Declaration of Robert Hennebry Pursuant to Local Bankruptcy Rule 1007-2 and in Support of the Debtors' Chapter 11 Petitions and First Day Pleadings filed by Albert Togut on behalf of Toisa Limited. (Attachments: # (1) Exhibit s: A-K) (Togut, Albert)
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
:
In re:
:
Chapter 11
:
TOISA LIMITED, et al.,
:
Case No. 17-XXXXX (XXX)
:
Debtors.
:
(Motion for Joint Administration
:
Pending)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECLARATION OF ROBERT HENNEBRY PURSUANT TO LOCAL
BANKRUPTCY RULE 1007-2 AND IN SUPPORT OF THE DEBTORS'
CHAPTER 11 PETITIONS AND FIRST DAY PLEADINGS
1
I, Robert Hennebry, being duly sworn, hereby depose and state as follows:
1.
I am Chief Financial Officer of Debtor Toisa Limited (âToisaâ and,
together with its affiliated debtors and debtors in possession, the âDebtorsâ).
2.
I submit this declaration (the âDeclarationâ) pursuant to Rule 1007-
2 of the Local Bankruptcy Rules for the Southern District of New York (the âLocal
Bankruptcy Rulesâ) and in support of the Debtorsâ (a) voluntary petitions for relief
under chapter 11 of title 11 of the United States Code (the âBankruptcy Codeâ) and
(b) various motions and applications, filed concurrently herewith, including various
âfirst dayâ motions (collectively, the âFirst Day Pleadingsâ). I am over the age of 18,
competent to testify, and authorized to submit this Declaration in support of the
Debtorsâ chapter 11 petitions and the First Day Pleadings described herein.
1
The Debtors are: The Debtors are: Trade Prosperity, Inc.; Toisa Limited; United Courage, Inc.;
Trade Vision, Inc.; United Journey, Inc.; United Kalavryta, Inc.; Trade Sky, Inc.; Trade Industrial
Development Corporation; United Honor, Inc.; Trade Will, Inc.; United Leadership Inc.; United
Seas, Inc.; United Dynamic, Inc.; United Emblem, Inc.; United Ideal Inc.; Trade Unity, Inc.; Trade
Quest, Inc.; Trade Spirit, Inc.; Trade Resource, Inc.; United Ambassador, Inc.; Edgewater Offshore
Shipping, Ltd.; United Banner, Inc.; Toisa Horizon, Inc.; and Trade and Transport Inc.
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I have served as Chief Financial Officer of Toisa since August 1997.
Prior to joining Toisa, I served as Vice President of the CIT Group, The Chase
Manhattan Bank, N.A. and the Manufacturers Hanover Trust Co.
4.
I am familiar with the Debtorsâ day-to-day operations, financial
condition, business affairs, and books and records. Except as otherwise indicated, all
facts set forth in this Declaration are based upon my personal knowledge, my
discussions with other members of my team, the Debtorsâ management, including their
management teams at their non-debtor management companies Sealion Shipping, Ltd.
(âSealionâ), Marine Management Services M.C. (âMMSâ), and Marine Management
Bulker Services Inc. (âMMBSâ) or the Debtorsâ advisors, my review of relevant
documents, or my opinion based upon my experience and knowledge of the Debtorsâ
operations and financial condition. If I were called to testify, I would testify
competently to the facts set forth in this Declaration.
5.
This Declaration is divided into four parts. Part I of this
Declaration provides an overview of the Debtorsâ business and operations, including
their corporate and capital structure. Part II describes the circumstances leading to the
commencement of these chapter 11 cases and the Debtorsâ restructuring plans. Part III
sets forth the relevant facts in support of each of the Debtorsâ First Day Pleadings. Part
IV provides the specific information required by Local Bankruptcy Rule 1007-2.
PART I: THE DEBTORSâ BUSINESSES AND OPERATIONS
A.
The Chapter 11 Filings
6.
On the date hereof (the âPetition Dateâ), each of the Debtors filed
voluntary petitions in this Court for relief under chapter 11 of the Bankruptcy Code.
The Debtors continue to manage and operate their businesses as debtors in possession
pursuant to sections 1107 and 1108 of the Bankruptcy Code. The Debtors have
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requested joint administration of these chapter 11 cases by motion filed concurrently
herewith. No trustee or examiner has been appointed in these cases.
B.
Overview of the Debtors' Businesses and Operations
7.
The Debtors are a viable diversified shipping business hauling both
wet goods with their fleet of tankers and dry goods with their fleet of bulkers. The
Debtors also own a fleet of offshore oil support vessels that provide marine
transportation, construction and support services to companies in the oil and gas
industry that conduct offshore exploration, production, and subsea construction
activities. The Debtors have also serviced the subsea fiber optic cable installation
market. The Debtors current fleet consists of twenty-six (26) offshore oil service vessels,
thirteen (13) tankers, and seven (7) bulkers. A complete list of the Debtors fleet with
specifications is attached as Exhibit K. The Debtors have a technologically advanced
offshore fleet and a modern dry cargo fleet and double hull tanker fleet. The Debtorsâ
vessels operate in locations throughout the world, including the North Sea, and
offshore Brazil, offshore Mexico and the Far East.
8.
Toisa directly owns 23 of the Debtorsâ offshore support vessels.
Additionally, three of the Debtorsâ offshore vessels (Toisa Independent, Toisa Pisces,
and Sealion Amazonia) are wholly owned by separate, direct subsidiaries of Toisa, and
three of the Debtorsâ tankers (United Dynamic, United Emblem and United Ideal) are
wholly owned by separate, direct subsidiaries of Toisa. Ten of the Debtorsâ tankers are
wholly owned by separate, direct subsidiaries of Debtor Trade and Transport Inc.
(âT&Tâ). The Debtorsâ seven bulkers are all wholly owned by separate, direct
subsidiaries of T&T. Gregory Callimanopulos, who has over fifty (50) years of
experience in the maritime industry, is the ultimate beneficial owner of each of the
Debtors. Two of the Debtorsâ board members reside in New York City.
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As is common practice in the shipping industry, the Debtors have
very few employees. Rather they rely on three non-debtor ship managers to provide
management services to the Debtors. Sealion provides ship management services to the
offshore fleet and MMS and MMBS provide ship management services to the tanker
and bulker fleets. As more fully described below, these management services
companies oversee, manage, and exercise a degree of control over the operations of the
Debtorsâ vessels.
10.
Sealion historically has arranged the employment of more than
1000 seastaff and employees and more than 80 people onshore. Sealion is an accredited
ISM (International Safety Management) ship management company and provides a full
range of ship management functions including operating, technical, chartering,
crewing, project management, safety, purchasing and logistics, and accounting services
to the offshore fleet. Additionally, Brokerage and Management Corporation (âBMCâ), a
New York corporation with offices at 40 Wall Street in New York City, is an agency of
Toisa and provides advice and support to Sealion managed vessels. Typically, Sealion
will pay all invoices for these services to third-parties and then invoice Toisa or, where
applicable, the specific vessel operating company for reimbursement.
11.
MMS and MMBS provide operating, technical, chartering,
accounting, financial and legal support on behalf of the Debtors to facilitate their tanker
and bulker operations. Additionally Trade and Transport (UK) Ltd. (âT&T UKâ) is an
agency of T&T and provides chartering, and sale and purchase support for the ships in
the T&T fleet. Further, BMC provides chartering, and sale and purchase support for
MMS and MMBS managed vessels. Typically expenses of the tanker and bulker vessels
are paid by either MMS or MMBS, which in turn seek reimbursement from the vessel
operating companies. MMS and BMC provide such services making payments from an
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MMS Citibank account located in New York City. Charter receipts for the tankers and
bulkers are also received by MMS and deposited on such vessels behalf in the MMS
Citibank account in New York City.
Offshore Fleet
12.
