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The Genco Story: from filing for bankruptcy to a successful merger

The Genco Story: from filing for bankruptcy to a successful merger

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The shipping industry has been navigating very rough waters for many years now and it has suffered from an overload of vessels after buying too many before the 2008 global recession, which then led to the sharp decrease in rates leaving companies like Genco with too much debt. A number of other shipping companies, including Excel Maritime, Overseas Shipholding Group and TMT Group, have also filed for Chapter 11 bankruptcy in recent years.

Let’s first make a brief presentation of what Genco is and means for the shipping industry and then we will see what the bankruptcy was about and how they achieved their successful merger in 2015.

Genco Shipping & Trading Limited is an international ship owning company that transports iron ore, coal, grain, steel products and other dry bulk cargoes along worldwide shipping routes. They have different types of vessels such as Capesize, Panamax, Ultramax, Supramax, Handymax and Handysize vessels that provide connections between clients and suppliers in the international trade. Their headquarters are in New York and at the front of the company is the very well-known New York shipping tycoon Peter Georgiopoulos. Genco benefits form their large fleet which they partly own and partly hire and they have what they call “sister ships” which help the shipping company share spare parts between their vessels and their crews are interchangeable.  By using a fleet with sister ships they increased their revenues and improved operational and scheduling flexibility. Genco also reduced costs by creating economies of scale in the maintenance, supply and crewing of their vessels. Sister ships also make their fleet more attractive to time charterers because they can interchange cargoes among their sister ships. Another advantage they had was that they avoided brokerage commissions to related parties strongly benefiting  form it because  it prevented conflicts of interest because, unlike transactions involving brokers, their employees did not have a personal financial interest in the charter contracts.

In 2014, Genco owned and operated 53 vessels and was ranked as one of the largest dry bulk shippers in the world. The company successfully transported iron ore, coal, grain, steel and other products worldwide. However, most of Genco’s ships were chartered to third parties and like all the other companies in the industry, the company was susceptible to the fluctuating rates in the market. These fluctuations had dramatically impacted Genco’s finances in recent years and soon the company reported total revenues of $277.5m in 2013, a decrease of nearly 50 percent from 2010. Due to its declining revenue and unsustainable debt pile of $1.12bn , Genco hired Blackstone Advisory Partners LP in February 2014  to explore a wholesale debt restructuring and how to take advantage of their $2.45bn worth of assets. Genco was lucky because they didn’t have to rely on any bankruptcy financing and continued operating as normal throughout the bankruptcy procedure. The company knew they had enough cash flow to navigate the procedure and due to the funds that they would continue to generate, they could even promise their shareholders they were going to emerge from the bankruptcy in a very short time.

This was all happening in the year 2014 and Genco shipping was an in a very tight spot but not doomed for the market. The process went more or less like this: In April 21, 2014 Genco filed a voluntary pre-packaged plan of reorganization with strong support of its Secured Lenders and Convertible Noteholders in an effort to strengthen the Company’s balance sheet by reducing its total debt by $1.2 billion; After a hearing on July 2, 2014, the U.S. Bankruptcy Court issued a Memorandum Opinion and an order confirming the Company’s First Amended Pre-Packaged Plan of Reorganization of the Debtors Pursuant to Chapter 11 of the Bankruptcy Code; On July 9, 2014, the Effective Date of the First Amended Prepack Plan occurred and the Company emerged from bankruptcy.

Image courtesy of rainer.n.foto at Flickr.com
Image courtesy of rainer.n.foto at Flickr.com

In July 2015 the merger with Baltic Trading Limited was completed and in accordance with the terms of the merger agreement, Baltic Trading was now an indirect wholly-owned subsidiary of Genco Shipping & Trading Limited. Since July 20, 2015, following the completion of the merger, Genco Shipping & Trading Limited’s shares have been trading on the NYSE under the symbol GNK.

The shipping industry is a very fluctuating one and one that is difficult to navigate. After 2008 when buying shipping vessels was very affordable, their industry became saturated and rates went down, causing bankruptcies in many of the biggest players in the shipping industry all over the world. Genco shipping is just one of the examples of some of the biggest industries having major problems to remain successful in a very hard industry. After merging with Baltic Trading, it can be said that Genco knew how to navigate this rough sea.

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