COALspot.com keeps you connected across the coal world

Submit Your Articles
We welcome article submissions from experts in the areas of coal, mining, shipping, etc.

To Submit your article please click here.

International Energy Events


Search News
Latest CoalNews Headlines
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.

Recent News

Thursday, 31 July 14
RIO TINTO SELLS MOZAMBIQUE COAL ASSETS FOR US$ 50 MILLION TO INDIA'S ICVL
COALspot.com: Rio Tinto has agreed to sell its Mozambique coal assets for just US$ 50 million to International coal ventures Private limited of Ind ...


Wednesday, 30 July 14
CAPES SEEMED TO BE STRANDED AT THE SAME LEVELS; PANAMAXES MANAGED TO SLIGHTLY REVIVE - INTERMODAL
COALspot.com: The Dry Bulk market took a breath this past week, as both Panamaxes and Supras started to see a small influx of activity, which was j ...


Tuesday, 29 July 14
TOTAL SELLS ITS SOUTH AFRICAN COAL MINING ASSETS TO EXXARO
Total has signed an agreement with Exxaro Resources Ltd for the sale of its 100% stake in Total Coal South Africa (TCSA), its coal-producing affili ...


Tuesday, 29 July 14
SHIP OWNERS' DEMAND OF NEW VESSELS DENTED AS A RESULT OF LOWER FREIGHT RATES - NIKOS ROUSSANOGLOU, HELLENIC SHIPPING NEWS
The sharp downward direction of dry bulk freight rates has had a negative impact on investors’ secondhand buying appetite that wait to see th ...


Monday, 28 July 14
Q3' 14, SUB-BIT FOB INDONESIA COAL SWAP GAINED $ 0.08 DAY ON DAY AND $ 0.68 WEEK ON WEEK
COALspot.com: Indonesian coal swaps for average Q3’ 2014 increased by just US$ 0.08 day on day and US$ 0.68 week on week. The swap was lost U ...


   713 714 715 716 717   
Showing 3571 to 3575 news of total 6871
News by Category
Popular News
 
Total Members : 28,704
Member
Panelist
User ID
Password
Remember Me
By logging on you accept our TERMS OF USE.
Free
Register
Forgot Password
 
Our Members Are From ...

