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.
|
|
Sunday, 07 September 14
FREIGHT MARKET CONTINUED TO BE FIRM IN SPITE OF CAPE'S THIS WEEK'S WEAK PERFORMANCE
COALspot.com: BDI up by 0.7 pct week on week and closed at 1155 points this week. The Baltic Dry Index is a composite of three sub-indexes that mea ...
Sunday, 07 September 14
SHIPMANAGERS SUPERVISION CONTRACT FOR NEWBUILDS - BIMCO
Shipmanagers are frequently called upon by their owner clients to supervise newbuilding projects on their behalf. The scope of the manager’s ...
Saturday, 06 September 14
SLOW COAL EXPORT REGISTRATION RAISES CONCERNS - THE JAKARTA POST
Several coal mining companies have yet to receive the go-ahead from the Energy and Mineral Resources Ministry to obtain exporting licenses, leading ...
Saturday, 06 September 14
DRY BULK MARKET'S PROSPECTS ARE IMPROVING, DESPITE WEAK SECOND QUARTER - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The dry bulk market has been rebounding during the past month, with the Baltic Dry Index (BDI) ended the week on a high note, reaching 1,155 points ...
Saturday, 06 September 14
INDONESIA WANTS TO REGULATE COAL DEALS - THE TELEGRAPH INDIA
Indonesia has raised concerns about suspected coal deals struck between overseas buyers and its unregistered domestic miners, the telegraph India r ...
|
|
|
Showing 3501 to 3505 news of total 6871 |
|
 |
|
|
|
|
| |
|
 |
|
|
| |
|
- Makarim & Taira - Indonesia
- Offshore Bulk Terminal Pte Ltd, Singapore
- Sarangani Energy Corporation, Philippines
- Iligan Light & Power Inc, Philippines
- Barasentosa Lestari - Indonesia
- Kohat Cement Company Ltd. - Pakistan
- International Coal Ventures Pvt Ltd - India
- Bayan Resources Tbk. - Indonesia
- Gujarat Electricity Regulatory Commission - India
- Cement Manufacturers Association - India
- Port Waratah Coal Services - Australia
- Karaikal Port Pvt Ltd - India
- Lanco Infratech Ltd - India
- PTC India Limited - India
- Miang Besar Coal Terminal - Indonesia
- CIMB Investment Bank - Malaysia
- Aboitiz Power Corporation - Philippines
- Maharashtra Electricity Regulatory Commission - India
- Pipit Mutiara Jaya. PT, Indonesia
- South Luzon Thermal Energy Corporation
- Coalindo Energy - Indonesia
- The University of Queensland
- Kideco Jaya Agung - Indonesia
- Alfred C Toepfer International GmbH - Germany
- Thiess Contractors Indonesia
- Edison Trading Spa - Italy
- Kumho Petrochemical, South Korea
- Kepco SPC Power Corporation, Philippines
- MS Steel International - UAE
- Indo Tambangraya Megah - Indonesia
- Siam City Cement - Thailand
- Riau Bara Harum - Indonesia
- Petron Corporation, Philippines
- Mercuria Energy - Indonesia
- Pendopo Energi Batubara - Indonesia
- GVK Power & Infra Limited - India
- Singapore Mercantile Exchange
- Simpson Spence & Young - Indonesia
- Jaiprakash Power Ventures ltd
- Sindya Power Generating Company Private Ltd
- Goldman Sachs - Singapore
- Bulk Trading Sa - Switzerland
- Global Coal Blending Company Limited - Australia
- SN Aboitiz Power Inc, Philippines
- TNB Fuel Sdn Bhd - Malaysia
- Gujarat Sidhee Cement - India
- Jorong Barutama Greston.PT - Indonesia
- Neyveli Lignite Corporation Ltd, - India
- New Zealand Coal & Carbon
- Kobexindo Tractors - Indoneisa
- TeaM Sual Corporation - Philippines
- Deloitte Consulting - India
- Bhoruka Overseas - Indonesia
- Karbindo Abesyapradhi - Indoneisa
- Indonesian Coal Mining Association
- Medco Energi Mining Internasional
- Altura Mining Limited, Indonesia
- Straits Asia Resources Limited - Singapore
- Dr Ramakrishna Prasad Power Pvt Ltd - India
- CNBM International Corporation - China
- AsiaOL BioFuels Corp., Philippines
- Chettinad Cement Corporation Ltd - India
- Asia Pacific Energy Resources Ventures Inc, Philippines
- The State Trading Corporation of India Ltd
- Siam City Cement PLC, Thailand
- Kapuas Tunggal Persada - Indonesia
- Madhucon Powers Ltd - India
- Bharathi Cement Corporation - India
- Orica Mining Services - Indonesia
- Power Finance Corporation Ltd., India
- Bukit Asam (Persero) Tbk - Indonesia
- Sree Jayajothi Cements Limited - India
- Eastern Coal Council - USA
- Krishnapatnam Port Company Ltd. - India
- Gujarat Mineral Development Corp Ltd - India
- Australian Coal Association
- Coastal Gujarat Power Limited - India
- Videocon Industries ltd - India
- Global Business Power Corporation, Philippines
- Sinarmas Energy and Mining - Indonesia
- Energy Link Ltd, New Zealand
- Manunggal Multi Energi - Indonesia
- SMC Global Power, Philippines
- Ministry of Mines - Canada
- Electricity Generating Authority of Thailand
- Malabar Cements Ltd - India
- ASAPP Information Group - India
