Rickmers reaches the end of the line

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    FRESH from celebrating the successful merger of Hapag-Lloyd and United Arab Shipping Co, the city of Hamburg is faced with its biggest container shipping crisis yet, following the announcement that Rickmers Group’s efforts to restructure its debts had failed and the company was launching insolvency proceedings.
    The proceedings threaten to see the demise of one of Germany’s largest shipowners and bring to an end one part of a family business that goes back over 180 years.
    Bertram Rickmers’ Rickmers Group is a wide-ranging organisation that encompasses shipowning, shipmanagement and brokerage. It owned, until February, project-cargo unit Rickmers-Linie and was until recently the major shareholder in Singapore-based Rickmers Maritime Trust (RMT), a panamax owner that itself filed for bankruptcy earlier this year.
    But like most non-operating owners of containership tonnage, Rickmers has been hit hard by the misfortunes of the container sector, where lines struggling with low freight rates and price wars have been forced to cut costs. Chartered-in tonnage was at the top of the list and vessels returned to owners either failed to achieve the same revenues again, or were forced into lay-up.
    The result for owners like Rickmers was falling revenues but fewer opportunities to remove costs.
    Moreover, owners of some classes of vessel were especially wrong-footed. The opening of the new Panama Canal locks in June 2016 rang the death knell for panamaxes, which found few opportunities for employment at rates above operating costs.
    Many of these ships, however, were relatively young, and had not been in service long enough to pay off their mortgages; mortgages that still needed paying.
    The simple arithmetic of cashflow was the real problem for Rickmers.
    A long time coming
    Its downfall came as the company made a last-ditch attempt to restructure its debts in the face of impending interest and loan payments.
    It had appeared to reach an agreement with its main creditor bank, HSH Nordbank, in April and was in the process of convincing noteholders of its 2013 €275m, 8.875% bond to sign up to a restructuring plan that would see Mr Rickmers give up 75% of the company to a Luxembourg-registered holding company that would eventually sell shares in the group to pay off the bank and bondholders.
    But this was by no means the first restructuring for the company.
    As well as the fundraising efforts made in 2013, where it was forced to offer junk bond interest rates to raise capital, Rickmers had in 2015 persuaded its banks to restructure $1.4bn of debt, which was supposed to give it a three-year breathing space to raise funds.
    In the same year, Rickmers appointed two investment banks and a law firm to explore options for tapping the US capital markets, with the potential for an initial public offering if conditions were right.
    They weren’t. By that time, container shipping was going through one of the worst periods in its 60-year history and New York equity markets were not interested in a German boxship owner that had just had to make write-downs from failed KG investments.
    By late last year, the cracks began to show. With its struggling Singapore unit RMT unable to make its own bond payments, Mr Rickmers took the company’s holding in the subsidiary and placed it in his personal Brick Holding vehicle in an effort to protect the wider group from RMT’s inevitable collapse, which finally happened this year.
    The next step was selling off Rickmers-Linie and two smaller affiliates — NPC Projects and MCC Marine Consulting & Contracting — to Bremen-based newcomer Zeaborn, or as it emerged later, paying for them to be taken off Rickmers Group’s hands.
    The counterintuitive move was justified because cashflow and business projections for the companies were so shot that hanging on to them would actually have hampered plans to restructure Rickmers.
    By April, the banks, at least, appeared to be convinced. In its only public statement on its insolvency, Rickmers said that on April 19, it reached an understanding with HSH on a term sheet regarding the restructuring of financial liabilities of the group that was subject to HSH’s approval and contingent on the restructuring of the 2013 bond.
    The Luxembourg connection
    The restructuring plan involved 75.1% of Rickmers shares being transferred to a Luxembourg subsidiary known as LuxCo. Mr Rickmers would accordingly see his stake diluted to just 24.9%.
    If by 2020 the boxship market was in a better condition, the LuxCo tranche would then be sold. That would have enabled creditors to recoup at least some of what they were owed. Rickmers reckoned at least 40% of the value of the debt could be recovered if they agreed, but if they failed, the company would be forced to file for insolvency, leaving bondholders as unsecured creditors and likely to recover little or nothing.
    The bond’s maturity date would be pushed from 2018 to 2027.
    To sweeten the deal, Mr Rickmers was to contribute €30m of his own cash, and use the grace period to sell ships and negotiate extended loan periods, interest rate reductions and deferrals.
    By that time, the bonds were trading at only around 5% of face value. If noteholders agreed, they would at least receive the 8.875% interest payment they were due on June 11.
    Bond breakdown
    For the deal to work, Rickmers had to get the approval of the bondholders, but this itself was fraught with difficulty.
    An initial effort to reach an agreement failed when insufficient bondholders met to form a quorum.
    Moreover, moves by Mr Rickmers to choose the bondholder’s representative himself were met with anger. A rebel group, led by Carlos Andrade of Delta Alternative Management, insisted it should have its own representative and wanted to explore options other than the proposed restructuring.
    While the rebel faction thought it had enough support to block the restructuring plan, Mr Rickmers fought back by using proxies to bid for €30m of the notes at around 15% of nominal value, to secure enough votes among the bondholders.
