June 9, 2009
USSP debtors seek to stop payments to former officers, advisor
As the U.S. Shipping Partners case wends on, there's news that the partnership has conceded defeat in its attempt to stop Blackstone Group replace it as managing partner in the J.V. formed to build and operate a series of Jones Act products tankers.
Meantime, the U.S. Shipping Partners L.P. debtors in possession have filed a motion for relief in U.S. Bankruptcy Court. They are asking the court's permission to reject amended and restated employment agreements, dated November 3, 2004 between USSP and former Chairman and CEO Paul Gridley and between USSP and former Chief Financial Officer Albert Bergeron.
They also want to reject the agreement between USSP and Jefferies & Company, Inc. ("Jefferies").
In their motion, the debtors say that "Neither Mr. Gridley nor Mr. Bergeron is currently employed by the Debtors and, accordingly, do not provide any services or value to the Debtors. Nonetheless, under their respective Employment Agreements, the Debtors are obligated to pay Mr. Gridley and Mr. Bergeron approximately $925,218.75 and $813,750.00, respectively, as severance. To relieve the Debtors of these obligations, the Debtors seek to reject the Employment Agreements."
The debtors say that USSP retained Jefferies as its financial advisor to assist with a potential restructuring of its operations in 2007. "Prior to the Debtors' current chapter 11 cases and proposed prearranged reorganization, however, Jefferies ceased to provide such services to USSP and have since been replaced by Greenhill & Co., LLC. Accordingly, Jefferies has not participated in or contributed any value to the Debtors' ongoing reorganization.
"Nonetheless, the Jefferies Engagement Letter provides that, if USSP consummates a sale of debt or equity securities or restructures its outstanding debt on or before December 31, 2009, USSP shall pay Jefferies a fee equal to 2.5% of the proceeds received from the sale of any privately placed equity securities, 1.5% of the face value of any unsecured debt that is newly issued or that has already been issued and is restructured, and 0.5% of the face value of any secured debt that is newly issued or that has been issued and is restructured Ð regardless of whether Jefferies & Company, Inc. actually participated in the ongoing restructuring process."
The debtors say these provisions could entitle Jefferies to a "success fee" of approximately $2,250,000, which they call "a hefty sum relative to the value the Debtors' received."
To avoid their obligations to pay such a fee, the Debtors seek to reject the Jefferies Engagement Letter.