We welcome article submissions from experts in the areas of coal, mining,
shipping, etc.
To Submit your article please click here.
|
|
|
Tuesday, 29 July 14
GENCO: DRY BULK SHIPPING VALUATIONS NO LONGER ANCHORED TO DISCOUNTED CASH FLOW METHOD - WEIL
 KNOWLEDGE TO ELEVATE
Discounted cash flow analysis is a mainstay among the valuation methodologies used by restructuring professionals and bankruptcy courts to determine the enterprise value of a distressed business. Despite its prevalence, the United States Bankruptcy Court for the Southern District of New York recently concluded the DCF method was inappropriate for the valuation of “dry bulk” shipping companies. In re Genco Shipping & Trading Limited. Although the bankruptcy court merely applied existing law to the facts of the case, the decision in Genco could serve as precedent for the valuation of companies in other segments of the shipping industry, or other industries, that experience significant volatility in rates.
Genco and the Prepackaged Plan of Reorganization
Genco Shipping & Trading Limited is a leading provider of maritime transportation services for “dry bulk” cargoes, such as iron ore, coal, grain, and steel products. Through its subsidiaries, Genco owns and operates a fleet of 53 vessels, which it contracts out to third-parties under fixed-rate or spot-market time charters.
In April 2014, Genco and certain of its affiliates commenced cases under chapter 11 of the Bankruptcy Code to implement a prepackaged plan of reorganization that would consensually restructure approximately $1.48 billion in secured and unsecured debt. The Genco plan provided the following key features:
- Approximately $1.2 billion of secured debt would be converted into equity in the reorganized company.
- New capital would be invested through a $100 million, fully backstopped rights offering.
- The maturities for two secured prepetition facilities would be extended.
- Allowed general unsecured claims would be reinstated and paid in the ordinary course of business.
- Existing equity holders would receive warrants for up to 6% of the equity in the reorganized company.
The plan garnered unanimous approval from Genco’s secured lenders and holders of its unsecured convertible notes.
The Genco plan was premised on an enterprise valuation between $1.36 billion and $1.44 billion. The debtors derived this range of values from a “Net Asset Valuation” analysis, a methodology commonly applied to shipping companies in non-bankruptcy contexts. An upcoming post will examine the bankruptcy court’s analysis of the NAV methodology in the bankruptcy context.
Equity Committee Contested Genco Plan Valuation
Less than three weeks into the bankruptcy, the U.S. Trustee appointed an equity committee, which was comprised of (i) Aurelius Capital Partners LP, (ii) Mohawk Capital LLC, and (iii) OZ Domestic Partners, LP (a/k/a Och Ziff).
The equity committee objected to confirmation of the Genco plan. It argued, among other things, that the debtors’ enterprise value was actually between $1.54 billion and $1.91 billion. The equity committee argued that, because the debtors were solvent under its valuation, existing equity holders were entitled to greater recoveries than those provided under the Genco plan. The equity committee derived its range of values from a weighted average of its DCF, comparable company, precedent transaction, and NAV analyses, with each weighted at 37.5%, 37.5%, 10%, and 15%, respectively
Bankruptcy Court Rejected DCF Methodology for Dry Bulk Shippers
To determine whether Genco’s enterprise value exceeded $1.48 billion, the amount at which existing equity holders would be entitled to any recovery, the bankruptcy court examined the testimony presented with respect to each of the four valuation methodologies. The bankruptcy court concluded that there were “many good reasons that the DCF method should not be applied here” and considered only the remaining three methodologies, ultimately determining that the debtors’ value did not exceed $1.48 billion.
The bankruptcy court began its analysis of the DCF methodology by explaining it briefly, as follows:
A discounted cash flow analysis entails estimating the periodic cash flow that a company will generate over a discrete time period, determining the ‘terminal value’ of the company at the end of the period, and discounting each of the cash flows and terminal value to determine the total value as of the relevant date.
Thus, even though a DCF analysis is a “traditional methodology,” it is of limited use when based on projections of future cash flows that are unreliable or difficult to ascertain. The bankruptcy court found that accurate cash flow projections did not exist for Genco, and it observed that the parties agreed on this point. In fact, the equity committee’s financial adviser testified that “shipping rates are volatile and the industry can be characterized as cyclical ….” In addition, the committee’s expert witness conceded that “[i]t is difficult to accurately forecast freight rates in drybulk shipping …. [and that] the drybulk market is dynamic and volatile.”