- Toyota Tsusho Corporation, Japan
- Eastern Energy - Thailand
- Latin American Coal - Colombia
- Sakthi Sugars Limited - India
- Attock Cement Pakistan Limited
- Bhatia International Limited - India
- Formosa Plastics Group - Taiwan
- PNOC Exploration Corporation - Philippines
- Bukit Baiduri Energy - Indonesia
- PowerSource Philippines DevCo
- Meenaskhi Energy Private Limited - India
- Mjunction Services Limited - India
- OPG Power Generation Pvt Ltd - India
- Bahari Cakrawala Sebuku - Indonesia
- Jindal Steel & Power Ltd - India
- Bangladesh Power Developement Board
- Timah Investasi Mineral - Indoneisa
- Ind-Barath Power Infra Limited - India
- San Jose City I Power Corp, Philippines
- Electricity Authority, New Zealand
- Carbofer General Trading SA - India
- Borneo Indobara - Indonesia
- Agrawal Coal Company - India
- Anglo American - United Kingdom
- Maheswari Brothers Coal Limited - India
- Ministry of Transport, Egypt
- Holcim Trading Pte Ltd - Singapore
- European Bulk Services B.V. - Netherlands
- Uttam Galva Steels Limited - India
- Central Java Power - Indonesia
- Kaltim Prima Coal - Indonesia
- Indian Energy Exchange, India
- Asmin Koalindo Tuhup - Indonesia
- Interocean Group of Companies - India
- Globalindo Alam Lestari - Indonesia
- Australian Commodity Traders Exchange
- Indogreen Group - Indonesia
- IHS Mccloskey Coal Group - USA
- Trasteel International SA, Italy
- Coal and Oil Company - UAE
- Thai Mozambique Logistica
- Rio Tinto Coal - Australia
- Grasim Industreis Ltd - India
- Oldendorff Carriers - Singapore
- Tamil Nadu electricity Board
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- LBH Netherlands Bv - Netherlands
- Mercator Lines Limited - India
- Orica Australia Pty. Ltd.
- PetroVietnam Power Coal Import and Supply Company
- Romanian Commodities Exchange
- Parliament of New Zealand
- VISA Power Limited - India
- Semirara Mining Corp, Philippines
- Ceylon Electricity Board - Sri Lanka
- Essar Steel Hazira Ltd - India
- Planning Commission, India
- Economic Council, Georgia
- Wood Mackenzie - Singapore
- Petrochimia International Co. Ltd.- Taiwan
- Semirara Mining and Power Corporation, Philippines
- Indian Oil Corporation Limited
- Parry Sugars Refinery, India
- Renaissance Capital - South Africa
- Banpu Public Company Limited - Thailand
- Heidelberg Cement - Germany
- SMG Consultants - Indonesia
- Georgia Ports Authority, United States
- Leighton Contractors Pty Ltd - Australia
- GAC Shipping (India) Pvt Ltd
- Chamber of Mines of South Africa
- Central Electricity Authority - India
- Marubeni Corporation - India
- Sical Logistics Limited - India
- Commonwealth Bank - Australia
- Therma Luzon, Inc, Philippines
- Bhushan Steel Limited - India
- Directorate General of MIneral and Coal - Indonesia
- London Commodity Brokers - England
- Rashtriya Ispat Nigam Limited - India
- Salva Resources Pvt Ltd - India
- Ambuja Cements Ltd - India
- Samtan Co., Ltd - South Korea
- Aditya Birla Group - India
- Larsen & Toubro Limited - India
- Global Green Power PLC Corporation, Philippines
- Indika Energy - Indonesia
- GMR Energy Limited - India
- Wilmar Investment Holdings
- Meralco Power Generation, Philippines
- Standard Chartered Bank - UAE
- GN Power Mariveles Coal Plant, Philippines
- Bukit Makmur.PT - Indonesia
- Binh Thuan Hamico - Vietnam
- White Energy Company Limited
- Billiton Holdings Pty Ltd - Australia
- Kalimantan Lumbung Energi - Indonesia
- India Bulls Power Limited - India
- Xindia Steels Limited - India
- Vedanta Resources Plc - India
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Vizag Seaport Private Limited - India
- The Treasury - Australian Government
- Price Waterhouse Coopers - Russia
- Vijayanagar Sugar Pvt Ltd - India
- Mintek Dendrill Indonesia
- Minerals Council of Australia
- Antam Resourcindo - Indonesia
- ICICI Bank Limited - India
- Tata Chemicals Ltd - India
- Independent Power Producers Association of India
- Merrill Lynch Commodities Europe
- McConnell Dowell - Australia
- Directorate Of Revenue Intelligence - India
- Bank of Tokyo Mitsubishi UFJ Ltd
- Intertek Mineral Services - Indonesia
- Star Paper Mills Limited - India
- Dalmia Cement Bharat India
- Savvy Resources Ltd - HongKong
- Posco Energy - South Korea
- Africa Commodities Group - South Africa
- Metalloyd Limited - United Kingdom
- Baramulti Group, Indonesia
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sojitz Corporation - Japan
- IEA Clean Coal Centre - UK
- Kartika Selabumi Mining - Indonesia
- Ministry of Finance - Indonesia
- Energy Development Corp, Philippines
- Cigading International Bulk Terminal - Indonesia
|
| |
| |
|
