4 Min Read
Overview -- U.S.-based global energy transporter Overseas Shipholding Group Inc. today filed voluntary Chapter 11 petitions for itself and certain operating subsidiaries. -- We are lowering our ratings on the company, including our long-term corporate credit rating to 'D' from 'CCC-', based on the bankruptcy filing, and removing the ratings from CreditWatch, where we placed them with negative implications on Oct. 22, 2012. -- We are lowering our issue rating on the senior unsecured debt to 'D' from 'CCC-'. -- The '3' recovery rating, indicating our expectation that lenders will receive a meaningful (50%-70%) recovery in a payment default scenario, remains unchanged for now. However, the company has disclosed a potential tax liability that we estimate could lower the recovery to a 10% to 30% range. Rating Action On Nov. 14, 2012, Standard & Poor's Ratings Services lowered its long-term corporate credit rating on Overseas Shipholding Group Inc. (OSG) to 'D' from 'CCC-'. We also lowered our ratings on the company's senior unsecured debt to 'D' from 'CCC-'. The '3' recovery rating remains unchanged, indicating our expectation that lenders will receive a meaningful (50%-70%) recovery in a payment default scenario. All ratings were removed from CreditWatch, where they were placed with negative implications on Oct. 22, 2012. Rationale The downgrade reflects the fact that OSG announced today that it had filed chapter 11 bankruptcy protection. We are keeping our '3' recovery ratings unchanged for now. However, our recovery ratings do not take into account any potential tax liabilities that the company may have. As of June 30, 2012, the company had unrecognized deferred U.S. income tax of approximately $770 million because of undistributed earnings from shipping income of its foreign subsidiaries or its less-than-50%-owned foreign shipping joint ventures. The recovery could fall into the 10% to 30% range (corresponding with a '5' rating) if actual tax liability is consistent with the amount of unrecognized deferred U.S. income tax and if that liability is treated as a priority claim. On Oct. 22, 2012, OSG filed an 8-K stating it is reviewing a tax issue arising from the fact that the company is domiciled in the United States and has substantial international operations, and relating to the interpretation of certain provisions contained in the company's loan agreements. As a result of that continuing process, OSG stated its previously issued financial statements for the three years ended Dec. 31, 2011, and associated interim periods for the quarters ended March 31 and June 30, 2012, should no longer be relied upon. New York City-based OSG is one of the world's leading liquid bulk shipping companies. As of June 30, 2012, the company operated a fleet of 112 vessels (67 owned, 45 chartered-in), totaling about 10.7 million deadweight tons. Recovery analysis The issue-level rating on OSG's senior unsecured debt is 'D', the same as the corporate credit rating. The recovery rating is '3', indicating our expectation a meaningful (50%-70%) recovery in a payment default scenario.