  • Goldman Sachs - Singapore
  • JPMorgan - India
  • Heidelberg Cement - Germany
  • GNFC Limited - India
  • Singapore Mercantile Exchange
  • Ambuja Cements Ltd - India
  • Eastern Coal Council - USA
  • Noble Europe Ltd - UK
  • GAC Shipping (India) Pvt Ltd
  • Petrochimia International Co. Ltd.- Taiwan
  • Bahari Cakrawala Sebuku - Indonesia
  • GMR Energy Limited - India
  • Petrosea - Indonesia
  • Rashtriya Ispat Nigam Limited - India
  • Kartika Selabumi Mining - Indonesia
  • Inco-Indonesia
  • SMG Consultants - Indonesia
  • PLN Batubara - Indonesia
  • Chamber of Mines of South Africa
  • Energy Development Corp, Philippines
  • Gujarat Sidhee Cement - India
  • Ernst & Young Pvt. Ltd.
  • Mitra SK Pvt Ltd - India
  • GN Power Mariveles Coal Plant, Philippines
  • Coalindo Energy - Indonesia
  • Jatenergy - Australia
  • Siam City Cement PLC, Thailand
  • Bulk Trading Sa - Switzerland
  • SRK Consulting
  • Semirara Mining Corp, Philippines
  • AsiaOL BioFuels Corp., Philippines
  • APGENCO India
  • Pinang Coal Indonesia
  • Sarangani Energy Corporation, Philippines
  • Asian Development Bank
  • Samsung - South Korea
  • IBC Asia (S) Pte Ltd
  • ETA - Dubai
  • Binh Thuan Hamico - Vietnam
  • Marubeni Corporation - India
  • Gujarat Electricity Regulatory Commission - India
  • Sakthi Sugars Limited - India
  • Dr Ramakrishna Prasad Power Pvt Ltd - India
  • BNP Paribas - Singapore
  • Indo Tambangraya Megah - Indonesia
  • Thailand Anthracite
  • NTPC Limited - India
  • Thiess Contractors Indonesia
  • Standard Chartered Bank - UAE
  • Bhushan Steel Limited - India
  • MEC Coal - Indonesia
  • Mercuria Energy - Indonesia
  • Essar Steel Hazira Ltd - India
  • CNBM International Corporation - China
  • Uttam Galva Steels Limited - India
  • Coal and Oil Company - UAE
  • Wood Mackenzie - Singapore
  • Bhatia International Limited - India
  • Cement Manufacturers Association - India
  • Infraline Energy - India
  • RBS Sempra - UK
  • GB Group - China
  • Australian Coal Association
  • Borneo Indobara - Indonesia
  • Ince & co LLP
  • Kohat Cement Company Ltd. - Pakistan
  • Trasteel International SA, Italy
  • Economic Council, Georgia
  • Planning Commission, India
  • Clarksons - UK
  • Bukit Asam (Persero) Tbk - Indonesia
  • U S Energy Resources
  • Parliament of New Zealand
  • Dalmia Cement Bharat India
  • Indian Energy Exchange, India
  • Indonesia Power. PT
  • Independent Power Producers Association of India
  • Indorama - Singapore
  • TANGEDCO India
  • Coeclerici Indonesia
  • Karbindo Abesyapradhi - Indoneisa
  • Shree Cement - India
  • Global Green Power PLC Corporation, Philippines
  • Sojitz Corporation - Japan
  • Tata Power - India
  • Mitsubishi Corporation
  • Peabody Energy - USA
  • EIA - United States
  • Shenhua Group - China
  • Coal Orbis AG
  • Metalloyd Limited - United Kingdom
  • World Bank
  • Petron Corporation, Philippines
  • IMC Shipping - Singapore
  • KPCL - India
  • Banpu Public Company Limited - Thailand
  • Barasentosa Lestari - Indonesia
  • Asmin Koalindo Tuhup - Indonesia
  • Price Waterhouse Coopers - Russia
  • Sical Logistics Limited - India
  • Directorate General of MIneral and Coal - Indonesia
  • CIMB Investment Bank - Malaysia
  • Latin American Coal - Colombia
  • Meenaskhi Energy Private Limited - India
  • Vitol - Bahrain
  • The Treasury - Australian Government
  • Eastern Energy - Thailand
  • Bukit Makmur.PT - Indonesia
  • Straits Asia Resources Limited - Singapore
  • Truba Alam Manunggal Engineering.Tbk - Indonesia
  • Filglen & Citicon Mining (HK) Ltd - Hong Kong
  • Kideco Jaya Agung - Indonesia
  • Makarim & Taira - Indonesia
  • Xindia Steels Limited - India
  • Coal India Limited
  • Semirara Mining and Power Corporation, Philippines
  • Orica Australia Pty. Ltd.
  • Freeport Indonesia
