Inside Opinion: Lessons from OSG - Does Ch11 Skew the Global Playing Field?

I saw the reports this week stating that OSG is getting ready to come out of Chapter 11 protection shortly.

They've reportedly hired Goldman Sachs to pilot them through this potentially troubling time. As someone who has worked with the group for many years prior to the filing and continued to do so after the filing, I am pleased for them.

They have always come across as a very professional group in my dealings at least I have nothing but respect for them for the way they handled everything. It's been a tough few years for them and I'm pleased they seem to be getting ready to stand up on their own again. The market went against them, they were caught with the wrong tonnage at the wrong rates in the wrong places on the wrong charters. Could have happened to anyone.

OSG are a classic example (in my opinion) of a company that understood that the backing of its creditors was key, and that bunker/consumables bills should be paid on time even under Ch11 protection to ensure the vessels keep running.

There is a lot of fear and angst when a major counterparty declares Ch11. There was a lot when OSG did it. The markets were spooked. The bunker industry was spooked. But under what could only have been great stress and uncertainty, they stood up and took responsibility for what happened.

Changes were made, departures ushered and contracts discussed. Crucially though, I am unaware of a single bunker supplier who lost a single cent over it. Granted they had some good leverage and the lawyers took their pound of flesh for sure.

The Ch11 Period

I know a lot of senior guys at a lot of bunker companies and those involved with them during the Ch11 period all speak in uncharacteristically positive terms, as I do, of OSG's professionalism and honesty. Can't have been easy. Credit where it is due and all that.

I wasn't involved in any meaningful way with Genmar before or during Ch11 so cannot comment but have been waiting for years for sister company Genco to go down the same route and was not even a tiny bit surprised when they declared Ch11 last week. I hope anyone with any outstandings will be treated as professionally as they were with OSG. I'm sure they will.

People have been predicting Eagle Bulk to go down the Ch11 route for years and my feeling is they will have a better year this year, as a buoyant Supramax market may stave off the threat for the time being. I hope the banks will support them so they do not have to file Ch11.

I have a beady eye on Hanjin as a possible contender for the Korean equivalent of a Ch11 filing too. I hope they manage not to go the same way as STX Pan Ocean.

As a European sitting in a London office the notion of Ch11 debtor protection under US law and elsewhere is something that never quite sat right with me. I'm sure I'm not the only one. But it would be churlish of me to start a debate on the rights or wrongs of it, on these pages at least.

European Protection

It does pose a fascinating question though. What if we had such protection in Europe? Would Torm have taken advantage of the rules to trim off some of their debt burden, and if they had, would they arguably be in a better position now, given the vessel sales it has had to make?

What would the wet side of the Lauritzen empire look like? Would Seaarland still be around? Would Beluga still be called Beluga? What of Epic Shipping? Of Atlas? Of SNCM - would it have made any difference anyway in their case?

What I do think is that if there was no Ch11 in the US the landscape there (not just in shipping) would be very different. Some might say more competitive.

Conversely, could we have seen many more shipping bankruptcies in Europe in the last six years if we had Ch11 protection, and bankruptcy here didn't basically mean liquidation? I suspect there might have been.

Makes you think doesn't it?