Interestingly, the bankruptcy court concluded not just that accurate projections were unobtainable in the case of Genco, specifically, but also for dry bulk shippers, generally. The bankruptcy court observed that the DCF method is inappropriate for the dry bulk shipping market because it is volatile and highly fragmented, has low barriers to entry, and little differentiation exists among competitors, causing charter rates to fluctuate with supply and demand and making revenues unpredictable. The bankruptcy court further noted that its market-wide concerns were exacerbated in the case of Genco because its longer-term charters are set to expire by October 2014, leaving the company entirely exposed to market volatility through spot-rate charters.
Equity Committee’s DCF Analysis Unpersuasive for Additional Reasons
Although the bankruptcy court found that “the volatility of the [dry bulk] industry is a sufficient basis by itself to reject a DCF analysis,” it proceeded to identify a number of particular problems with the equity committee’s DCF analysis that made it unpersuasive.
First, the bankruptcy court noted that the equity committee’s heavy reliance on its DCF analysis was internally inconsistent because the assumptions about future industry performance underlying the analysis were based on reports from equity analysts, most of whom did not utilize the DCF method in reaching their conclusions. Second, in written materials presented to Och Ziff prior to the bankruptcy filing, the financial adviser to the equity committee noted that the DCF method was not commonly used to value companies in the shipping industry.
The bankruptcy court also noted that, before being retained by the equity committee, the financial adviser to the equity committee prepared pitch materials for debtors in which it estimated a shortfall in Genco’s collateral value. The bankruptcy court made clear that it did not rely on this fact in reaching its decision, but mentioned it and other, similar statements that undermined the credibility of the testimony presented by the financial adviser to the equity committee. Third, the equity committee’s argument that DCF analyses were used in fairness opinions issued in connection with certain maritime M&A transactions was not compelling because other evidence suggested that those transactions focused more on the NAV methodology for purposes of valuation, and there was conflicting testimony on the usefulness of fairness opinions in the context of a contested hearing on valuation.
Finally, the bankruptcy court found that the testimony presented by the equity committee’s expert witness regarding shipping rate forecasts was “unpersuasive and less credible than that” presented by the debtors’ expert.
Lessons Learned
The prospective nature of the DCF method often allows parties to advocate for higher valuations on subjective and/or intangible grounds. The Genco decision is significant because it establishes a clear precedent rejecting the DCF method when determining the enterprise value of dry bulk shipping companies in bankruptcy. This precedent may reduce the leverage of parties, such as equity holders, that would benefit from a higher valuation of a dry bulk shipper.
The decision, however, will likely have farther-reaching consequences. Dry bulk is just one segment of the larger shipping industry, and many other segments share the characteristics that the bankruptcy court cited to support its conclusion that accurate projections were unobtainable. Similarly, shipping is not the only industry with notable volatility; other industries may soon be the next port of call for the Genco decision.
Source: Weil Gotshal & Manges LLP, Gabriel A. Morgan / Hellenic Shipping
If you believe an article violates your rights or the rights of others, please contact us.
|
|
Tuesday, 06 February 24
INDIA'S COAL PRODUCTION INCREASES BY 10.3% TO 99.73 MILLION TONNE IN JANUARY - PTI
The country’s coal output rose 10.3 per cent to 99.73 Million Tonne (MT) in January, over the same month in the previous fiscal.
...
Friday, 02 February 24
DRY BULK MARKET: THE DOWNWARD REVISION IN THE GROWTH OF CAPESIZE TONNE DAYS IN JANUARY WITH THE BCI DROPPING - MARIA BERTZELETOU
In the last week of January, the dry freight market sustained weakness in the Capesize segment, while the number of ballasters in the Southeast (SE ...
Friday, 02 February 24
COAL INDIA ACHIEVES NEARLY 80% OF ITS FY24 PRODUCTION TARGET IN TEN MONTHS - CNBCTV18
For the month of January, the company’s production grew by 9.1% from the same period last year to 78.4 Million Tonnes (MT), from 71.9 MT last ...
Thursday, 01 February 24
CHINA'S WIND, SOLAR CAPACITY TO OVERTAKE COAL IN 2024 - INDUSTRY BODY, REUTERS REPORTED
China’s installed wind and solar capacity is expected to overtake coal for the first time this year, according to industry forecasts.
&nb ...
