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Omega Navigation files plan

by Hayley Kaplan | Published August 6, 2012 at 3:36 PM

Despite still being locked in mediation talks with its senior lenders, Athens petroleum shipper Omega Navigation Enterprises Inc. has floated a reorganization plan that would refinance the senior loan facilities.

A disclosure statement hearing before Judge Karen K. Brown of the U.S. Bankruptcy Court for the Southern District of Texas in Houston is set for Sept. 4. Omega Navigation seeks to hold a confirmation hearing on Oct. 15, court filings show.

Omega Navigation announced on Aug. 3 it had filed a reorganization plan and related disclosure statement that would allow it to emerge from bankruptcy protection by November. The plan is subject to a variety of conditions, including the plan's acceptance by senior lenders.

Debtor counsel Evan Flaschen of Bracewell & Giuliani LLP said meditation between the parties is ongoing, so he is hopeful the senior lenders will support the plan.

If the senior lenders don't back the plan, however, Omega Navigation would withdraw the proposal and file another, Flaschen said.

The company's other lenders also have not indicated whether they would support the plan, he said.

"Omega believes that the plan, if accepted by the senior lenders and certain other persons and approved by the bankruptcy court, will enable Omega to emerge from Chapter 11 in early November as a financially stronger business that will be positioned to enjoy future growth based on the strength of its existing modern fleet of product tanker vessels," the statement said.

Omega Navigation would fund the plan with an equity investment of $2.5 million or $2.6 million, depending on the circumstances, from an affiliate of Omega founder and CEO Georgio Kassiotis.

Omega Navigation also would restructure its $242.72 million in senior debt owed to HSH Nordbank AG, Bank of Scotland plc, Commerzbank AG and Credit Suisse Group and receive a new-money loan of up to $7.5 million from the senior lenders for working-capital purposes.

Under the plan, filed Aug. 3, administrative and professional claims would be paid in full in cash on the effective date.

The senior lenders would receive a pro rata share of both a $211 million loan and a $31.7 million loan, provided they also supplied pro rata shares of the $7.5 million new-money exit financing.

The $211 million A tranche would accrue interest at Libor plus 450 basis points per annum payable quarterly. The $31.7 million B tranche would carry an interest rate of Libor plus 350 basis points in cash and 350 basis points in kind basis, payable quarterly. The new-money $7.5 million loan would be priced at Libor plus 450 basis points in cash, payable quarterly.

All three loans would mature on Oct. 30, 2017.

Omega would draw the working capital funds as needed, and they would be made available for the debtor on the effective date.

Junior lenders including Bank of Tokyo-Mitsubishi UFJ Ltd. and NIBC Bank NV, meanwhile, would receive the opportunity to participate in a rights offering for 50% of Omega's reorganized equity on a nontransferable basis. The debtor owes the lenders $36.2 million.

General unsecured creditors, owed $3.72 million total, would have the chance to participate in the other half of the rights offering on a pro rata basis, subject to dilution. The unsecured creditors also would receive a pro rata share of $300,000 in cash payable in three equal installments -- on the effective date; April 30, 2013; and Oct. 30, 2013.

One Investments Inc., owed $5.25 million, would have its secured note restructured in the same amount as agreed to by the debtor and lender. Some of the lenders' claim could also be converted into equity, diluting the amount available in the rights offering. Kassiotis is president of OII.

Equity holders would be wiped out.

According to court documents, the senior lenders have indicated that if they accepted the plan, it would be conditioned on the new equity investment from an affiliate of Kassiotis and the continuation of Omega's current management team due to their experience and expertise in managing and operating vessels.

Kassiotis affiliate One Enterprises Inc. would invest $2.5 million cash into the company and an additional $100,000 if needed.

The equity investment would be made the third business day after the court approved Omega's disclosure statement. The debtor would use the funds for working-capital purposes other than the payment of professional fees.

Omega and nine affiliates filed Chapter 11 petitions on July 8, 2011. Brown approved joint administration of the cases on July 18.

Omega has two pending lawsuits in the Court of the Hellenic Republic in Greece against the senior lenders. The allegations were made under Greek and European Union regulations, so no litigation will be filed in U.S. court. The first hearing in the proceedings is scheduled for 2013, court documents said.

In one lawsuit, Omega alleged that the senior lenders are in breach of an extended-time agreement for repayment of principal funds. In the other suit, the debtor sought damages of $570 million plus interest for breach of contract and abusive actions.

According to a declaration filed by the debtor, Omega Navigation was promised a three-year extension on its senior loans if certain conditions were met. Omega believes it has met those conditions, but its lenders have not kept to the agreed-upon extension, which led the debtor to initiate the litigation.

Omega said the recession has reduced the demand for shipping of refined petroleum products, which negatively affected the debtor's business.

The dispute with the lenders continued in Omega's Chapter 11 case.

Brown on Dec. 19 rejected motions filed by Nordbank for relief from the automatic Chapter 11 stay and to dismiss or convert the cases of Omega and its affiliates. Junior lenders and the official committee of unsecured creditors had joined in the motions of the agent for Omega's senior lenders.

The judge on Dec. 19 also ordered the parties in the case to nonbinding mediation. Judge Leif Clark of the U.S. Bankruptcy Court for the Western District of Texas was appointed as mediator.

The mediation remains ongoing, court documents show, but the senior lenders and the debtor have not reached a final, binding agreement regarding the reorganization plan.

The senior lenders have appealed Brown's decision not to dismiss Omega's case. The appeal deadline has been extended pending the mediation.

Following the five-day dismissal trial, Brown ordered Nordbank, the junior lenders and the official committee of unsecured creditors to show cause why any of the bank, its principals, its counsel and other senior lenders shouldn't be sanctioned for Nordbank's actions. The potential penalties include the banks' loss of voting rights, subordination of their claims and payment of the attorneys' fees of Omega.

Brown signed a sixth amended agreed order Aug. 3 extending the parties' time to comply with the order. The lenders must now file briefs before Sept. 17, and the debtor may file a response brief until Sept. 24.

A cash collateral hearing for Omega, meanwhile, was continued from Monday, Aug. 6, until Sept. 17.

Omega Navigation owns a fleet of eight tankers that transport several types of petroleum products including gasoline, jet fuel, kerosene, naphtha and heating oil. Founded in 2005, the debtor has U.S. headquarters in Convent Station, N.J.

The debtor listed $527.43 million in assets and $359.53 million in liabilities as of Dec. 31, 2009, in its petition.

Omega Navigation reported net income of $5.72 million on $64.46 million in revenue in 2009, the last year for which it filed an annual report.

The debtor has 27 onshore employees.

William A. Wood III, Jason G. Cohen Gregory W. Nye and Ilia M. O'Hearn of Bracewell & Giuliani are also debtor counsel.

Timothy A. Davidson II of Andrews Kurth LLP and Thomas E. Lauria of White & Case LLP represent Nordbank.

Sarah L. Trum of Winston & Strawn LLP and Bruce F. Smith, Michael J. Fencer and Steven C. Reingold of Jager Smith PC are counsel to the creditors' committee.

S. Ault Hootsell III of Phelps Dunbar LLP represents the junior lenders.

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