TORM signs restructuring agreement with its banks and time charter partners

News Release TORM A/S October 2, 2012

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TORM signs restructuring agreement with its banks and time charter
partners
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
Page 1 of 7
“The restructuring agreement secures TORM substantial deferral of
bank debt, new liquidity and
savings from the restructured time charter book. This will enable
TORM to become cash flow positive
even at the current rate levels. The Company now has time to
further secure the future, long-term
capital structure. It has taken extraordinarily long time to reach
this agreement and inflicted very high
costs on the Company, but TORM will now be able to continue its
business even in a continued
difficult market,” says Chairman of the Board N. E.
Nielsen.
“I am extremely satisfied that an out-of-court agreement has been
signed. It has been a long process,
but I am very pleased that our long-standing time charter partners
and the banks have been
supportive. TORM's organization now looks forward to devoting all
of its focus solely on the customers
and operations again,” says CEO Jacob Meldgaard.
* * *
Highlights of the restructuring
• Current shareholders retain 10.0% ownership, compared to 7.5%
communicated earlier
• USD 100 million in new working capital facility available until
30 September 2014
• Maturities for the existing bank debt of USD 1.8 billion are
extended until 31 December 2016
with new uniform covenants and terms, and are divided into three
tranches
• Deferral of installments on the entire bank debt until 30
September 2014 and reduced
repayments until 31 December 2016
• Interest on existing debt is only paid if TORM has sufficient
liquidity until at least 30 June
2014 with potential extension to 30 September
2014
• Interest margin will be approximately 240 basis points on average
for the existing bank debt
• Mark-to-market savings estimated at approximately USD 270 million
from amended time
charter agreements
• TORM expects to be cash flow positive even at the current rate
levels
• TORM anticipates technical completion of the agreement within
approximately four weeks
subject to certain common closing
conditions
• TORM forecasts a loss before tax of USD 350-380 million for the
financial year of 2012
excluding accounting effects from the execution of the
restructuring, further vessel sales and
potential impairment charges
* * *
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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Context
Since 2010, TORM has worked on improving the Company’s capital
structure and liquidity position
e.g. by seeking to tap into different corporate bond markets. Due
to the Company’s capital structure,
its strategic position as a spot-oriented company and the
generally challenging conditions in the
capital markets, TORM was unable to obtain this type of financing.
With the continuously low freight
rates and cyclical low vessel values since fall 2011, TORM’s Board
of Directors has not found it
prudent to inject new equity in the Company as planned without
substantial amendments to the
existing credit facilities. In October 2011, TORM presented a
proposal to the banks that combined an
equity injection of USD 100 million with subscription rights for
existing shareholders and a bank
moratorium supported by TORM’s largest shareholders. The proposal
was not accepted, but the
Company achieved a standstill agreement with the banks, which has
been extended several times
during 2012 to secure that a long-term, comprehensive financing
solution was found and
implemented.
Throughout the whole process, TORM's Board of Directors and
Executive Management have worked
on avoiding bankruptcy or other in-court solutions in Denmark or
abroad in order to best preserve
value and put all stakeholders in the best possible position.
However, as a precautionary measure a
US "chapter 11" filing has also been negotiated and prepared in
detail as part of the process. In the
spring of 2012, TORM succeeded in obtaining conditional offers
from reputable, international shipping
investors as well as institutional investors, who were prepared to
make new investments in the
Company provided that substantially amended bank terms were
agreed. However, the banks chose
not to enter into substantive negotiations on the basis of any of
these offers as they did not find the
investor proposals sufficiently attractive.
Since fourth quarter of 2011 the Company’s liquidity situation has
been tight, and the total bank debt
could be called at any time at the banks’ discretion due to
breaches of certain financial covenants.
