Omega Navigation lender agent objects to continued cash collateral use

By Jim Witters

Wilmington, Del., Oct. 26 - The agent for Omega Navigation Enterprises Inc.'s senior lenders objects to Omega's continued use of cash collateral, saying that the "continued deterioration of the shipping market has rendered reorganization impossible," according to documents filed Oct. 25 with the U.S. Bankruptcy Court for the Southern District of Texas.

HSH Nordbank AG, agent for the lenders, says the banks' interest in the eight ships pledged as collateral for a $242 million loan and the cash generated from the ships - the lenders' collateral - is not adequately protected.

"Over the objections of the senior lenders, the junior lenders and the committee, the court provided the debtors with the requested 'breathing spell' during which the senior lenders and debtors engaged in a mediation, which commenced Feb. 18, 2012 and lasted six months," the documents state.

In August, the debtors and the new value funder agreed to the terms of a consensual plan of reorganization with the senior lenders that provided for a restructuring of the $242 million senior lender loan.

The new value funder is a company in which the debtors' president, CEO and stockholder George Kassiotis is the president, a director and, together with certain of his relatives, an indirect owner of the equity interests in the new value funder, according to court filings.

"The plan of reorganization filed by the debtors is the culmination of the mediation. The debtors and the new value funder led the senior lenders to believe that the new value funder was also a supporter of the plan of reorganization," the filing states.

"However, the new value funder has not funded the escrow for his 'new value' cash contribution [...] and it appears the new value funder no longer supports confirmation of the plan of reorganization on the agreed to terms."

Meanwhile, the shipping market has continued to decline, prompting the debtors to notify HSH Nordbank that the restructuring of the $242 million loan is unworkable.

HSH Nordbank wants Omega to turn over the ships pledged as collateral for the loan.

The going concern value of the ships is $230 million, according to court filings.

Omega has failed to pay interest payments for 16 months and did not have to pay $10.8 million in postpetition interest. Professional fees are $3.6 million.

Junior lenders allege a superpriority administrative claim of $36 million, and the senior lenders assert a superpriority administrative claim of $12 million.

"The debtors do not have the cash nor are they capable of raising the capital needed to pay such substantial claims upon confirmation of any plan in the face of the current market," the lenders say.

"The court should limit use of cash collateral to solely providing for the turnover of the ships to the senior lenders," the filing states.

No hearing on the motion has been scheduled.

Omega Navigation is an Athens, Greece-based provider of marine transportation services. The company filed for bankruptcy on July 8, 2011 under Chapter 11 case number 11-35926.

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