  • UOB Asia (HK) Ltd
  • CoalTek, United States
  • Platts
  • PLN - Indonesia
  • Ind-Barath Power Infra Limited - India
  • Bukit Baiduri Energy - Indonesia
  • Bank of America
  • Maheswari Brothers Coal Limited - India
  • ICICI Bank Limited - India
  • Maruti Cements - India
  • Gresik Semen - Indonesia
  • Kobe Steel Ltd - Japan
  • Interocean Group of Companies - India
  • Sindya Power Generating Company Private Ltd
  • Carbofer General Trading SA - India
  • Sree Jayajothi Cements Limited - India
  • NALCO India
  • Permata Bank - Indonesia
  • World Coal - UK
  • Salva Resources Pvt Ltd - India
  • SUEK AG - Indonesia
  • Power Finance Corporation Ltd., India
  • Samtan Co., Ltd - South Korea
  • Iligan Light & Power Inc, Philippines
  • Krishnapatnam Port Company Ltd. - India
  • Idemitsu - Japan
  • San Jose City I Power Corp, Philippines
  • Edison Trading Spa - Italy
  • ASAPP Information Group - India
  • South Luzon Thermal Energy Corporation
  • TRAFIGURA, South Korea
  • The State Trading Corporation of India Ltd
  • JPower - Japan
  • Thriveni
  • Manunggal Multi Energi - Indonesia
  • Surastha Cement
  • Anglo American - United Kingdom
  • Medco Energi Mining Internasional
  • LBH Netherlands Bv - Netherlands
  • Indogreen Group - Indonesia
  • Wilmar Investment Holdings
  • Dong Bac Coal Mineral Investment Coporation - Vietnam
  • Georgia Ports Authority, United States
  • McConnell Dowell - Australia
  • Kapuas Tunggal Persada - Indonesia
  • Commonwealth Bank - Australia
  • Maharashtra Electricity Regulatory Commission - India
  • Timah Investasi Mineral - Indoneisa
  • Chettinad Cement Corporation Ltd - India
  • Kobexindo Tractors - Indoneisa
  • Offshore Bulk Terminal Pte Ltd, Singapore
  • Pendopo Energi Batubara - Indonesia
  • Japan Coal Energy Center
  • Port Waratah Coal Services - Australia
  • PowerSource Philippines DevCo
  • IOL Indonesia
  • Aboitiz Power Corporation - Philippines
  • Madhucon Powers Ltd - India
  • Alfred C Toepfer International GmbH - Germany
  • Asia Cement - Taiwan
  • CCIC - Indonesia
  • GVK Power & Infra Limited - India
  • Ministry of Finance - Indonesia
  • Orica Mining Services - Indonesia
  • Kaltim Prima Coal - Indonesia
  • Merrill Lynch Bank
  • Moodys - Singapore
  • The University of Queensland
  • Riau Bara Harum - Indonesia
  • HSBC - Hong Kong
  • Malabar Cements Ltd - India
  • DBS Bank - Singapore
  • Oldendorff Carriers - Singapore
  • globalCOAL - UK
  • SMC Global Power, Philippines
  • Core Mineral Indonesia
  • Aditya Birla Group - India
  • WorleyParsons
  • CESC Limited - India
  • ACC Limited - India
  • PetroVietnam
  • Coaltrans Conferences
  • Bhoruka Overseas - Indonesia
  • Maybank - Singapore
  • London Commodity Brokers - England
  • Bayan Resources Tbk. - Indonesia
  • Cargill India Pvt Ltd
  • European Bulk Services B.V. - Netherlands
  • BRS Brokers - Singapore
  • Parry Sugars Refinery, India
  • Electricity Generating Authority of Thailand
  • KOWEPO - South Korea
  • Britmindo - Indonesia
  • Runge Indonesia
  • J M Baxi & Co - India
  • OCBC - Singapore
  • Malco - India
  • SASOL - South Africa
  • Holcim Trading Pte Ltd - Singapore
  • Mitsui
  • Energy Link Ltd, New Zealand
  • Global Coal Blending Company Limited - Australia
  • Pipit Mutiara Jaya. PT, Indonesia
  • Arch Coal - USA
  • Geoservices-GeoAssay Lab
  • Jindal Steel & Power Ltd - India
  • Argus Media - Singapore
  • Thomson Reuters GRC
  • Cardiff University - UK
  • Australian Commodity Traders Exchange
  • TeaM Sual Corporation - Philippines
  • Indonesian Coal Mining Association
  • KPMG - USA
  • VISA Power Limited - India
  • Posco Energy - South Korea
  • Xstrata Coal
  • Sucofindo - Indonesia
  • Vale Mozambique
  • Vizag Seaport Private Limited - India
  • New Zealand Coal & Carbon