Through negotiations with the bank group during 2012 it became
clear that the only achievable
solution with the bank group would not provide immediate debt
relief in the balance sheet nor any new
equity contribution. However, the only solution that could be found
was one where TORM gained time
for a potential market improvement in order to best preserve
shareholder value. Therefore, TORM
signed a conditional agreement in principle with the banks and the
major time charter partners
regarding a long-term financing solution as stated in announcement
no. 14 dated 4 April 2012 and
elaborated in announcement no. 20 dated 23 April 2012. This
agreement in principle forms the basis
for the signed restructuring agreement, which has become very
comprehensive and includes a
number of supplementary agreements with certain counterparts,
including amendments to TORM’s
existing finance documentation. The banks have been advised by the
international financial advisor
Lazard & Co. ltd.
Content of the restructuring
Banks
As part of the restructuring TORM has secured a new working
capital facility of USD 100 million until
30 September 2014 with first lien in the majority of the Company’s
vessels.
The Company’s group of banks will through the implementation of
the restructuring align key terms
and conditions and financial covenants across all existing debt
facilities, and all maturities on existing
credit facilities will be adjusted to 31 December 2016.
The existing bank debt remains unimpaired at USD 1,793 million as
of 30 June 2012. The book value
of the fleet excluding financial lease vessels as of 30 June 2012
was USD 2,193 million. TORM’s
quarterly impairment test as of 30 June 2012 supported the book
value of the fleet based on the same
test and principles as used by the Company since the Annual Report
for 2009. Based on broker
valuations, TORM’s fleet excluding financial lease vessels had a
market value of USD 1,370 million as
of 30 June 2012. The book value of the equity amounted to USD 435
million as of 30 June 2012.
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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Interest on the existing debt will only be paid if the Company has
sufficient liquidity and otherwise the
remainder will be rolled up until at least 30 June 2014 with
potential extension until 30 September
2014. On average the interest margin will increase to
approximately 240 basis points across the
existing bank debt. The Company will pay interest on the new
working capital facility until 30
September 2014.
The new financing agreements provides for a deferral of
installment on the existing bank debt until 30
September 2014, in which period rescheduled principal
amortizations will only fall due if the Company
has sufficient liquidity. Provided that the Company generates
sufficient cash, certain cash sweep
mechanisms will apply. Annualized minimum amortizations of USD 100
million will commence with
effect from 30 September 2014 until 31 December 2016. If vessels
are sold, the related debt will fall
due.
New financial covenants will apply uniformly across the bank debt
facilities and will include:
• Minimum liquidity: Cash plus available part of the USD
100 million working capital facility must
exceed USD 50 million to be tested from 31 December 2012. This
will later adjust to a cash
requirement of USD 30 million by 30 September 2014 and USD 40
million by 31 March 2015
• Loan-to-value ratio: A senior loan tranche of USD
1,020 million has been introduced out of the
total bank debt of USD 1,793 million as of 30 June 2012. The
senior tranche must have an
initial agreed ratio of loan to TORM’s fleet value (excl.
financial lease vessels) below 85% to
be confirmed from 30 June 2013. This will gradually step down to
65% by 30 June 2016. The
remaining bank debt of USD 773 million will be divided into
additional two debt tranches both
also have collateral in the vessels
• Consolidated total debt to EBITDA:
Initial agreed ratio of maximum 30:1 to be tested from 30
June 2013 and gradual step down to a 6:1 ratio by 30 June
2016
• Interest cover ratio: Agreed EBITDA to interest
ratio of initially minimum 1.4x by 30 June 2014
and gradual step up to 2.5x by 31 December 2015
The terms of the credit facilities will include a catalogue of
additional covenants, including amongst
others:
• A change-of-control provision with a threshold of 25% of shares
or voting rights
• No issuance of new shares or dividend distribution without
consent from the lenders
As part of the restructuring documentation, certain specific
option rights have been agreed that may
result in a sales process to be defined by TORM prior to 31
January 2013 for up to 22 vessels and
repayment of the related debt. The options given to three bank
facilities, which are subject to certain
agreed terms and conditions, have a duration until 31 July 2014.
One bank facility has given notice on
five of the vessels. TORM will seek to maintain the vessels’
association with the Company.
