of Stolt and Odfjell.

Private equity has poured a lot of money in the chemical tanker sector the last few years.  Triton bought up Nordic Tankers and some other smaller European operators like Herning.  Apollo Global Management has created a new offshoot Princimar Chemical Carriers managed from Connecticut.

It will be interesting to see how these investments perform and how these firms will ultimately divest of their holdings.

1 comment:

  1. Dear Mr. Majarian,

    I am writing a report on BLT Chembulk and came across your article. I was wondering if you could provide any insight as to how BLT Chembulk is doing as a company since you wrote this article in July. How is the restructuring process going? Is the company reputable in the tanker industry? How is the company doing financially? Is the company involved in any questionable practices since the “messy” bankruptcy? I am trying to get a better sense of the company as a whole, as well as the people in it. Do you know anything about the CEO, Mr. Noonan? What has he done for the company so far in terms of restructuring?

    This information is crucial for my report, and I would greatly appreciate it if you could answer these questions in a comment here on your blog. Otherwise, please feel free to give me a call at (201) 721-6037.

    Thank you.