Thursday, 01 February 24
ANTI-DEDUCTION CLAUSES: CAN A CHARTERER WITHHOLD HIRE WITHOUT AN OWNER'S CONSENT? - SKULD
KNOWLEDGE TO ELEVATE
Summary
In The Anna Dorothea, the Court found that where a charterparty provides that no deduction from hire may be m ...
|
|
|
Showing 16 to 20 news of total 6846 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- LBH Netherlands Bv - Netherlands
- Mercator Lines Limited - India
- GMR Energy Limited - India
- Coal and Oil Company - UAE
- Timah Investasi Mineral - Indoneisa
- Gujarat Electricity Regulatory Commission - India
- Makarim & Taira - Indonesia
- Planning Commission, India
- Electricity Authority, New Zealand
- Formosa Plastics Group - Taiwan
- Toyota Tsusho Corporation, Japan
- Larsen & Toubro Limited - India
- Uttam Galva Steels Limited - India
- CNBM International Corporation - China
- European Bulk Services B.V. - Netherlands
- Billiton Holdings Pty Ltd - Australia
- Rashtriya Ispat Nigam Limited - India
- The Treasury - Australian Government
- Sree Jayajothi Cements Limited - India
- Petron Corporation, Philippines
- South Luzon Thermal Energy Corporation
- PNOC Exploration Corporation - Philippines
- Orica Australia Pty. Ltd.
- Bukit Asam (Persero) Tbk - Indonesia
- Deloitte Consulting - India
- Wilmar Investment Holdings
- Singapore Mercantile Exchange
- Cigading International Bulk Terminal - Indonesia
- Kaltim Prima Coal - Indonesia
- McConnell Dowell - Australia
- Energy Link Ltd, New Zealand
- IEA Clean Coal Centre - UK
- Romanian Commodities Exchange
- Thiess Contractors Indonesia
- Simpson Spence & Young - Indonesia
- Meralco Power Generation, Philippines
- IHS Mccloskey Coal Group - USA
- Holcim Trading Pte Ltd - Singapore
- Samtan Co., Ltd - South Korea
- ASAPP Information Group - India
- Jindal Steel & Power Ltd - India
- Renaissance Capital - South Africa
- VISA Power Limited - India
- PTC India Limited - India
- Oldendorff Carriers - Singapore
- CIMB Investment Bank - Malaysia
- Sindya Power Generating Company Private Ltd
- Sojitz Corporation - Japan
- Sarangani Energy Corporation, Philippines
- Metalloyd Limited - United Kingdom
- Thai Mozambique Logistica
- Bangladesh Power Developement Board
- Indika Energy - Indonesia
- GAC Shipping (India) Pvt Ltd
- TeaM Sual Corporation - Philippines
- Central Java Power - Indonesia
- Dalmia Cement Bharat India
- Riau Bara Harum - Indonesia
- Vijayanagar Sugar Pvt Ltd - India
- Tata Chemicals Ltd - India
- Kideco Jaya Agung - Indonesia
- Meenaskhi Energy Private Limited - India
- ICICI Bank Limited - India
- Bukit Makmur.PT - Indonesia
- Straits Asia Resources Limited - Singapore
- Standard Chartered Bank - UAE
- Antam Resourcindo - Indonesia
- Chamber of Mines of South Africa
- Vedanta Resources Plc - India
- Anglo American - United Kingdom
- Australian Commodity Traders Exchange
- Global Green Power PLC Corporation, Philippines
- Parliament of New Zealand
- Kalimantan Lumbung Energi - Indonesia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- OPG Power Generation Pvt Ltd - India
- Wood Mackenzie - Singapore
- Parry Sugars Refinery, India
- Medco Energi Mining Internasional
- Intertek Mineral Services - Indonesia
- Ind-Barath Power Infra Limited - India
- Semirara Mining and Power Corporation, Philippines
- Energy Development Corp, Philippines
- Bukit Baiduri Energy - Indonesia
- Georgia Ports Authority, United States
- Goldman Sachs - Singapore
- Bank of Tokyo Mitsubishi UFJ Ltd
- Maheswari Brothers Coal Limited - India
- Miang Besar Coal Terminal - Indonesia
- Carbofer General Trading SA - India
- Salva Resources Pvt Ltd - India
- Videocon Industries ltd - India
- Baramulti Group, Indonesia
- Manunggal Multi Energi - Indonesia
- Indian Oil Corporation Limited
- Edison Trading Spa - Italy
- Pipit Mutiara Jaya. PT, Indonesia
- Chettinad Cement Corporation Ltd - India
- GVK Power & Infra Limited - India
- Gujarat Sidhee Cement - India
- Borneo Indobara - Indonesia
- Economic Council, Georgia
- Neyveli Lignite Corporation Ltd, - India
- India Bulls Power Limited - India
- Cement Manufacturers Association - India