Chartered-in tonnage
As part of the restructuring agreement, the time charter-in
partners have accepted that the existing
time charter-in contracts will either be permanently changed and
rates will be aligned to market level
with upside/downside split or allow for termination of the
contracts with redelivery of vessels. These
amendments result in a significant reduction of the Company's
future time charter commitments.
TORM estimates that the changes in time charter contracts
correspond to a total positive nominal
mark-to-market impact on TORM of approximately USD 270 million. A
small number of time charter
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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partners are not part of the restructuring. As part of the
restructuring, TORM will redeliver 22 vessels
ahead of original contract schedule to the time charter
partners.
With this agreement, the Tanker Division has reduced the estimated
average time charter-in costs for
the first quarter of 2013 from USD/day 18,848 to USD/day 12,141.
This is equal to a reduction in costs
of -36%. In the same period, the Bulk Division has reduced the
average time charter-in costs from
USD/day 16,286 to USD/day 13,755. This is equal to
-16%.
Expected ownership structure
The outstanding amount that the time charter partners have as a
consequence of the amended
contractual conditions as well as a fee to the banks are estimated
at a total net present value of USD
200 million that will be converted into shares in the Company. The
conversion to new share capital will
take place in connection with the completion of the restructuring.
The future ownership structure is
hereafter expected to be as follows:
Shareholders Expected ownership share
Existing shareholders 10.0%
Certain banks 72.7%
Time charter partners 17.3%
Total 100.0%
The equity allocation between the banks and the time charter-in
partners has been separately agreed
between them and is part of the Restructuring Agreement.
With the conversion of the consideration of USD 200 million in
aggregate and the expected issuance
of 655.2 million new shares, the implied subscription price for
the new shares will be DKK 1.79
(approximately USD 0.31 per share). The Company will apply to have
the new shares admitted to
trading and official listing on NASDAQ OMX Copenhagen after the
completion of all conditions to the
restructuring and following the preparation and publication of a
listing prospectus. The new
shareholders have not undertaken any lock-up obligations with
respect to the Company. However, the
new shareholders are responsible for compliance with local
securities laws including applicable
transfer restrictions under U.S. law and other relevant
jurisdictions as well as restrictions for deposit of
the new shares in exchange for American Depositary Shares ("ADSs")
listed on NASDAQ Capital
Market under TORM’s ADS program.
The basis of the Board of Directors’
decision
Since September 2011, TORM has retained the assistance of the
international, financial advisor
Evercore Group LLC. In addition, the Board of Directors has
obtained a valuation opinion letter from
the international investment advisor Moelis & Company UK LLP
and a preliminary valuation report
from the accounting firm Ernst & Young PS with respect to the
debt conversion and the issue of the
new shares to be issued to the banks and the time charter partners
in connection with the
restructuring. The valuation report will be finally confirmed on
the date of completion.
Having carefully considered the financial and operational position
of the Company and the opinion
letter from Moelis & Company UK LLP, it is the Board of
Directors’ assessment that it is in the best
interests of the Company, its shareholders, creditors, other
stakeholders and other interested parties
to issue the new shares in the Company against conversion of the
consideration of USD 200 million
from time charter partners and banks to allow TORM to continue its
operations without an in-court
reconstruction or similar proceedings.
The issuance of the new shares will take place pursuant to an
authorization granted to the Board of
Directors at the Annual General Meeting on 23 April 2012. The
Board of Directors was among others
authorized to increase the share capital by issuance of new shares
at a rate discounted to the market
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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price against payment in cash, conversion of debt or contribution
of assets other than cash without
pre-emptive subscription rights.
Conditions and time plan
The technical completion of the restructuring is subject to
certain conditions and terms including
among others completion of loan documentation and documentation
required for issuance of new
shares and that no termination event has occurred including no
occurrence of a material adverse
change. In addition, the restructuring is subject to an exemption
from the Danish mandatory takeover
rules following completion of the restructuring. In this regard,
the banks have obtained a positive nonbinding
statement from the Danish Financial Supervisory Authority. The
completion date is anticipated
to take place within approximately four weeks. The exact date will
be announced later.