The Debtorsâ offshore fleet consist of four (4) construction support
vessels, one (1) well test service vessel, nine (9) remotely operated vehicle (âROVâ)
support vessels, and twelve (12) platform supply and anchor handling tug supply
vessels (âPSV vesselsâ and âAHTS vessels,â respectively). The entire offshore fleet is
equipped with dynamic positioning (âDPâ) technology that enables a vessel to maintain
its position over the ocean floor without use of anchors, which is critical to the ability of
the vessels to perform their functions in the deep sea locations they operate in, where
use of anchors would be impractical.
13.
The Debtorsâ construction support vessels are equipped with large
unobstructed deck areas, substantial accommodation capacity and subsea heavy lift
crane capability, able to support surface and subsea construction and installation
projects, and inspection, repair and maintenance (âIRMâ) programs. Construction
support vessels are designed to provide tailored solutions and facilitate larger projects
that often require such vessels to remain on location for long periods of time. The
Debtorsâ construction support vessels range in length from 373 to 436 feet long.
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Figure 1-Toisa Paladin Offshore Construction Vessel
14.
The Debtorsâ well test service vessel, Toisa Pisces, is a highly
specialized type of DP vessel â designed and built to receive, process, store and offload
hydrocarbons and other products, from drilling rigs or clean-up operations.
Figure 2-Toisa Pisces - Well Testing Vessel
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The Debtorsâ ROV Support Vessels are DP vessels from which ROV
(Remote Operating Vehicle) operations are conducted. ROV Support Vessels are
equipped with computer-controlled, precision, position-keeping capabilities with
added redundancy features, such as multiple computers, thrusters and reference
systems. Such vessels have additional cabins, mess room facilities and customer offices,
to comfortably accommodate the ROV support crews of the Debtorsâ customers.
Figure 3-Toisa Warrior ROV Vessel
16.
The Debtorsâ PSV vessels are specially designed to carry a diverse
range of equipment, cargoes and personnel to offshore drilling rigs and
platform. Modern PSVs now incorporate dynamic positioning systems as standard,
have substantial available deck areas, and the capability underdeck to transport and
discharge offshore, oil and water-based muds, brine, fuel, dry bulk cargoes, drill water
and potable water. The Debtorsâ AHTS vessels are designed for towing and/or anchor
handling. AHTS vessels are predominantly employed in the movement of rigs and
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platforms, and for the handling and laying of their anchors. These vessels also have
supply duty capabilities.
Figure 4-Toisa Dauntless AHTS Vessel
17.
Due to the downturn in the oil market, a number of the Debtorsâ
offshore vessels are currently being held in cold lay-up to reduce costs and maintain the
assets and preserve value pending the oil marketâs return.
Tankers
18.
The Debtorsâ thirteen
tankers consist of five (5) Suezmax tankers,
five (5) Aframax tankers, and three (3)
Panamax tankers. The Debtorsâ Suezmax
tankers can carry approximately 160,000
Figure 5 - Tanker United Journey (formerly Gan Dignity)
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deadweight tons (âDWTâ), their Panamax tankers carry 73,584 DWT, and their Aframax
Tankers approximately 112,000 DWT. The tanker business has historically been a
strong segment for the Debtors, and after a brief downturn in late summer 2016 has
recently returned to moderate profitability. The Debtors operate one of the youngest
tanker fleets for an operator of their size with the entire fleet less than twelve years old.
Bulkers
19.
The Debtorsâ seven (7)
bulkers are all Kamsarmax bulkers capable of
carrying approximately 81,000 tons of dry
cargo in seven holds/hatches. The Debtorsâ
bulker fleet is very young with all of the
Figure 6 - Bulker Trade Vision (formerly Nord
Aquarius)
bulkers built since 2011.
New Builds
20.
The Debtors have entered into a number of contracts for new builds
that will augment the collective enterpriseâs fleet. Specifically, T&T has six tankers on
order and under construction; and Toisa has (i) one DSV vessel, and (ii) two ROV
Support Vessels on order and under construction. On April 28, 2016, Toisa cancelled a
shipbuilding contract with Hyundai Heavy Industries Co., Ltd. (âHHIâ) for the
construction of an Offshore Construction Vessel (Hull No. 2649(P139)) due to late
delivery by HHI. The Debtors may be entitled to refunds of approximately $90 million
from HHI on account of this late delivery. The matter is currently in arbitration.
Further information about the related arbitration can be found on the attached Exhibit J,
which lists all of the Debtorsâ currently pending litigation matters.
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Recent Operations
21.
The Debtorsâ tankers generated the majority of the revenue and the
profits for the company in the first three quarters of 2016. The Debtorsâ tanker segment
experienced a firm market for the first half of 2016. However, weakness began to
develop in the third quarter of 2016 and the tanker market fell sharply in August 2016.
22.
The offshore vessels operated in a depressed market in 2016 as
demand continued to fall and more of Toisaâs offshore vessels were put into
layup. With the price of oil below $50 for much of 2016, demand for offshore vessels
was very limited. Rather than operate offshore vessels at a loss, Toisa placed many of
its offshore vessels into layup.
23.
The Debtorsâ seven bulk carriers operated in a weak dry goods
market that produced negative returns for the first three quarters of 2016.
C.
Corporate Organization and Capital Structure
24.
A corporate organization chart is attached as Exhibit A hereto. As
noted above, Toisa is an operating company that directly owns 23 offshore vessels and
is the ultimate parent of each of the Debtors in these chapter 11 cases. Toisaâs registered
office is at Clarendon House, 2 Church Street, Hamilton, Bermuda.
25.
In addition to owning 23 vessels, Toisa directly owns six Debtors,
each of which owns a single vessel (three offshore vessels and three tankers). Toisa also
owns the Debtor holding company, T&T, which directly owns 17 Debtors, each of
which owns a single vessel (ten tankers and seven bulkers). The Debtorsâ capital
structure is organized into 17 separate groups or "silos" that reflect obligations to
separate lenders under separate loan facilities secured by various built vessels, as well
as two separate silos related to the financing of the new builds and a Gulfstream
Aerospace GV-SP G550 airplane. Each of these silos and the related secured debt
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facilities are described below. The Debtorsâ lenders are located throughout the world;
the majority of which are either headquartered or have substantial offices in New York
City.
I.
Off-Shore Silos
(a)
26.
Silo 1 â "BNDES Silo"
BNDES Credit Facility. Non-debtor Sealion Do Brazil Navegacao
LTDA ("Sealion Do Brazil") is a borrower under that certain senior secured credit
facility, dated as of May 28, 2003, utilized to finance the vessel Sealion Amazonia (the
"BNDES Credit Facility"). The BNDES Credit Facility has a term of twenty (20) years
with a rate of five percent (5%). The unpaid principal balance of the BNDES Credit
Facility is approximately $8,407,000. Sealion Do Brazilâs obligations under the BNDES
Credit Facility are secured by a lien on the vessel, including the assignment of charters
and insurances. The lender under the BNDES Credit Facility is Banco Nacional de
Desenvolvimento Economico e Social (âBNDESâ). Toisa is a party to a guarantee dated
as of May 28, 2003 pursuant to which it undertook to guarantee the non-Debtor's
obligations in connection with the BNDES Credit Facility.
(b)
27.
Silo 2 â "BNP Silo"
BNP Credit Facility. Toisa is a borrower under that certain senior
secured credit facility, dated as of March 11, 2008, utilized to finance the vessels named
Toisa Pegasus and Toisa Paladin (the âBNP Credit Facilityâ). The BNP Credit Facility has
a term of twelve (12) years from the drawdown date and has a rate of Libor + 150 bps.
The unpaid principal balance of the BNP Credit Facility is approximately $78,869,045.
Toisaâs obligations under the BNP Credit Facility are secured by first priority liens on
the vessels, including the assignment of earnings and insurances. The lenders under
the BNP Credit Facility are BNP Paribas (âBNPâ), Unicredit Bank AG ("Unicredit") and
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Commerzbank AG ("Commerzbank"), who are the successors to the original lenders.
BNP is the swap bank, agent and security trustee.
(c)
28.