    A vote was due to take place on June 1 that would have resolved it one way or another.
    But on the last day of May, after the close of business in Europe, Rickmers announced on its website that HSH had pulled the plug and that the deal was off. The shipowner was now filing for insolvency.
    Dodgy dealings
    At the time of writing, it remains unclear exactly why HSH bailed out. The move will certainly hurt the bank, which will crystallise its losses and find itself the proud owner of more tonnage than a bank can usefully employ.
    Several theories are doing the rounds, however.
    The first comes from Mr Andrade, who puts the blame firmly at the feet of Mr Rickmers.
    HSH was supportive of the plan on the condition that Mr Rickmers would have no more than a 24.9% equity stake in the company, Mr Andrade says.
    “HSH wanted Bertram Rickmers to be under the 25% threshold to avoid him having any important power going forward, but we found out that he made a specific change in the statutes, where he put the necessary level at 80%, meaning that Mr Rickmers could block any changes demanded,” Mr Andrade says.
    While Mr Andrade’s claims could not be independently verified and efforts to contact Rickmers Group were not answered, reports in the German press indicated that the company altered its articles of incorporation at an extraordinary general meeting just before the reorganisation plan was published in April.
    The limit to Mr Rickmers' power was specifically “a number one requirement” for HSH as it did not want him to have as much influence on the company, Mr Andrade says.
    “They changed the statutes in the last weeks to get round the demands of the bank. So he tried to screw the bank just like he’s trying to screw the bondholders. I guess the bank changed its mind and didn’t want to support the restructuring plans anymore.”
    Reputational damage
    Others however, feel the move could be more to do with HSH protecting its own reputation and that the move could be a political one as much as anything else.
    With other German owners on its books struggling, the bank could not afford to bail out everyone and had to make a choice. It is possible that Mr Rickmers, who is considered quite flamboyant by German standards, simply did not fit the mould of low-profile, conservative German shipowner in Hamburg’s eyes.
    This thesis is not as unlikely as it may first seem. HSH previously had its fingers burned in the court of public opinion after supporting failed shipowner Bernd Kortum by writing off around $500m in debts accrued by Norddeutsche Reederei H Schuldt.
    Mr Kortum, one of Hamburg’s wealthiest residents, had at the time invested in an expensive yacht and the German press berated the state-owned bank for funding the bailout.
    With the bank now being privatised, it will be wary of courting further negative press, sources said.
    The fallout
    Whatever the reason for the collapse, the future for Rickmers Group’s owner, employees and vessels remains unclear.
    According to VesselsValue, Rickmers owns 33 live container vessels, with four more on order, as well as four dry bulk and two vehicle carriers.
    Also a large vessel charterer, the group has a total chartered and owned fleet of 114 vessels, according to its website.
    VesselsValue estimates the live fleet to be worth $661m, with a demolition value of $244m.
    “Panamax and post-panamax container market values are currently at historic lows,” said VesselsValue lead analyst Toby Yeabsley. “Five-year-old panamax container values reached a 25-year low in February this year with a value of $8.3m, when charter rates were hovering around $6,000 per day, barely enough to cover operating costs.”
    Rates have since recovered slightly to a healthier monthly average of around $10,000 per day, and with the charter rates the market values have also come up slightly. The same vessel had a market value of $12m in May, Mr Yeabsley says.
    As Lloyd’s List Containers went to press, the Rickmers executive board announced it had appointed Hamburg lawyer Christoph Morgen from insolvency specialist Brinkmann & Partner as chief insolvency officer. Jens-Sören Schröder of the law firm Johlke Niethammer & Partner had been appointed as a temporary trustee by the Hamburg District Court.
    “The aim of the executive board is to work out a new restructuring solution together with the creditors and making use of the tools of insolvency law,” Rickmers said in a statement. “Banks, bondholders and the workforce will be represented on a temporary committee of creditors.”
    It added that the insolvency application applied solely to the holding company Rickmers Holding and that operating subsidiaries — in particular Rickmers Shipmanagement Hamburg and Singapore ­— were not affected and were working normally.
    “Business and shipping operations are continuing,” Rickmers said.
    But few hold much hope that a new plan will meet with approval from creditors.
    “It’s not a case of all the assets being sold off tomorrow,” said one Hamburg-based finance source. “There will be a process here. The main concern I would have is that this has happened quickly and unexpectedly.”
    He likened the situation to the collapse of Hanjin Shipping last year.
    “This is going to be the biggest scramble now to make sure they have enough liquidity to survive the payment terms they have. It’s always a problem if you don’t have time to prepare for these filings.”
    Another UK-based financier said it was unlikely there would be any way out for the company.
    “It’s going to be a very difficult untangling,” he said. “They’ve got over 100 ships and they’ve got a couple of thousand people employed; on land they have 500 people. It is going to be messy all round. Presumably the assets are covering only a small portion of their liabilities so everybody is going to end up a loser here.”

    courtesy of Llyod's List

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