Tuesday, October 23, 2012

Overseas Shipholding Group: Rumors Of Its Financial Demise May Not Be Greatly Exaggerated

Overseas Shipholding Group's (OSG) shares fell precipitously again yesterday after the company announced that it was contemplating filing for bankruptcy protection. The latest news came amid a dramatic disclosure from the company that a (yet-unexplained) tax issue involving its international operations had rendered its financial statements unreliable.

Until yesterday the main issue affecting the company's stock price appeared to be a funding gap between an expiring credit facility of $1,500 million (in February-2013), and a $900 million forward start credit facility.

Estimates from the company and analysts put the funding gap between $100 million to $300 million. But based on yesterday's news, I believe the funding gap may indeed be substantially higher.

The $900 million forward start credit facility will not be available to the company before February-2013. The facility is subject to an adverse materiality clause and compliance with financial covenants among other terms.

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