January 6, 2009
Time running out for U.S. Shipping Partners
The clock looks to be ticking for troubled Jones Act operator U.S. Shipping Partners L.P. It's now operating under a "forbearance agreement" with major lenders that appears to give it until February 10, or maybe even January 31, to sell itself or find some other way of saving itself.
U.S. Shipping Partners L.P. says in an SEC filing that it did not pay the principal or interest payment due on December 31, 2008 under its senior credit agreement. An "event of default" has thus occurred under that agreement and lenders holding a majority-in-interest of the outstanding loans may at any time direct the administrative agent to declare all outstanding obligations under the agreement to be immediately due and payable and to pursue their rights and remedies under the agreement, under which $332.6 million was outstanding at December 31, 2008.
However, says U.S. Shipping Partners, the holders of a majority-in-interest of the outstanding loans have entered into a "forbearance agreement" under which they agreed to forbear from taking any action or exercising any right or remedy as a result of the partnership's failure to make the December 31, 2008 payments under the senior credit agreement.
During the term of the agreement, the partnership has agreed to engage in good faith negotiations with the administrative agent and the lenders regarding restructuring and strategic alternatives which will include a possible sale of the partnership.
The forbearance agreement will terminate at 5:00 p.m. (Eastern time) on February 10, 2009, or should there be any event of default other than the failure to make the December 31 payment, or should the partnership fail to to comply with any of the provisions of the Forbearance Agreement.
The lenders' prior waiver of any potential defaults under the financial covenants set forth in the senior credit agreement for the quarters ended September 30, 2008 and December 31, 2008 will expire January 31, 2009, which will result in the occurrence of an event of default under the senior credit agreement, and a termination of the forbearance agreement, absent an additional waiver or agreement to forbear by the lenders.
There can be no assurance that the lenders will not accelerate the outstanding obligations and pursue their remedies under the senior credit agreement after January 31, 2009.
The partnership's failure to make the December 31, 2008 principal and interest payments under the senior credit facility also constitutes an event of default under the partnership's interest rate swap agreements. As a result, the counterparty to each interest rate swap agreement may, upon prior notice, elect to terminate such agreement early.
If the partnership's interest rate swap agreement with the administrative agent is early terminated, the Partnership estimates it would owe approximately $14.9 million. If the partnership's interest rate swap agreement with Lehman Brothers Special Financing Inc. is early terminated, the Partnership estimates it would owe approximately $9.9 million.
U.S. Shipping Partners says there can be no assurance that the counterparties to these interest rate swap agreements will not early terminate the agreements and seek payment of these obligations, which are secured by all the assets of the partnership; however, due to the forbearance agreement, the counterparties would be unable to require the administrative agent to foreclose on the partnership's assets during the term of the forbearance agreement.