Silo 3 â âCommonwealth Bank of Australia Silo"
Commonwealth Bank of Australia Credit Facility. Toisa is a
borrower under that certain senior secured credit facility, dated as of February 21, 2014,
utilized to finance the vessel named Toisa Solitare (the "Commonwealth Bank of
Australia Credit Facility"). The Commonwealth Bank of Australia Credit Facility has
term of seven (7) years and rate of Libor + 2.35%. The unpaid principal balance of the
Commonwealth Bank of Australia Credit Facility is approximately $22,750,000. Toisaâs
obligations under the Commonwealth Bank of Australia Credit Facility are secured by a
lien on the vessel Toisa Solitare, including the assignment of charters and insurances. In
addition, the vessel named Toisa Warrior was added as additional collateral at a later
date via an intercreditor agreement with ING and the Commonwealth Bank of
Australia. The Commonwealth Bank of Australia is the agent, security trustee, and
lender under the Commonwealth Bank of Australia Credit Facility
(d)
29.
Silo 4 â "Citi Offshore Silo"
Citi Offshore Credit Facility. Toisa is a borrower under that certain
senior secured credit facility, dated as of December 30, 2009, utilized to finance the
vessels named Toisa Envoy, Toisa Explorer, Toisa Elan, and Toisa Wave (the "The Citi
Offshore Credit Facility"). The Citi Offshore Credit Facility has a term of ten (10) years
with a rate of Libor + 3%. The unpaid principal balance on the Citi Offshore Credit
Facility is approximately $99,493,000. Toisaâs obligations under the Citi Offshore Credit
Facility are secured by liens on the vessels, including assignment of insurance and
charters. The lenders under the Citi Offshore Credit Facility are Citibank N.A. (âCitiâ),
the Export-Import Bank of China ("Cexim") and ING Bank N.V. ("ING"), who joined the
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Citi Offshore Credit Facility after it signed a transfer certificate taking half of Citiâs
previous 30% share of the facility. Citibank Europe PLC is agent and Citi is security
trustee.
(e)
30.
Silo 5 â "Citizens Silo"
Citizens I Credit Facility. Edgewater Offshore Shipping, LTD.
(âEdgewaterâ) is a borrower under that certain senior secured credit facility, dated as of
July 28, 2010, utilized to finance the vessel named Toisa Independent (the "Citizens I
Credit Facility"). The Citizens I Credit Facility has a term of seven (7) years and rate of
Libor + 2.5%. The unpaid principal balance on the Citizens I Credit Facility is
approximately $12,260,000. Edgewaterâs obligations under the Citizens I Credit Facility
are secured by a lien on the vessel, including assignment of insurance and charters. The
lender under the Citizens I Credit Facility is Citizens Bank NA (âCitizensâ). Toisa is a
party to a guarantee dated as of July 28, 2010 pursuant to which it undertook to
guarantee the Edgewater's obligations in connection with the Citizens I Credit Facility.
Related to the Citizens I Credit Facility, on January 13, 2017, Edgewater extended a loan
in the principal amount of $14,664,613.73 to Toisa (the âEdgewater Loanâ). The
Edgewater Loan had a term of one (1) month (renewable on a month-to-month basis),
and Toisa agreed to place the principal in an interest bearing account with the sum
becoming due upon maturity.
31.
Citizens II Credit Facility. Toisa is a borrower under that certain
senior secured credit facility, dated as of July 28, 2010, utilized to finance the vessel
named Toisa Coral (the "Citizens II Credit Facility"). The Citizens Credit II Facility has a
term of seven (7) years and rate of Libor + 2.5%. The unpaid principal balance on the
Citizens II Credit Facility is approximately $7,315,148. Toisaâs obligations under the
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Citizens II Credit Facility are secured by a lien on the vessel, including assignment of
insurance and charters. The lender under the Citizens II Credit Facility is Citizens.
(f)
32.
Silo 6 â "Credit Agricole Offshore Silo"
Credit Agricole Offshore Credit Facility. Toisa is a borrower under
that certain senior secured credit facility, dated as of September 21, 2007, utilized to
finance the vessels named Toisa Valiant, Toisa Vigilant, and Toisa Voyager (the "Credit
Agricole Offshore Credit Facility"). The Credit Agricole Offshore Credit Facility has a
term of twelve (12) years from the drawdown date and a rate of Libor + 0.65 %. The
unpaid principal balance on the Credit Agricole Offshore Credit Facility is
approximately $47,400,000. Toisaâs obligations under the Credit Agricole Offshore
Credit Facility are secured by liens on the vessels, including assignment of insurance
and charters. The lender under the Credit Agricole Offshore Credit Facility is Credit
Agricole Corporate and Investment Bank (âCredit Agricoleâ), formerly known as
Calyon.
(g)
33.
Silo 7 â "DNB Offshore Silo"
DNB Offshore Credit Facility. Toisa is a borrower under that
certain senior secured credit facility, dated as of December 16, 2014, utilized to finance
the purchase of vessels named Toisa Proteus, Toisa Intrepid, and Toisa Conqueror (the
"DNB Offshore Credit Facility"). The DNB Offshore Credit Facility has a term of five (5)
years and a rate of Libor + 2.25 %. The unpaid principal balance on the DNB Offshore
Credit Facility is approximately $58,411,354. Toisaâs obligations under the DNB
Offshore Credit Facility are secured by liens on the vessels, including assignment of
insurance and charters. The lenders under the DNB Offshore Credit Facility are DNB
Bank ASA (âDNBâ) and UniCredit Bank AG (âUniCreditâ). DNB is the agent and
security trustee.
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Silo 8 â "DVB Silo"
DVB Credit Facility. Toisa is a borrower under that certain senior
secured credit facility, dated as of December 19, 2014, utilized to partially finance the
the vessels named Toisa Pisces and Toisa Perseus (the "DVB Credit Facility"). The DVB
Credit Facility has a term of five (5) years and a rate of Libor + 2.15 %. The unpaid
principal balance on the DVB Credit Facility is approximately $73,978,000. Toisa's
obligations under the DVB Credit Facility are secured by liens on the vessels, including
assignment of insurance and charters. The lender under the DVB Credit Facility is DVB
Bank of America N.V. (âDVBâ). DVB is the agent and security trustee. Toisa Horizon
Inc. is party to a guarantee dated December 19, 2014 pursuant to which it undertook to
guarantee Toisaâs obligations in connection with the DVB Credit Facility.
(i)
35.
Silo 9 â "ING Offshore Silo"
ING Offshore Credit Facility. Toisa is a borrower under that certain
senior secured credit facility, dated as of February 21, 2014, utilized to finance the
purchase of the vessels named Toisa Serenade and Toisa Sonata (the "ING Offshore Credit
Facility"). The ING Offshore Credit Facility has a seven (7) year term and a rate of Libor
+ 2.3%. The unpaid principal balance on the ING Offshore Credit Facility is
approximately $42,316,000. Toisaâs obligations under the ING Offshore Credit Facility
are secured by liens on the vessels, including assignment of insurance and charters. In
addition, via a letter dated June 22, 2016 and an intercreditor agreement also dated June
22, 2016, the vessel named Toisa Warrior was added as additional collateral. The lender
under the ING Offshore Credit Facility is ING Bank N.V. (âINGâ). ING is the agent and
security trustee.
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Silo 10 â "Wells Fargo Silo"
Wells Fargo Credit Facility. Toisa is a borrower under that certain
senior secured credit facility, dated as of July 28, 2010, utilized to finance the purchase
of the vessel named Toisa Crest (the "Wells Fargo Credit Facility"). The Wells Fargo
Credit Facility has a term of seven (7) years from the drawdown date and a rate of Libor
+ 2.5%. The unpaid principal balance on the Wells Fargo Credit Facility is
approximately $6,756,000. Toisaâs obligations under the Wells Fargo Credit Facility are
secured by a lien on the vessel, including assignment of insurance and charters. The
lender under the Wells Fargo Credit Facility is Wells Fargo Equipment Finance Inc.
(âWells Fargoâ), who is the successor to the original lender.
II.
