Overseas Shipholding to negotiate IRS claim after restating financials

By Jim Witters

Wilmington, Del., Aug. 26 - Overseas Shipholding Group, Inc. is in a position to begin negotiating with the Internal Revenue Service after completing a review and restatement of the company's financial statements for the past 12 years, debtors attorney James A. Bromley said during an Aug. 26 hearing in the U.S. Bankruptcy Court for the District of Delaware.

"The company believes, based on its analysis and its interactions with the IRS to date, that the actual amount of tax that the company ultimately will be required to pay to the IRS in respect of the potential deemed dividends and other adjustments discussed above will be significant and could be as high as $460 million, or potentially higher, for all periods ending on or before December 31, 2012, not taking in account any potential penalties but including interest," the company wrote in a form 10-K filed Aug. 26 with the Securities and Exchange Commission.

However, the company says it "has several defenses available to mitigate its liability and intends to assert those defenses vigorously."

The IRS has filed proofs of claims totalling $463.01 million in the Chapter 11 bankruptcy case.

Bromley said the completion of the financial review provides the basis for negotiations to begin on that claim.

Exclusivity hearing delayed

Overseas Shipholding also postponed a hearing on a 90-day extension of its exclusive periods for filing a Chapter 11 plan and for seeking plan acceptances to negotiate a compromise with U.S. Bank NA.

U.S. Bank, as administrative agent under a Feb. 9, 2006, credit agreement, does not object to an extension of the exclusive periods.

"The administrative agent does, however, take issue with the length of the requested extension and the approach to the plan process evinced in the second exclusivity motion, which all but ensures that the debtors' exclusivity will span the statutory maximum of 18 months, when such a period is not necessary under the circumstances," the bank said in court documents.

Overseas Shipholding requested that the exclusive period for filing a Chapter 11 plan be extended through Nov. 30 from Aug. 2, and that the exclusive period for soliciting acceptances of the plan be extended through Jan. 31, 2014, from Oct. 1.

U.S. Bank is seeking a 60-day extension, rather than 90 days.

When filing the motion, the company said the additional time is needed to allow the debtors to "continue the claims resolution process to reconcile and fix the more than 1,600 proofs of claim that have been filed against them, including more than $400 million in asserted damages claims from chartered vessels that have been rejected, more than $450 million in claims asserted by the Internal Revenue Service, and thousands of asbestos-related claims."

Overseas Shipholding says it also needs the extension "to negotiate and discuss plan structure and mechanics with their various creditor constituencies, as well as to provide for sufficient financing or other liquidity upon emergence."

U.S. Bank argues that "all obstacles to plan negotiations have been removed in the nine months since these cases were filed," and "the debtors have completed their operational restructuring" and "have prepared long-term business plans" for domestic and international businesses."

The debtors stand in a position to formulate views regarding the enterprise value of the business and the claims to be addressed before moving "quickly and efficiently through plan negotiations," the bank says.

"As the court is well aware, bankruptcy protection does not come cheap. The debtors are incurring costs that average approximately $2.8 million per month due to the accrual of professional fees, with total costs exceeding $20 million as reflected by the fee applications filed to date," according to the bank.

Judge Peter J. Walsh agreed to adjourn the hearing until 9:30 a.m. ET on Sept. 16 to allow the debtors to negotiate with the bank.

Under local rules in Delaware, exclusivity is automatically extended through the date of the hearing on the motion.

Overseas Shipholding, a New York-based tanker company, filed for bankruptcy on Nov. 14. The Chapter 11 case number is 12-20000.

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