MorrisAnderson Assisting Lender Group Substantially Reduces Loan Exposure

Challenge

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Tank Barge Operator. Net revenue down 11% to $220 million. $175 million debt. 64 tank barges, 66 tugboats serving major oil companies, oil traders and refiners. 4.1 million barrels of capacity. 91% double hull (largest coastwise tank barge fleet in the US).

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• EBITDA declined by $40 million to $56 million
• Reduced demand for petroleum products, driven by declines in consumer gasoline consumption, combined with decreases in wholesale prices and margins of refined oil products while crude oil pricing increased, severely impacted margins.
• Cutbacks in refinery utilization adversely affected demand for vessels.
• Oil companies shifted from long-term time charter contracts to spot market purchases. K-Sea time charters under contract (as a percent of capacity) declined from 74% at year-end FY09 to 49% at year-end FY10.
• Company had limited ability to reduce costs sufficiently to offset reduced revenues and was overleveraged.

Solution

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• MorrisAnderson was engaged as financial advisor to the Senior lenders to assess the business plan and macro-economic factors as well as options for operational improvements and potential financial restructuring.
• MorrisAnderson determined that the business model was sound and pushed for a plan to reduce leverage based on long term economics.

Results

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• Company closed a $100 million equity infusion, along with $16 million in proceeds from other asset sales, which reduced total funded debt to $279 million (total funded debt/EBITDA of 4.3x).
• Deleveraging mitigated risk to the bank group and adequately restructured the capital structure imbalance.
• Cash flow and availability projected to be sufficient to fund operations.
• Enterprise value analysis indicated reasonable coverage of outstanding debt in all scenarios including a downside case.