Tanker and Bulker Silos
(k)
37.
Silo 11 â "Citi Tanker Silo"
Citi Tanker Credit Facility. Debtors United Journey Inc. and United
Seas Inc. (collectively, the "UJ-US Debtors") are borrowers under that certain senior
secured credit facility, dated as of January 26, 2015, utilized to finance the vessels United
Journey and United Seas (the "Citi Tanker Credit Facility "). The Citi Tanker Credit
Facility has a term of five (5) years and a rate of Libor + 2%. The unpaid principal
balance of the Citi Tanker Credit Facility is approximately $46,094,548. The UJ-US
Debtorsâ obligations under the Citi Tanker Credit Facility are secured by liens on the
vessels, including assignments of insurance and charters. Citi is the lender under the
Citi Tanker Credit Facility. Toisa is a party to a guarantee dated as of January 26, 2015
pursuant to which it undertook to guarantee the UJ-US Debtorsâ obligations in
connection with the Citi Tanker Credit Facility. As discussed is greater detail below,
Citi caused the tanker United Journey to be arrested of the coast off St. Eustatius on or
about Christmas Eve 2016.
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Silo 12 â "Commerzbank Silo"
Commerzbank I Credit Facility. Debtors United Banner, Inc.,
United Carrier, Inc., and United Ambassador, Inc. (the "UB-UC-UA Debtors") are
borrowers under that certain senior secured credit facility, dated as of June 13, 2007,
utilized to finance the vessels named United Banner, United Courage, and United
Ambassador (the "Commerzbank I Credit Facility"). The Commerzbank I Credit Facility
has a term of ten (10) years and a rate of Libor + 1%. The unpaid principal balance on
the Commerzbank I Credit Facility is approximately $53,237,261.48. The UB-UC-UA
Debtors' obligations under the Commerzbank I Credit Facility are secured by liens on
the vessels, including assignment of insurance and charters. The lenders under the
Commerzbank I Credit Facility are Commerzbank AG and Unicredit AG. T&T and
Toisa are parties to two separate guarantees dated as of June 13, 2007 and February 13,
2013 respectively, pursuant to which they undertook to guarantee the UB-UC-UA
Debtorsâ obligations in connection with the Commerzbank I Credit Facility.
39.
Commerzbank II Credit Facility. Debtor United Honor, Inc. (the
"UH Debtor") is a borrower under that certain senior secured credit facility, dated as of
March 3, 2010, utilized to finance the vessel named United Honor (the "Commerzbank II
Credit Facility"). The Commerzbank II Credit Facility has a term of ten (10) years and a
rate of Libor + 2.5%. The unpaid principal balance on the Commerzbank II Credit
Facility is approximately $25,609,035.46. The UH Debtorâs obligations under the
Commerzbank II Credit Facility are secured by a lien on the vessel, including
assignment of insurance and charters. The lender under the Commerzbank II Credit
Facility is Commerzbank [FKA Deutsche Schiffsbank AG]. T&T is a party to a
guarantee dated as of March 3, 2010, pursuant to which it undertook to guarantee the
UH Debtorâs obligations in connection with the Commerzbank II Credit Facility. Toisa
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is also a party to a guarantee dated October 24, 2014 pursuant to which it undertook to
guarantee the UH Debtorâs obligations in connection with the Commerzbank II Credit
Facility.
(m)
40.
Silo 13 â "Credit Agricole Tanker Silo"
Credit Agricole Tanker Credit Facility. Debtor Trade Industrial
Development Corporation (the "UG Debtor") is a borrower under that certain senior
secured credit facility, dated as of November 7, 2008, utilized to finance the purchase of
the vessel named United Grace (the "Credit Agricole Tanker Credit Facility"). The Credit
Agricole Offshore Credit Facility has a term of twelve (12) years and a rate of Libor +
1.0%. The unpaid principal balance on the Credit Agricole Offshore Credit Facility is
approximately $25,976,000. The UG Debtor's obligations under the Credit Agricole
Tanker Credit Facility are secured by a lien on the vessel, including assignment of
insurance and charters. The lender under the Credit Agricole Tanker Credit Facility is
Credit Agricole Corporate and Investment Bank (âCredit Agricoleâ), who is the
successor to the original lender. T&T is a party to a guarantee dated as of November 7,
2008, pursuant to which it undertook to guarantee the UG Debtorâs obligations in
connection with the Credit Agricole Tanker Credit Facility.
(n)
41.
Silo 14 â "DNB Tanker Silo"
DNB Tanker Credit Facility. Debtors United Dynamic, Inc., United
Emblem, Inc., and United Ideal, Inc. (the âToisa Tanker Debtorsâ) are borrowers under
that certain senior secured credit facility, dated as of September 20, 2010, utilized to
finance the vessels named United Emblem, United Dynamic, and United Ideal (the "DNB
Tanker Credit Facility"). On August 30, 2012 Toisa Invincible was added as collateral
and gave a first preferred mortgage via a supplemental agreement. The DNB Tanker
Credit Facility has a term of ten (10) years and a rate of Libor + 0.90% - 0.65%
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depending on the interest coverage ratio. The unpaid principal balance on the DNB
Tanker Credit Facility is approximately $110,703,990. The Debtor's obligations under
the DNB Tanker Credit Facility are secured by liens on the vessels, including
assignment of insurance and charters. The lenders under the DNB Offshore Credit
Facility are DNB Bank ASA (âDNBâ), Royal Bank of Scotland PLC (âRBSâ), and HSH
Nordbank AG (âHSHâ). DNB is the agent and security trustee. Toisa is a party to a
guarantee dated as of September 20, 2010, pursuant to which it undertook to guarantee
the Toisa Tanker Debtorsâ obligations in connection with the DNB Tanker Credit
Facility
(o)
42.
Silo 15 â "ING Bulker Silo"
ING Bulker Credit Facility. Trade Unity Inc., Trade Resource Inc.,
Trade Prosperity Inc., Trade Quest Inc., and Trade Spirit Inc. (the âFive SPC Debtorsâ)
are borrowers under that certain senior secured credit facility, dated as of May 7, 2015,
utilized to finance the vessels named Trade Quest, Trade Spirit, Trade Unity, Trade
Prosperity, and Trade Resource (the "ING Bulker Credit Facility"). The ING Bulker Credit
Facility has a term of seven (7) years and a rate of Libor + 1.9%. The unpaid principal
balance on the ING Bulker Credit Facility is approximately $72,276,921. Toisaâs
obligations under the ING Bulker Credit Facility are secured by liens on the vessels,
including assignment of insurance and charters. The lender under the ING Bulker
Credit Facility is ING Bank N.V. (âINGâ). ING is the agent and security trustee. Toisa
is a party to a guarantee dated as of May 7, 2015, pursuant to which it undertook to
guarantee the Five SPC Debtorsâ obligations in connection with the ING Bulker Credit
Facility.
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Silo 16 â "NBG Silo"
NBG Credit Facility. Debtor Trade Sky Inc. is a borrower under
that certain senior secured credit facility, dated as of November 13, 2008, utilized to
finance the purchase of vessel named United Fortitude (the "NBG Credit Facility"). The
NBG Credit Facility has a term of ten (10) years and a rate of Libor + 1%. The unpaid
principal balance on the NBG Credit Facility is approximately $29,925,000. Toisaâs
obligations under the NBG Credit Facility are secured by a lien on the vessel, including
assignment of insurance and charters. The lender under the NBG Credit Facility is
National Bank of Greece S.A. (âNBGâ). T&T is a party to a guarantee dated as of
November 12, 2008 pursuant to which it undertook to guarantee Toisaâs obligations in
connection with the NBG Credit Facility.
(q)
44.