In connection with completion of the restructuring, the Board of
Directors intends to implement the
Annual General Meeting’s decision to decrease the share capital of
the Company by decreasing the
nominal amount per share (denomination) from DKK 5.00 to DKK
0.01.
As part of the restructuring, TORM will make substantial changes
to the internal legal group structure
of the Company to align it with the individual loan facilities.
This involves transfer of vessels to
separate legal entities in Denmark and Singapore. All legal
entities will ultimately be owned by TORM
A/S.
At a later stage, TORM will convene an Extraordinary General
Meeting with the purpose of i) adopting
changes to the Articles of Association, including certain minority
protection rights pursuant to which
the Company cannot issue shares against conversion of debt or
issue shares without pre-emptive
rights for existing shareholders without the consent of
shareholders representing at least 90% of the
share capital and voting rights at the general meeting, as well as
ii) electing new Board members.
Outlook 2012
TORM has until now not provided financial guidance for 2012 given
the considerable uncertainty
about TORM’s situation and the potential changes to the Company’s
business model that may have
followed from the restructuring. Assuming completion of the
restructuring and a continuation of the
current freight rate levels, TORM forecasts a loss before tax of
USD 350-380 million for the financial
year 2012 excluding accounting effects from the execution of the
restructuring, further vessel sales
and potential impairment charges. The guidance includes special
items of USD -107 million derived
from impairment losses of USD 42 million related to FR8 and USD 65
million in restructuring costs –
primarily fees to advisors of the Company’s creditors and TORM.
The accounting effects of the
restructuring will be described in the listing prospectus. TORM
forecasts to draw down approximately
USD 50 million on the new working capital facility upon
completion. The Company expects to comply
with the minimum liquidity covenant of USD 50 million by end of
2012.
As approximately 5,637 earning days for 2012 are unfixed as at 30
September 2012, a change in
freight rates of USD/day 1,000 will impact profit before tax by
USD 6 million.
Contact TORM A/S
N. E. Nielsen, Chairman, tel.: +45 4243 3343
Jacob Meldgaard, CEO, tel.: +45 3917 9200
Roland M. Andersen, CFO, tel.: +45 3917 9200
C. Søgaard-Christensen, IR, tel.: +45 3076 1288
Tuborg Havnevej 18
DK-2900 Hellerup, Denmark
Tel.: +45 3917 9200 / Fax: +45 3917 9393
www.torm.com
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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About TORM
TORM is one of the world’s leading carriers of refined oil
products as well as a significant player in the dry bulk market. The Company
operates a
fleet of approximately 120 modern vessels in cooperation with
other respected shipping companies sharing TORM’s commitment to safety,
environmental responsibility and customer service.
TORM was founded in 1889. The Company conducts business worldwide
and is headquartered in Copenhagen, Denmark. TORM’s shares are
listed on NASDAQ OMX Copenhagen (ticker: TORM) and on NASDAQ in
New York (ticker: TRMD). For further information, please visit
www.torm.com.
Safe Harbor statements as to the future
Matters discussed in this release may constitute forward-looking
statements and may be more detailed than regular practice. Forward-looking
statements reflect our current views with respect to future events
and financial performance and may include statements concerning plans,
objectives, goals, strategies, future events or performance, and
underlying assumptions and statements other than statements of historical
facts.
The forward-looking statements in this release are based upon
various assumptions, many of which are based, in turn, upon further
assumptions,
including without limitation, management’s examination of
historical operating trends, data contained in our records and other data
available from
third parties. Although TORM believes that these assumptions were
reasonable when made, because these assumptions are inherently subject to
significant uncertainties and contingencies which are difficult or
impossible to predict and are beyond our control, TORM cannot guarantee that it
will
achieve or accomplish these expectations, beliefs or
projections.
