U.S. Shipping Partners files for pre-packaged Chapter 11 bankruptcy

By Caroline Salls

Pittsburgh, April 30 - U.S. Shipping Partners, LP made a pre-packaged Chapter 11 bankruptcy filing Wednesday in the U.S. Bankruptcy Court for the Southern District of New York with a restructuring plan that will reduce its leverage and improve liquidity, according to a company news release.

The company said the restructuring plan is supported by a substantial majority of its secured lenders and noteholders.

U.S. Shipping said recent market conditions have placed increased pressure on its cash flow from operations, including a significant drop in demand and greater competition, and the decision to file for bankruptcy came after extensive efforts to improve the company's liquidity and implement strategic alternatives.

"This restructuring process will provide the operational flexibility necessary to manage through current challenges we face in our industry, while allowing us to continue to modernize our fleet and build on our leading position," chief executive officer Ron O'Kelley said in the release.

Plan terms

Under the restructuring plan:

• $100 million of second-lien debt will be exchanged for 50% of the equity of the reorganized company;

• First-lien debt will be maintained at an improved interest rate, and first-lien debtholders will also receive 50% of the new equity;

• The company's senior secured lenders will also receive a total of $332.6 million in new term loans, plus an amount equal to the termination obligation under the company's interest rate swaps.

The new term loan notes will bear interest at either Base rate plus 400 basis points or Libor plus 500 bps, with a 2% Libor floor, at the company's option.

The term loans will mature on Aug. 7, 2013.

• Existing and outstanding common units, subordinated units and general partnership interests will be cancelled, and holders will receive no distribution;

• Foreign second-lien noteholders will receive warrants;

• Holders of other secured claims will be paid in full in cash or through the return of the collateral securing the claim; and

• Holders of administrative, priority tax and other priority claims will be paid in full in cash.

The company said it will fund its operations through the bankruptcy period by accessing its $15 million cash balance.

U.S. Shipping said it expects to complete the restructuring process during the third quarter of 2009.

Debt details

According to court documents, U.S. Shipping had $717.44 million in assets and $606.53 million in debt as of Sept. 30, 2008.

The company's largest unsecured creditor is Jefferies & Co. of New York, with a $2.25 million trade claim. The company did not list any other unsecured creditors with claims of $1 million or more.

Default issues

According to an 8-K filed with the Securities and Exchange Commission, the bankruptcy filing constitutes events of default that automatically accelerated the $332.6 million owed under its credit agreement and $100 million owed on its second-lien notes.

However, any enforcement actions are covered under the automatic stay imposed by the bankruptcy filing.

U.S. Shipping has also filed a lawsuit against Blackstone Corporate Debt Administration LLC; Cerberus Partners, LP; Styx Partners, LP; A3 Funding LP; Blackstone Mezzanine Partners II USS LP; Blackstone Mezzanine Holdings II LP; Blackstone Family Investment Partnership V USS LP; Blackstone Family Investment Partnership V LP; Blackstone Family Investment Partnership V-A USS SMD LP; Blackstone Participation Partnership V LP; Blackstone Participation Partnership V USS LP; Blackstone Family Investment Partnership V-A LP; and Blackstone Capital Partners V USS LP.

In the lawsuit, the company has asked the court to enforce the automatic stay to keep the defendants from taking actions against some of the U.S. Shipping debtors and non-debtor affiliate joint-venture holding company USS Products Investor LLC in connection with vessel construction supervision, chartering and operation agreements.

U.S. Shipping is an Edison, N.J.-based provider of long-haul marine transportation services. Its Chapter 11 case number is 09-12711.

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