Silo 17 â "Danish Ship Finance Silo"
Danish Ship Offshore Credit Facility. Toisa is a borrower under that
certain senior secured credit facility, dated as of November 11, 2014, utilized to finance
the vessels named Toisa Defiant, Toisa Daring, and Toisa Dauntless (the "Danish Ship
Offshore Credit Facility"). The Danish Ship Finance Offshore Credit Facility has a term
of seven (7) years and a rate of Libor + 1.90 %. The unpaid principal balance on the
Danish Ship Offshore Credit Facility is approximately $64,643,000. Toisaâs obligations
under the Danish Ship Offshore Credit Facility are secured by liens on the vessels,
including assignment of insurance and charters. In addition, the vessel named United
Leadership was added as additional collateral on April 28, 2016. The lender under the
Danish Ship Offshore Credit Facility is Danish Ship Finance A/S. Danish Ship Finance
A/S is the agent and security trustee. United Leadership, Inc. is a party to a guarantee
dated as of April 28, 2016, pursuant to which it undertook to guarantee the Debtorsâ
obligations in connection with the Danish Ship Offshore Credit Facility.
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Danish Ship Tanker Credit Facility. Debtors United Leadership, Inc.
and United Kalavryta Inc. (the "UL-UK Debtors") are borrowers under that certain
senior secured credit facility, dated as of February 28, 2014, utilized to finance the
purchase of the vessels named United Leadership and United Kalavryta (the "Danish Ship
Tanker Credit Facility"). The Danish Ship Tanker Credit Facility has a term of seven 7
years with a rate of Libor + 1.8%. The unpaid principal balance on the Danish Ship
Tanker Credit Facility is approximately $35,286,000. The UL-UK Debtorsâ obligations
under the Danish Ship Tanker Credit Facility are secured by liens on the vessels,
including assignment of insurance and charters. The lender under the Danish Ship
Tanker Credit Facility is Danish Ship Finance A/S. Danish Ship Finance A/S is the
agent and security trustee. Toisa is a party to a guarantee dated as of March 4, 2014,
pursuant to which it undertook to guarantee the UL-UK Debtorsâ obligations in
connection with the Danish Ship Tanker Credit Facility.
46.
Danish Ship Bulker Credit Facility. Debtors Trade Vision, Inc. and
Trade Will Inc. (the "TV-TW Debtors") are borrowers under that certain senior secured
credit facility, dated as of March 22, 2013, utilized to finance the purchase of the vessels
named Trade Vision and Trade Will (the "Danish Ship Bulker Credit Facility"). The
Danish Ship Finance Bulker Credit Facility has a term four (4) years and nine (9) months
and a rate of Libor + 2.95%. The unpaid principal balance on the Danish Ship Bulker
Credit Facility is approximately $22,000,000. The TV-TW Debtorsâ obligations under the
Danish Ship Bulker Credit Facility are secured by liens on the vessels, including
assignment of insurance and charters. The lender under the Danish Ship Tanker Credit
Facility is Danish Ship Finance A/S. Danish Ship Finance A/S is the agent and security
trustee. Toisa is a party to a guarantee dated as of March 27, 2013, pursuant to which it
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undertook to guarantee the TV-TW Debtorsâ obligations in connection with the Danish
Ship Bulker Credit Facility.
III.
New Builds Silo
(r)
47.
âNew Builds Related Siloâ
Citi Newbuilding Tanker Credit Facility. Toisa is a borrower under
that certain senior secured credit facility, dated as of June 14, 2016, utilized to finance
the construction of a total of six (6) vessels: three (3) Aframax tankers and (3) Suezmax
tankers (the "Citi Newbuilding Tanker Credit Facility"). The Citi Newbuilding Tanker
Credit Facility has a term of seven (7) years post-delivery or up to 9.5 years from
signing, and a rate of Libor + 1.95% for the Citi tranche and Libor +4.35% of the Cexim
tranche. The unpaid principal balance on the Citi Newbuilding Tanker Facility is
approximately $24,034,500. Toisaâs obligations under the Citi Newbuilding Tanker
Credit Facility are secured by an assignment of the shipbuilding contract and refund
guarantees and will be secured by liens on the vessels when delivered, including
assignment of insurance and charters. The lenders under the Citi Newbuilding Credit
Tanker Facility are Citi and Cexim. Citi Europe PLC is agent and security trustee. T&T
and certain of its subsidiaries are parties to a guarantee dated as of June 14, 2016,
pursuant to which they undertook to guarantee the Toisa obligations in connection with
the Citi Newbuilding Credit Tanker Facility.
IV.
Additional Non-Vessel Related Silos
(s)
48.
âAirplane Siloâ
G550 Airplane Credit Facility. A Gulfstream Aerospace GV-SP
G550 (the âG550 Airplaneâ) is held in trust on behalf of Toisa. Non-Debtor Bank of
Utah, as owner trustee and registered owner, (âBoUâ) is a borrower under that certain
senior secured credit facility, dated as of June 16, 2015, utilized to finance the
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acquisition the G550 Airplane (the "G550 Airplane Credit Facility"). The G550 Airplane
Credit Facility has a term of eight (8) years and a rate of Libor + 1.95%. The unpaid
principal balance on the G550 Airplane Credit Facility is approximately $18,210,309.
BoUâs obligations under the G550 Airplane Credit Facility are secured by a lien on the
G550 Airplane, including assignment of insurance. The lender under the G550 Airplane
Credit Facility is Citizens Asset Finance, Inc. Toisa is a party to a guarantee pursuant to
which it undertook to guarantee the BoUâs obligations in connection with the G550
Airplane Credit Facility.
PART II: EVENTS LEADING TO THE CHAPTER 11 CASES
49.
Starting in the summer of 2014, oil prices began to decline
precipitously. In only six months, the price of oil was cut in half. This wholly
unexpected and unprecedented decline in oil prices, and the resulting decrease in
capital expenditure by oil exploration and production (âE&Pâ) companies, led to a
significant reduction in demand for the Debtorsâ offshore supply vessels. Over the past
18 months, the Debtorsâ utilization rate for its offshore supply vessels has dropped from
85% in 2014 to well below 50% as of the Petition Date, and the Debtors have, at times,
been forced to accept rates below certain vesselâs operating expenses to maintain
customer relationships and goodwill.
50.
Owing to their strong liquidity position at the onset of the decline
in oil prices, continued strong earnings from their tanker fleet, and relatively moderate
leverage position, the Debtors were able to weather these adverse market conditions
longer than many of their competitors and other companies involved in the offshore oil
and gas sector. The Debtors are a diversified enterprise with vessels operating in three
distinct sectors: offshore, wet (tankers) and dry (bulkers). As the shipping and offshore
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markets have cyclical risk, a diversified fleet softened some of the impact of the
depressed oil market.
51.
As early as 2015, the Debtorsâ also undertook an aggressive costs
savings program including, reducing yearly OPEX expenditures by $40 million and
cancelling a new shipbuilding contract due to late delivery. This plan, which continued
in 2016, included laying up 21 vessels, on and offshore staff reductions of 52 and 730
employees respectively, closing their offices in Singapore and Aberdeen, negotiating
reductions in crew wages and reducing supplier costs.
52.
Despite these measures, the Debtors and their advisors anticipate
that utilization and day rates for offshore support vessels will remain under pressure
through the end of 2017 and then begin to improve as oil prices increase in 2018 and
continue to climb through 2020. Due to the prolonged duration of the slump in oil
prices as well as the sudden material decline in tanker rates during late summer of 2016,
the Debtorsâ began to experience significant cash flow pressure and projected that
continued repayment of principle as scheduled would result in cash being exhausted by
the middle of 2017.
53.
In the fall of 2016, the Debtors began to engage with their lender
group to negotiate a standstill agreement, which would allow time for a consensual
workout to be agreed. A standstill would allow the Debtors to preserve sufficient
liquidity to weather the persistent weak market conditions (in the offshore and drybulk
markets), which at the time the Debtors were facing for the foreseeable future due to
low oil prices and oversupply of oceangoing vessels. The Debtors also hired financial
advisors in the late fall of 2016. Although many of the Debtorsâ lenders appeared to be
receptive to entering a standstill agreement, others were not. During the above period,
the Company did not make principal payments to certain of its lenders due in
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September 2016 and has not made them since (aggregating approximately $49 million
through December 31, 2016).
