Overseas Shipholding Group Files for Bankruptcy

Overseas Shipholding Group Inc., the largest U.S. tanker operator, filed for bankruptcy protection after global shipping rates declined and demand for oil fell in North America and Europe.

The 64-year-old company, based in New York, listed assets of $4.15 billion and debt of $2.67 billion in a Chapter 11 filing today in U.S. Bankruptcy Court in Wilmington, Delaware.

Overseas Shipholding, with more than 100 vessels that transport oil, refined products and natural gas worldwide, reported 13 straight quarters of net losses as tanker rates plunged as much as 96 percent, according to data compiled by Bloomberg. The company had its debt downgraded on concerns about a February loan deadline and said Oct. 22 that it may need to reorganize because of tax issues.

Weaker oil demand in the U.S. and Europe caused by the economic slowdown and warmer winters led to a reduction in ships crossing the Atlantic, where Overseas Shipholding’s fleet is concentrated, the company said in a report on its quarter ended June 30. In addition, an influx of carriers from Asia boosted competition, the company said.

Overseas Shipholding has about 3,600 employees, including 3,170 seafarers, and offices in cities including Athens, London, Singapore and Tampa, Florida, according to its website. It was founded in 1948, incorporated in 1969 and listed on the New York Stock Exchange in 1973.

Rating Cut

Moody’s Investors Service reduced its rating on the company’s bonds in August, citing lower shipping rates, excess tanker capacity and questions about whether Overseas Shipholding could raise money in time to meet loan covenants, even though many of its ships weren’t yet pledged as collateral.

“Moody’s does not expect average annual tanker freight rates to meaningfully strengthen above their 2011 levels before well into 2013,” analysts led by Jonathan Root in New York wrote in an Aug. 2 report. Ship sales to raise money were unlikely because market values for oil tankers “remain in the doldrums,” Root wrote.

Later that month, the company announced that it would be about $100 million short of funds needed to repay $1.5 billion in loans by February.

Overseas Shipholding said in an Oct. 22 regulatory filing that it was evaluating options, including bankruptcy, after a tax review prompted its audit committee to consider whether financial statements for the three years leading up to Dec. 31, 2011, should be restated. The issue was about how it accounted for taxes, given its U.S. base and international operations.

Shipping Rates

A decline in shipping rates since the 2008 financial crisis has helped to drive other ocean-transport companies into bankruptcy, including General Maritime Corp., Korea Line Corp. (005880), Britannia Bulk Plc, Armada (Singapore) Pte Ltd. and Transfield ER Cape. Humpuss Sea Transport Pte Ltd., a Singapore-based unit of an Indonesian company, filed for liquidation in Singapore and in the U.S. this year.

Overseas Shipholding as of June 30 had pledged 15 vessels, worth 29 percent of its book value, as collateral for secured loans, according to its website.

The company’s publicly traded debt includes $64 million in 8.75 percent senior unsecured notes due in 2013, $300 million in 8.125 percent notes due in 2018 and $146 million in 7.5 percent senior unsecured notes due in 2014.

Overseas Shipholding’s shares, which traded as high as $91.49 in 2007, have declined 90 percent this year to close at $1.13 yesterday.

The case is In re Overseas Shipholding Group Inc. (OSG), 12- bk-20000, U.S. Bankruptcy Court, District of Delaware (Wilmington).

To contact the reporters on this story: Tiffany Kary in New York at tkary@bloomberg.net; Phil Milford in Wilmington, Delaware at pmilford@bloomberg.net

To contact the editor responsible for this story: John Pickering at jpickering@bloomberg.net

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