- Semirara Mining Corp, Philippines
- Mintek Dendrill Indonesia
- Eastern Coal Council - USA
- Bhatia International Limited - India
- New Zealand Coal & Carbon
- Savvy Resources Ltd - HongKong
- Power Finance Corporation Ltd., India
- Aboitiz Power Corporation - Philippines
- White Energy Company Limited
- Globalindo Alam Lestari - Indonesia
- Mjunction Services Limited - India
- PetroVietnam Power Coal Import and Supply Company
- Siam City Cement - Thailand
- Karaikal Port Pvt Ltd - India
- Indo Tambangraya Megah - Indonesia
- Global Business Power Corporation, Philippines
- Independent Power Producers Association of India
- London Commodity Brokers - England
- Banpu Public Company Limited - Thailand
- Altura Mining Limited, Indonesia
- Interocean Group of Companies - India
- Grasim Industreis Ltd - India
- Alfred C Toepfer International GmbH - Germany
- Kapuas Tunggal Persada - Indonesia
- The State Trading Corporation of India Ltd
- Xindia Steels Limited - India
- Eastern Energy - Thailand
- Indian Energy Exchange, India
- Global Coal Blending Company Limited - Australia
- Africa Commodities Group - South Africa
- MS Steel International - UAE
- Port Waratah Coal Services - Australia
- Ambuja Cements Ltd - India
- Coalindo Energy - Indonesia
- SMC Global Power, Philippines
- Offshore Bulk Terminal Pte Ltd, Singapore
- Attock Cement Pakistan Limited
- Gujarat Mineral Development Corp Ltd - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Tamil Nadu electricity Board
- Kohat Cement Company Ltd. - Pakistan
- Minerals Council of Australia
- Merrill Lynch Commodities Europe
- TNB Fuel Sdn Bhd - Malaysia
- Bhoruka Overseas - Indonesia
- Jaiprakash Power Ventures ltd
- Barasentosa Lestari - Indonesia
- Vizag Seaport Private Limited - India
- Bayan Resources Tbk. - Indonesia
- San Jose City I Power Corp, Philippines
- AsiaOL BioFuels Corp., Philippines
- Heidelberg Cement - Germany
- Sakthi Sugars Limited - India
- Central Electricity Authority - India
- Bahari Cakrawala Sebuku - Indonesia
- Jorong Barutama Greston.PT - Indonesia
- Orica Mining Services - Indonesia
- International Coal Ventures Pvt Ltd - India
- Pendopo Energi Batubara - Indonesia
- Coastal Gujarat Power Limited - India
- Aditya Birla Group - India
- Posco Energy - South Korea
- Maharashtra Electricity Regulatory Commission - India
- Bulk Trading Sa - Switzerland
- Petrochimia International Co. Ltd.- Taiwan
- Lanco Infratech Ltd - India
- Marubeni Corporation - India
- Latin American Coal - Colombia
- Ceylon Electricity Board - Sri Lanka
- Kumho Petrochemical, South Korea
- Siam City Cement PLC, Thailand
- Rio Tinto Coal - Australia
- Trasteel International SA, Italy
- Indonesian Coal Mining Association
- Iligan Light & Power Inc, Philippines
- Price Waterhouse Coopers - Russia
- Ministry of Finance - Indonesia
- Electricity Generating Authority of Thailand
- Kepco SPC Power Corporation, Philippines
- Madhucon Powers Ltd - India
- Bhushan Steel Limited - India
- Star Paper Mills Limited - India
- The University of Queensland
- Binh Thuan Hamico - Vietnam
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Directorate General of MIneral and Coal - Indonesia
- Essar Steel Hazira Ltd - India
- Krishnapatnam Port Company Ltd. - India
- Kobexindo Tractors - Indoneisa
- Sinarmas Energy and Mining - Indonesia
- Directorate Of Revenue Intelligence - India
- Agrawal Coal Company - India
- Ministry of Transport, Egypt
- Karbindo Abesyapradhi - Indoneisa
- Malabar Cements Ltd - India
- Indogreen Group - Indonesia
- Kartika Selabumi Mining - Indonesia
- Leighton Contractors Pty Ltd - Australia
- Therma Luzon, Inc, Philippines
- Mercuria Energy - Indonesia
- GN Power Mariveles Coal Plant, Philippines
- Bharathi Cement Corporation - India
- SMG Consultants - Indonesia
- Sical Logistics Limited - India
- Asmin Koalindo Tuhup - Indonesia
- SN Aboitiz Power Inc, Philippines
- Ministry of Mines - Canada
- PowerSource Philippines DevCo
- Commonwealth Bank - Australia
- Australian Coal Association
- Dong Bac Coal Mineral Investment Coporation - Vietnam
|
| |
| |
|