54.
On or about December 12, 2016, Citi issued an Acceleration and
Demand Notice. Shortly thereafter, on or about December 24, 2016 Citi caused the
Debtorsâ tanker United Journey to be arrested in St. Eustatius in the Caribbean
Netherlands. It is my understanding that the ship mortgage cannot be enforced in St.
2
Eustatius without a court first ruling on the monetary claims. It is my further
understanding that as of the Petition Date, no case on the merits has been commenced
in St. Eustatius or the United Kingdom.
55.
Since Citi caused United Journey to be arrested, several of the
Debtorsâ other lenders (including, among others, DNB Bank ASA, BNP Paribas SA,
Danish Ship Finance A/S and Commonwealth Bank of Australia) have issued similar
acceleration and demand notices but have not arrested any vessels, but have taken
certain other enforcement actions.
56.
The Debtors met with a group of their lenders in London on
January 12, 2017 and committed to work toward a consensual resolution. For those
discussions to succeed, it was important to obtain a stay of further enforcement actions.
With the protections afforded by chapter 11 of the Bankruptcy Code, it is hoped that
those discussions will result in agreements, and, then, the Debtors will file a chapter 11
plan to implement the agreements. These cases will streamline that process, and
provide a single forum for those conversations to succeed.
2
As a result of the arrest of United Journey, the Debtors have incurred losses and expenses in the
approximate amount of $735,000. This figure is merely an estimate, as many components of the
Debtorsâ losses and expenses are continuously incurred while the United Journey remains under
arrest.
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PART III: FIRST DAY PLEADINGS AND ORDERS
57.
Concurrently with the commencement of these chapter 11 cases, the
Debtors have filed the following pleadings and, at the âfirst dayâ hearing, will seek
orders approving the First Day Pleadings and associated proposed orders (collectively,
the "First Day Orders"), each as listed on the attached Exhibit B, and respectfully request
that the Court consider entering the proposed orders granting such First Day Pleadings.
I have reviewed each of the First Day Pleadings and First Day Orders (including the
exhibits thereto) and the facts set forth therein are true and correct to the best of my
knowledge, information and belief. Moreover, I believe that the relief sought in each of
the First Day Pleadings and First Day Orders is vital to the Debtors' ability to transition
to, and operate in, chapter 11 with minimum interruption or disruption to their
businesses or loss of productivity or value.
A.
Administrative Pleadings.
58.
The Debtors have filed several "administrative" motions pursuant
to which they seek (a) joint administration of the Debtorsâ bankruptcy cases,
(b) authorization to retain Kurtzman Carson Consultants LLC as the Debtorsâ claims
and noticing agent, (c) authorization to file a single, consolidated list of the Debtors' 30
largest creditors and approve the notice of commencement and the form of notice
thereof, (d) extension of the Debtorsâ deadline to file schedules and statements and
related relief, and (e) confirmation of the protections of sections 362, 365, and 525 of the
Bankruptcy Code.
59.
Joint Administration. The Debtors are requesting that their chapter
11 cases be jointly administered. The Debtors consist of 23 entities, all of which are
direct or indirect subsidiaries of Toisa. I believe that the joint administration of these
cases will avoid the unnecessary time and expense of duplicative motions, applications,
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orders and other pleadings that otherwise would need to be filed in each separate case
absent joint administration, thereby saving considerable time and expense for the
Debtors and resulting in substantial savings for their estates. I also believe that
duplication of substantially identical documents would be wasteful and would
overburden the Clerk of the Court with duplicative filings. Further, I believe joint
administration will protect parties-in-interest by ensuring that parties in each of the
Debtors' respective chapter 11 cases will be apprised of the various matters before the
Court in these cases. In addition, I believe it would be far more practical and expedient
for the administration of these chapter 11 cases if the Court were to authorize their joint
administration. The Debtors envision that many of the motions, hearings, and other
matters involved in these chapter 11 cases will affect all of the Debtors. Consequently, I
believe joint administration will reduce costs and facilitate a more efficient
administrative process, unencumbered by the procedural problems otherwise attendant
to the administration of separate, albeit related, chapter 11 cases. Additionally, I believe
joint administration will also allow the Court and the Debtors to employ a single docket
for all of the chapter 11 cases and to confine, and thereby simplify, notice to creditors
and other parties in interest in these bankruptcy cases. Finally, I believe joint
administration will ease the burden on the United States Trustee in supervising these
bankruptcy cases.
60.
Additionally, I believe waiver of the requirements imposed by
section 342(c)(1) of the Bankruptcy Code and Bankruptcy Rule 2002(n) that the Debtorsâ
caption and other notices mailed in these chapter 11 Cases include the Debtorsâ tax
identification numbers and other information relating to the Debtors is appropriate in
these chapter 11 cases. I believe including the Debtorsâ tax identification numbers and
addresses on each caption would be unduly cumbersome, and may be confusing to
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parties in interest. More importantly, I am advised that waiver of the tax identification
number and address requirement is purely procedural in nature and will not affect the
rights of parties in interest, especially given that the Debtors propose to include in each
pleading they file and notice they mail a footnote listing all of the Debtors, their
addresses, and the last four digits of their tax identification numbers (if applicable).
61.
Application to Retain Kurtzman Carson Consultants LLC as
Claims and Noticing Agent. The Debtors seek authority to retain Kurtzman Carson
Consultants LLC (âKCCâ) as their claims and noticing agent. I understand that such
appointment is required by the rules of this Court. Moreover, I believe such relief is
prudent in light of the numerous creditors, potential creditors, and parties-in-interest to
whom certain notices will be sent and from whom proofs of claims may be received.
Accordingly, I believe that the most effective and efficient manner by which to give
notice in these cases is to engage KCC, an independent third party with significant
experience in this role, to act as an agent of the Court.
62.
Authorization to File a Consolidated List of Creditors and to
Establish Notice Procedures. The Debtors are requesting authorization to file a single
consolidated list of their top 30 creditors (the "Consolidated Top 30 List") in lieu of a
Top 20 List (defined below) for each Debtor. I am advised that Rule 1007(d) of the
Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules") requires a debtor to
file a list containing information on its twenty largest unsecured creditors, excluding
insiders (a "Top 20 List"). I am further advised that the Top 20 List is intended to
facilitate the appointment of a creditors' committee by the United States Trustee (the
"U.S. Trustee"). If a creditors' committee is appointed, I believe the Consolidated Top 30
List will be sufficient to aid in the U.S. Trustee's appointment of a creditors' committee.
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I am advised the Debtors have filed, or will soon file, a motion to
retain a claims and noticing agent (the âNoticing Agentâ) as agent for the Clerk of Court
(âClerkâ) to assist the Clerk with, among other things, the notices to be provided in
these chapter 11 cases. I am further advised that the Noticing Agent has prepared a
consolidated list of creditors and potential parties in interest (the âCreditor Listâ) based
on the names and addresses that the Debtors maintained in their databases or were
otherwise readily ascertainable by the Debtors prior to the Petition Date. I am advised
that the Creditor List is in a format ordinarily used by the Noticing Agent and might
not comply with all or some of the various List Filing Requirements.
64.
Under the circumstances, I believe re-formatting the Creditor List,
preparing and filing separate formatted creditor matrices, and otherwise complying
with the List Filing Requirements will impose unnecessary administrative burdens on,
and will distract the Debtors without any corresponding benefit to the estates. In this
context, I believe requiring each Debtor to file a Top 20 List would impose an
unnecessary administrative burden on the Debtors, without conferring any benefit
upon the Debtorsâ estate or the U.S. Trustee.
65.
The Debtors also request authority for their Noticing Agent to serve
by regular mail the notice to parties of the commencement of these chapter 11 cases and
of the meeting of creditors pursuant to section 341 of the Bankruptcy Code (the "Notice
of Commencement") to creditors and shareholders. In addition to mailing the Notice of
Commencement, the Debtors propose to publish, as soon as reasonably practicable, (i)
the Notice of Commencement on the website maintained by the Noticing Agent, and (ii)
a modified, condensed version of the Notice of Commencement in a relevant periodical.
