Business Context and Reporting Period
Company: GENCO SHIPPING & TRADING LTD
Filing Type: Form 8-K (Current Report)
Date of Report: July 20, 2007
Event: Entry into a Material Definitive Agreement (New Credit Facility)
On July 20, 2007, the Company executed a new $1.4 billion credit facility underwritten by DnB NOR Bank ASA. This facility replaces existing credit arrangements and is primarily intended to finance the acquisition of nine modern drybulk Capesize vessels and refinance outstanding debt.
Key Financial Metrics and Facility Terms
- Total Facility Size: Up to $1,377,000,000 available for borrowing.
- Maturity Date: July 20, 2017 (10-year term).
- Interest Rate: LIBOR plus an Applicable Margin of 0.80% (Years 1-5) and 0.85% (Years 6-10). The margin reduces to 0.75% and 0.80% respectively if the Total Debt to Total Capitalization ratio is less than 70%.
- Commitment Fee: 0.20% per annum on unutilized commitments until September 30, 2007, increasing to 0.25% thereafter.
- Existing Debt Refinanced: Approximately $206 million from a $550 million facility and approximately $77 million from a $155 million short-term facility.
- Working Capital/Letters of Credit: Up to $50 million for working capital and up to $50 million for standby letters of credit.
Material Changes and Use of Proceeds
The new facility represents a significant expansion of the Company's borrowing capacity and a restructuring of its debt profile. Proceeds are allocated as follows:
- Vessel Acquisition: Up to 100% of the ~$1.1 billion purchase price for nine Capesize vessels from the Metrostar Management Corporation group.
- Debt Repayment: Full repayment of outstanding amounts under the Company's two existing credit facilities.
- Future Acquisitions: Funding for additional dry bulk carriers meeting specific criteria.
- Liquidity: Working capital and standby letters of credit.
Collateral Structure: The facility is secured by first-priority mortgages on existing and new vessels, assignment of earnings and insurance, a security interest in Jinhui Shipping and Transportation Limited shares, and pledges of subsidiary ownership interests.
Financial Covenants and Obligations
The Credit Agreement imposes strict financial covenants measured quarterly:
- Leverage Ratio: Maximum average Net Debt to EBITDA ratio of 5.5:1.0 (replacing the previous Total Indebtedness to Total Capitalization ratio of 0.7:1.0).
- Interest Coverage: EBITDA to Interest Expense ratio must be no less than 2.0:1.0 (rolling four-quarter basis).
- Net Worth: Consolidated net worth must be at least $263,300,000 plus 80% of the value of new equity issuances after June 30, 2007.
- Collateral Value: Aggregate fair market value of mortgaged vessels must be at least 130% of outstanding principal plus letters of credit.
- Liquidity: Cash and cash equivalents must not be less than $500,000 per mortgaged vessel.
Mandatory Prepayments: The facility requires ten consecutive semi-annual reductions of 7.0% starting on the fifth anniversary, plus a 30% balloon payment at maturity. Additionally, the Company must pay up to $6,250,000 per quarter from Net Cash Flow to reduce borrowings, subject to capital tests.
Investor Verification Checklist
- Verify the closing of the $1.1 billion acquisition of nine Capesize vessels from Metrostar Management Corporation.
- Confirm the full repayment of the existing $550 million and $155 million credit facilities.
- Monitor the Company's ability to maintain the 130% collateral coverage ratio relative to outstanding debt.
- Review quarterly reports to ensure compliance with the new 5.5:1.0 Net Debt to EBITDA leverage covenant.
- Track the mandatory quarterly prepayments of up to $6.25 million from Net Cash Flow.