  • Africa Commodities Group - South Africa
  • KEPCO - South Korea
  • Kalimantan Lumbung Energi - Indonesia
  • Cemex - Philippines
  • Neyveli Lignite Corporation Ltd, - India
  • Bangladesh Power Developement Board
  • Merrill Lynch Commodities Europe
  • Mechel - Russia
  • The India Cements Ltd
  • Thermax Limited - India
  • Mercator Lines Limited - India
  • Attock Cement Pakistan Limited
  • Sinarmas Energy and Mining - Indonesia
  • Indian Oil Corporation Limited
  • PNOC Exploration Corporation - Philippines
  • ANZ Bank - Australia
  • Antam Resourcindo - Indonesia
  • ING Bank NV - Singapore
  • Enel Italy
  • Kepco SPC Power Corporation, Philippines
  • Central Java Power - Indonesia
  • Globalindo Alam Lestari - Indonesia
  • Savvy Resources Ltd - HongKong
  • Karaikal Port Pvt Ltd - India
  • Mjunction Services Limited - India
  • Ceylon Electricity Board - Sri Lanka
  • Billiton Holdings Pty Ltd - Australia
  • International Coal Ventures Pvt Ltd - India
  • Humpuss - Indonesia
  • Fearnleys - India
  • Vijayanagar Sugar Pvt Ltd - India
  • Romanian Commodities Exchange
  • Larsen & Toubro Limited - India
  • Lanco Infratech Ltd - India
  • EMO - The Netherlands
  • Cigading International Bulk Terminal - Indonesia
  • Tata Chemicals Ltd - India
  • IEA Clean Coal Centre - UK
  • PetroVietnam Power Coal Import and Supply Company
  • Adani Power Ltd - India
  • Mintek Dendrill Indonesia
  • Bharathi Cement Corporation - India
  • MS Steel International - UAE
  • OPG Power Generation Pvt Ltd - India
  • White Energy Company Limited
  • McKinsey & Co - India
  • Meralco Power Generation, Philippines
  • Total Coal South Africa
  • Toyota Tsusho Corporation, Japan
  • Gujarat Mineral Development Corp Ltd - India
  • Maersk Broker
  • SGS (Thailand) Limited
  • Siam City Cement - Thailand
  • Platou - Singapore
  • Indian School of Mines
  • Agrawal Coal Company - India
  • SN Aboitiz Power Inc, Philippines
  • bp singapore
  • Baramulti Group, Indonesia
  • Global Business Power Corporation, Philippines
  • Glencore India Pvt. Ltd
  • Bank of Tokyo Mitsubishi UFJ Ltd
  • Rudhra Energy - India
  • Ministry of Mines - Canada
  • Minerals Council of Australia
  • Formosa Plastics Group - Taiwan
  • Qatrana Cement - Jordan
  • TNB Fuel Sdn Bhd - Malaysia
  • Videocon Industries ltd - India
  • Credit Suisse - India
  • Kumho Petrochemical, South Korea
  • Bank of China, Malaysia
  • Tamil Nadu electricity Board
  • Vedanta Resources Plc - India
  • TNPL - India
  • Rio Tinto Coal - Australia
  • Cebu Energy, Philippines
  • Renaissance Capital - South Africa
  • Tanito Harum - Indonesia
  • Ministry of Transport, Egypt
  • Berau Coal - Indonesia
  • TGV SRAAC LIMITED, India
  • Cosco
  • Central Electricity Authority - India
  • Directorate Of Revenue Intelligence - India
  • Deloitte Consulting - India
  • Arutmin Indonesia
  • Indika Energy - Indonesia
  • IHS Mccloskey Coal Group - USA
  • Coastal Gujarat Power Limited - India
  • Russian Coal LLC
  • Panama Canal Authority
  • Asia Pacific Energy Resources Ventures Inc, Philippines
  • Intertek Mineral Services - Indonesia
  • Jorong Barutama Greston.PT - Indonesia
  • Gupta Coal India Ltd
  • Deutsche Bank - India
  • Star Paper Mills Limited - India
  • Reliance Power - India
  • Miang Besar Coal Terminal - Indonesia
  • Adaro Indonesia
  • Thai Mozambique Logistica
  • PTC India Limited - India
  • GHCL Limited - India
  • India Bulls Power Limited - India
  • Grasim Industreis Ltd - India
  • Leighton Contractors Pty Ltd - Australia
  • Therma Luzon, Inc, Philippines
  • Barclays Capital - USA
  • Simpson Spence & Young - Indonesia
  • Lafarge - France
  • UBS Singapore
  • Inspectorate - India
  • Bangkok Bank PCL
  • Electricity Authority, New Zealand
  • Jaiprakash Power Ventures ltd
  • Altura Mining Limited, Indonesia