I believe these proposed procedures will ensure that the Debtorsâ creditors and
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shareholders receive prompt notice of the commencement of these chapter 11 cases and
of the meeting of creditors.
66.
Schedules and Statements Motion. The Debtors are requesting
that the Court extend the time by which the Debtors must file their schedules of assets
and liabilities and statements of financial affairs ("Schedules and Statements") to 30 days
after the current deadline. The requested extension would give the Debtors until 44
days after the Petition Date to file their Schedules and Statements. I believe no creditor
or other party in interest will be prejudiced by the requested extension of time for the
filing of the Schedules and Statements. Due to the circumstances leading to the filing of
these chapter 11 cases in emergency fashion, coupled with the number of the Debtors'
creditors, the scope of the Debtors' operations, the size and complexity of the Debtors'
business, and the limited staffing available to gather, process, and complete the
Schedules and Statements, I believe the Debtors will be unable to complete their
Schedules and Statements by the current deadline imposed by the Bankruptcy Code, as
relayed to me by counsel. Given the substantial burdens already imposed on the
Debtors' management by the sudden commencement of these chapter 11 cases, the
limited number of employees available to collect the information, the competing
demands upon such employees, and the time and attention the Debtors must devote to
the restructuring process, I believe that âcauseâ exists to extend the current deadline by
thirty (30) days. I believe the requested extension will enhance the accuracy of the
Schedules and Statements when filed and help avoid the potential necessity of
substantial subsequent amendments.
67.
Additionally, the Debtors seek authority to file the monthly
operating reports (the âMORsâ) required by the U.S. Trustee Guidelines on a
consolidated basis. I believe that consolidated the MORs will further administrative
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economy and efficiency in these chapter 11 cases without prejudice to any party in
interest, and consolidated MORs will accurately reflect the Debtors' business operations
and financial affairs because the Debtors regular business practice is to keep
consolidated financials. Although the Debtors seek to file one consolidating MOR, their
consolidated MOR will still track and break out specific information concerning
receipts, disbursements, etc., on a Debtor-by-Debtor basis.
68.
Motion to Confirm the Protections of Sections 362 and 365 of the
Bankruptcy Code. The Debtors' business operations are conducted worldwide, with
significant assets moving through international waters at any given time. As a result,
the Debtors have many foreign creditors and counterparties to contracts who may not
be well versed in the restrictions of the Bankruptcy Code. It is my understanding that
many of these creditors do not transact business on a regular basis with companies that
have filed for chapter 11, or are unfamiliar with the scope of a debtor in possession's
authority to conduct its business. I believe these creditors may be unfamiliar with the
operation of the automatic stay and other provisions of the Bankruptcy Code. I believe
an affirmative court order will make the impact of the automatic stay and its
applicability to creditors wherever located clearer to such creditors.
69.
Moreover, because the Debtorsâ business operations implicate
maritime law, I am advised that various foreign creditors could seek to assert maritime
liens against the Debtorsâ assets. I am further advised that the determination of what
claim may constitute a maritime lien is determined by local law on a case by case basis.
Thus, I believe various interested parties may attempt to seize assets located outside of
the United States to the detriment of the Debtors and their creditors, or take other
actions in contravention of the automatic stay of section 362 of the Bankruptcy Code
that could harm the Debtorsâ estates. In addition, I am advised that, upon learning of
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the Debtorsâ bankruptcy, counterparties to leases and executory contracts may attempt
to terminate those leases or contracts pursuant to ipso facto provisions in contravention
of section 365 of the Bankruptcy Code.
70.
Finally, because of the international nature of the Debtorsâ business,
the Debtors are required to obtain licenses, permits, and charters from various
governmental units located outside the United States. I believe these governmental
units may be unfamiliar with the non-discrimination provisions of section 525 of the
Bankruptcy Code, which I am advised prohibits governmental units from revoking,
suspending, or failing to renew a license, permit, charter, franchise, or other similar
grant or discriminate with respect to such grant against a debtor solely based on the
debtorâs bankrupt status or financial condition. Without the relief requested in this
Motion, I am advised certain foreign governmental units may attempt to take adverse
action against the Debtors with respect to their various licenses, permits, and charters
upon learning of the Debtorsâ bankruptcy filings.
B.
Operational Motion â Cash Management
71.
In addition to the administrative motions described above, the
Debtors have filed a more "operational" focused motion, seeking authorization to
continue using their existing cash management system and dispense with requirements
under section 345 of the Bankruptcy Code
72.
Cash Management Motion. As discussed more fully above, the
Debtorsâ fleet consists of twenty-six (26) offshore vessels, thirteen (13) tankers, and
seven (7) bulkers. These vessels are owned by various Debtor entities, including Toisa
Limited, which owns twenty-three (23) of the Companyâs twenty-six (26) offshore
vessels.
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The Debtorsâ operations are divided into three segments: (i) dry
bulk, (ii) tanker, and (ii) offshore shipping. Given the size of the Debtorsâ fleet and the
complexity of their operations, the Debtorsâ business segments are managed day-to-day
by distinct non-Debtor affiliate management agents (collectively, the âManagement
Agentsâ). MMS and MMBS manage the tankers and bulkers, respectively, and Sealion
manages the offshore vessels.
74.
In order to streamline the Companyâs management process, the
Company designed a sophisticated cash management system (the âCash Management
Systemâ) to facilitate the efficient flow of funds between the various Debtor entities that
directly own the Debtorsâ vessels (collectively, the âVessel Ownersâ) and the
Management Agents (as well as other entities within the Company) to ensure the
Management Agents can timely satisfy the Vessel Ownersâ operational needs and
further the companyâs corporate purpose.
75.
As described more fully above, since the downturn of the Debtorsâ
operations in Q3 2016, revenues on account of the Vessel Ownersâ charter receipts and
receivables flow directly to the accounts of the Management Agents, who, in turn,
(i) pay the Vessel Ownersâ operating expenses as they come due (including interest on
the companyâs funded debt obligations to the extent such interest is being paid), and
(ii) otherwise transfer funds between and among the companyâs various bank accounts
as needed. Importantly, each and every deposit, payment, and other transfer within the
Cash Management System is documented and accounted for on both a per Vessel and a
per entity basis. I believe these accounting procedures ensure that (a) cash flow
attributable to the Debtorsâ distinct business segments is not commingled, as each
segment has its own Management Agent, and (b) the proceeds of each Vessel Ownersâ
charter receivables can be easily traced through the Debtorsâ Cash Management System
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to ensure that any cash (or corresponding liability) is allocated to the appropriate Vessel
and, in turn, Vessel Owner.
76.
I believe the Cash Management System is integral to the stability
and efficiency of the Debtorsâ operations, as it ensures charter receivables are easily
collected and the Companyâs operating expenses are timely satisfied in a way that
minimizes the Companyâs administrative costs. Thus, the preservation of the Cash
Management System post-petition, particularly with respect to the Management
Agents, is critical. Indeed, given the Debtorsâ complex internal structure and the unique
industry in which they operate, I believe any loss or interruption of the Management
Agentsâ services or the Cash Management System â even temporarily â would
immediately halt operation of the Company, thereby causing irreparable harm not only
to the Debtorsâ ongoing operations (and, therefore, to their ability to generate revenue
during these cases), but also to the continued maintenance and care of the Vessels. I
believe such damage would be detrimental at this critical early stage of the Debtorsâ
chapter 11 cases.
77.
The Debtors therefore request that the Court authorize them to
continue using the existing Cash Management System, which entails the continued use
of the Management Agentsâ services under the Management Agreements, and to
continue to transfer funds into, out of, and through the Companyâs Cash Management
System, as described more fully in the Cash Management Motion.
78.
