Nov 1 Overseas Shipholding Group Inc's
warning that it may file for bankruptcy protection has companies
that lease ships to the world's No. 2 tanker operator scrambling
to find alternative customers and writing down the value of
their OSG contracts.
Nearly 35 percent of OSG's 112-vessel fleet is leased, with
contracts ending between 2013 and 2018.
"We are in contact with willing alternative operators should
OSG fail to retain the bareboat charters, but we think this is
an unlikely outcome so far," said Leigh Jaros, chief financial
officer of Oslo-based American Shipping Company ASA,
which has leased 10 tankers to OSG.
The book value of those tankers was about $932 million in
the second quarter.
OSG, which has a stock market value of about $36 million,
said last week that it was evaluating options including filing
for bankruptcy protection as a result of a tax issue that could
force it to restate results for at least the last three years.
OSG's main credit line, a $1.5 billion fully drawn facility,
is set to expire in February, leaving it with few options other
than to restructure, shipping and restructuring experts said.
The troubles at New York-based OSG could also ensnare
Diamond S Shipping, backed by billionaire Wilbur Ross, which has
eight vessels on lease to the company.
"The issue is that those charters (with OSG) were calculated
as being good cash performers for Diamond S Shipping," said Paul
Slater, chief executive of financial consulting firm First
International Corp, which helps companies operate under the
protection of a bankruptcy court.
Any loss of OSG charters could also affect the delivery of
eight new Suezmax, or mid-sized tankers, that Diamond has
ordered from South Korean yards, Slater said.
Deliveries were to have started in 2012, according to the
private company's website.
OSG spin-off DHT Holdings Inc has already written
down the carrying value of its fleet by $92.5 million, citing
the four ships it has on charter to OSG as well as weak market
"With so much uncertainty about our future cash flow due to
the OSG situation, we are going to play it very cautiously in
the near future," Eirik Uboe, DHT's chief financial officer,
said on a post-earnings conference call last week.
Daily rates for DHT's tankers chartered to OSG range from
$20,700 to $33,500.
Companies that have leased ships to OSG said it had not
defaulted on payments and that no charters have been withdrawn.
"The vessel charters are performing as per the terms of the
time charter party," Diamond S Shipping Chief Executive Craig
Stevenson told Reuters in an email.
DHT Chief Executive Svein Harfjeld said OSG had not sought
to renegotiate any charter contracts. "They are current on
payments to us," he said, while declining to speculate on how an
OSG bankruptcy would affect his company.
OSG can cancel its charter-in contracts -- those that cover
vessels a firm leases, as opposed to those it charters to others
-- once it filed for bankruptcy, restructuring experts said.
"Charter-in contracts are an enormous problem in shipping
companies these days," said Albert Stein, managing director at
AlixPartners, a restructuring firm. "They can hold up the
Citing the example of Danish shipping group Torm A/S
, First International's Slater said OSG would have to
renegotiate chartering contracts for any reorganization to be
Torm, which mainly operates dry bulk vessels, said last
month it had renegotiated contracts with shipowners to align
charter rates with market levels or had arranged to cancel them.
OSG would likely cancel the 10 ships it has chartered for
its U.S.-flag fleet, Slater said.
Those ships are chartered from a unit of American Shipping
Co, and were earning an average of $57,800 per day as of June
30, according to an OSG regulatory filing.
Kirby Corp, which has replaced OSG in the Dow Jones
Transportation Average, has expressed interest in this
"We are watching the OSG fleet ... They control equipment
which certainly is very attractive," Kirby Corp CEO Joe Pyne
said on a post-earnings call last week.
OSG's shares have tumbled more than 80 percent in the past
month. The stock, which traded for as much as $88.57 in 2007,
closed at $1.12 on the New York Stock Exchange on Wednesday.