Important factors that, in our view, could cause actual results to
differ materially from those discussed in the forward- looking statements
include the
conclusion of definitive waiver documents with our lenders, the
strength of the world economy and currencies, changes in charter hire rates
and
vessel values, changes in demand for “tonne miles” of oil carried
by oil tankers, the effect of changes in OPEC’s petroleum production levels
and
worldwide oil consumption and storage, changes in demand that may
affect attitudes of time charterers to scheduled and unscheduled
dry-docking,
changes in TORM’s operating expenses, including bunker prices,
dry-docking and insurance costs, changes in the regulation of shipping
operations,
including requirements for double hull tankers or actions taken by
regulatory authorities, potential liability from pending or future litigation,
domestic
and international political conditions, potential disruption of
shipping routes due to accidents and political events or acts by terrorists.
Risks and uncertainties are further described in reports filed by
TORM with the US Securities and Exchange Commission, including the TORM
Annual Report on Form 20-F and its reports on Form 6-K.
Forward-looking statements are based on management’s current
evaluation, and TORM is only under an obligation to update and change the listed
expectations to the extent
Announcement no. 31 / 2 October 2012 TORM signs restructuring
agreement with
its banks and time charter partners
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Appendix 1: Coverage table as of 30 September with new time
charter rates:
2012 2013 2014 2012 2013 2014
Ow ned days
LR2 799 2,824 2,904
LR1 637 2,509 2,509
MR 3,427 14,037 14,075
Handysize 1,001 3,975 3,944
Tanker division 5,864 23,344 23,432
Panamax 180 726 694
Handymax - - -
Bulk division 180 726 694
Total 6,044 24,070 24,126
T/C in days at f ixed rate T/C in costs, USD/day
LR2 - - - - - -
LR1 785 75 - 17,914 11,000 -
MR 242 1,049 726 13,188 14,046 15,145
Handysize - - - - - -
Tanker division 1,027 1,124 726 16,800 13,843 15,145
Panamax 580 1,964 1,817 14,177 12,880 12,386
Handymax 278 - - 13,059 - -
Bulk division 858 1,964 1,817 13,815 12,880
12,386
Total 1,885 3,088 2,543 15,441 13,230
13,174
T/C in days at f loating rate
LR2 182 726 725
LR1 - - -
MR 91 363 363
Handysize - - -
Tanker division 273 1,089 1,088
Panamax 91 726 411
Handymax 147 363 363
Bulk division 238 1,089 774
Total 511 2,178 1,862
Total physical days Covered days
LR2 981 3,550 3,629 176 391 337
LR1 1,422 2,584 2,509 236 365 175
MR 3,760 15,449 15,164 634 743 -
Handysize 1,001 3,975 3,944 30 - -
Tanker division 7,164 25,557 25,246 1,076 1,499 512
Panamax 851 3,416 2,922 1,161 720 25
Handymax 425 363 363 566 1,177 869
Bulk division 1,276 3,779 3,285 1,727 1,897
895
Total 8,440 29,336 28,531 2,803 3,397
1,407
Coverage rates, USD/day
LR2 18% 11% 9% 15,687 16,650 16,617
LR1 17% 14% 7% 14,228 15,666 15,666
MR 17% 5% 0% 13,759 13,932 -
Handysize 3% 0% 0% 5,378 - -
Tanker division 15% 6% 2% 13,944 15,063 16,292
Panamax 137% 21% 1% 11,599 14,873 20,070
Handymax 133% 324% 240% 11,073 13,709 16,508
Bulk division 135% 50% 27% 11,427 14,151
16,609
Total 33% 12% 5% 12,393 14,553 16,494
Fair value of f reight rate contracts that are mark-to-market in
the income statement (USD m):
Contracts not included above 0.0
Contracts included above 8.4
Notes
Actual no. of days can vary f rom projected no. of days primarily
due to vessel sales and delays of vessel
deliveries. T/C in days at f ixed rate do not include ef fects f
rom prof it split arrangements. T/C in days at f loating
rate determine rates at entry of each quarter, and then TORM w ill
recieve approx. 10% prof it/loss compared to
this rate.
Covered, %</DIV></BODY></HTML>