Additionally, I am advised that the U.S. Trustee Guidelines, among
other restrictions and requirements, prohibit disbursements other than by numbered
checks, which checks must bear the applicable debtorâs case name and case number, a
âdebtor in possessionâ designation, and an indication of the account type. I am further
advised that rigid adherence to the U.S. Trustee Guidelines would require, among other
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things, closure of prepetition bank accounts, the opening of new accounts, and the
immediate printing of new checks with a âDebtors in Possessionâ designation on them.
Thus, I believe enforcement of the U.S. Trustee Guidelines in these chapter 11 cases
would disrupt the Debtorsâ business operations, impose burdensome expenses on the
estates, and unnecessarily distract the Debtors from their reorganization efforts.
79.
Moreover, in the ordinary course of business, the Debtors may also
use other various business forms, including, but not limited to, business letterhead,
purchase orders, invoices, envelopes, promotional materials, and other business forms
and correspondence. To minimize expenses, the Debtors seek authority to continue
using the Business Forms, substantially in the forms existing immediately before the
Petition Date and without any reference in such forms to the Debtorsâ status as debtors
in possession. As with the bank accounts, I believe requiring the Debtors to change
their existing business forms would unnecessarily distract the Debtors from their
restructuring efforts and impose needless expense. Furthermore, I believe authorizing
continued use of both the Bank Accounts and the Business Forms will make the
Debtorsâ transition into chapter 11 smoother, less costly, and more orderly.
80.
In connection with the cash management system, the Debtors incur
fees and other charges in connection with bank services, dishonored or returned checks,
and other obligations under their bank account agreements (the âBank Account
Claimsâ).
81.
I am advised that absent payment of the Bank Account Claims, the
Banks might assert setoff rights against the funds in the Bank Accounts on account of
the Bank Account Claims, freeze the Bank Accounts, and/or refuse to provide services
to the Debtors. Therefore, I believe the payment of Bank Account Claims will not
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prejudice unsecured creditors given that, as noted above, the banks may have setoff
rights with respect to the Bank Account Claims.
82.
In addition, the Debtors routinely engage in the intercompany
transactions in the ordinary course of business. As such, I believe the continuation of
these intercompany transactions post-petition would be within the ordinary course of
business. However, in an abundance of caution, the Debtors seek authority to enter into
such postpetition intercompany transactions. If the Debtors are permitted to continue
entering into the Postpetition Intercompany Transactions in the ordinary course, the
Debtors will continue to maintain records of Postpetition Intercompany Transactions,
including records of intercompany accounts receivable and accounts payable on a per
entity basis.
83.
I believe the intercompany transactions facilitate the Debtorsâ day-
to-day operations, as well as the day-to-day operations of the non-Debtor affiliates,
which are responsible for managing the Debtorsâ affairs. I believe payments associated
with the intercompany transactions received by the Debtors from their non-Debtor
affiliates are important sources of liquidity for the Debtors. Moreover, I believe that
without the ability to continue supporting the non-Debtor affiliates through the
intercompany transactions, the Debtorsâ future cash flows and ongoing operations may
be jeopardized, to the detriment of the Debtors and their estates.
84.
Accordingly, I believe entry of an Order granting the relief
requested in the Cash Management Motion is in the best interests of the Debtorsâ
estates.
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PART IV: INFORMATION REQUIRED BY LOCAL BANKRUPTCY
RULE 1007-2
85.
Local Bankruptcy Rule 1007-2 requires that the Debtors provide
certain information, which is set forth below.
86.
As required under Local Bankruptcy Rule 1007-2(a)(3), to the best
of the Debtors' knowledge and belief, there have been no committees organized prior to
the Petition Date.
87.
As required under Local Bankruptcy Rule 1007-2(a)(4), Exhibit C
lists the following information with respect to each of the holders of the Debtors' thirty
(30) largest unsecured claims on a consolidated basis, excluding claims of insiders: the
creditor's name, address (including the number, street, apartment or suite number, and
zip code, if not included in the post office address), telephone number, the name(s) of
person(s) familiar with the Debtors' accounts, the amount of the claim, and an
indication of whether the claim is contingent, unliquidated, disputed or partially
secured. In each case, the claim amounts listed on Exhibit C are estimated and subject
to verification. In addition, the Debtors reserve their rights to assert remedies, defenses,
counterclaims, and offsets with respect to each claim.
88.
As required under Local Bankruptcy Rule 1007-2(a)(5), Exhibit D
provides the following information with respect to each of the holders of the five (5)
largest secured claims against the Debtors on a consolidated basis: the creditor's name
and address (including the number, street, apartment or suite number, and zip code, if
not included in the post office address), the amount of the claim, a brief description of
the claim, and whether the claim or lien is disputed. In each case, the claim amounts
listed on Exhibit D are estimated and subject to verification. In addition, the Debtors
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reserve their rights to assert remedies, defenses, counterclaims, and offsets with respect
to each claim.
89.
As required under Local Bankruptcy Rule 1007-2(a)(6), the Debtors
submit that as of September 30, 2016 the Debtors' unaudited consolidated financial
statements, aggregated $1,767,037,578 in total assets and $1,052,024,537 in total
liabilities.
90.
As required under Local Bankruptcy Rule 1007-2(a)(7), to the best
of the Debtors' knowledge and belief, as of the Petition Date, 12,000 shares of Toisa were
outstanding. It is my understanding that none of the shares of Toisa are publicly held.
91.
As required under Local Bankruptcy Rule 1007-2(a)(8), to the best
of the Debtors' knowledge and belief, other than the tanker United Journey, the Debtors
do not have any property in the possession or custody of any custodian, public officer,
mortgagee, pledgee, assignee of rents, or secured creditor, or agent for any such entity.
United Journey is currently being held twelve miles off the coast of St. Eustatias by Mr.
Roberto Ricardo Patrick, a bailiff in St. Eustatias on behalf of Citi as ship mortgagee.
92.
As required under Local Bankruptcy Rule 1007-2(a)(9), Exhibit F
provides a list of the premises owned, leased, or held under other arrangement from
which the Debtors operate their business.
93.
As required under Local Bankruptcy Rule 1007-2(a)(10), Exhibit G
provides the location of the Debtors' substantial assets, the location of their books and
records, and the nature and location of assets held by the Debtors outside the territorial
limits of the United States.
94.
As required under Local Bankruptcy Rule 1007-2(a)(11), to the best
of the Debtors' knowledge and belief, there are no actions or proceedings, pending or
threatened, against the Debtors or their property where a judgment against the Debtors
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or a seizure of the Debtors' property may be imminent other than with regard to the
aforementioned arrest of United Journey.
95.
As required under Local Bankruptcy Rule 1007-2(a)(12), Exhibit H
provides a list of the names of the individuals who comprise the Debtors' existing
senior management, their tenure with the Debtors, and a brief summary of their
relevant responsibilities and experience.
96.
Local Bankruptcy Rule 1007-2(b)(1)-(2) requires the estimated
amount, on a consolidated basis, to be paid to the Debtors' employees (not including
officers, directors, and stockholders) for the 30-day period following the filing of the
Debtors' chapter 11 petitions and the amount paid and proposed to be paid to officers,
stockholders and directors and financial consultants for services for the thirty day
period following the petition date. The estimated amount to be paid to non-officer
employees is $24,500. The estimated amount, on a consolidated basis, to be paid to the
Debtors' officers for the 30-day period following the Petition Date is $0. Estimated
payments to be made to the Debtors' directors are approximately $0. Furthermore, the
Debtors have budgeted approximately $805,000 to be paid to the Debtors' professionals
for the 30-day period following the Petition Date.
[concluded on the following page]
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As required under Local Bankruptcy Rule 1007-2(b)(3), Exhibit I,
the Debtors' cash collateral budget, provides a list of estimated cash receipts and
disbursements, and net cash gain or loss other than professional fees, on a consolidated
basis for the 4-week period following the Petition Date. The Debtors do not believe that
they will accrue material obligations during such 4-week period that will not be
satisfied in the ordinary course of business.
I swear under penalty of perjury that the foregoing is true and correct.
Dated:
January 29, 2017
By: /s/ Robert Hennebry
Name: Robert Hennebry
Title: Chief Financial Officer
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