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MCGLINCHEY STAFFORD 112 West 34th Street, Suite 1515 New York, New York 10120 T: 646 362-4000 F: 646-607-4464 Deborah A. Reperowitz, Esq. E. Stewart Spielman, Esq.
HEARING DATE: January 13, 2017 10:00 a.m.
Counsel for Capital One, National Association UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK _______________________________________________ IN RE: : Chapter 11 : INTERNATIONAL SHIPHOLDING : Case No. 16-12220 (smb) CORPORATION, et al., 1 : : (Jointly Administered) : Debtors. _______________________________________________ : CAPITAL ONE, NATIONAL ASSOCIATION’S RESPONSE AND RESERVATION OF RIGHTS TO DEBTORS’ EXPEDITED MOTION FOR ENTRY OF AN ORDER (I) AUTHORIZING THE DEBTORS TO CONSUMMATE THE SALE OF THE OSLO WAVE; (II) ESTABLISHING JANUARY 1, 2017, AS THE EFFECTIVE DATE OF THE SALE OF THE OSLO WAVE; (III) STAYING DISTRIBUTION OF THE PROCEEDS OF THE SALE TRANSACTION PENDING FURTHER ORDER OF THE COURT; AND (IV) REJECTING THE BAREBOAT CHARTER NUNC PRO TUNC TO JANUARY 1, 2017 Capital One, National Association (“Capital One”) submits this response and reservation of rights to Debtors’ Expedited Motion for Entry of an Order (I) Authorizing the Debtors to Consummate the Sale of the Oslo Wave; (II) Establishing January 1, 2017, as the Effective Date of the Sale of the Oslo Wave; (III) Staying Distribution of the Proceeds of the Sale Transaction
The Debtors in these cases, along with the last four digits of each Debtor’s federal tax identification number, are: International Shipholding Corporation (9662); Enterprise Ship Co. (9059); Sulphur Carriers, Inc. (8965); Central Gulf Lines, Inc. (8979); Coastal Carriers, Inc. (6278); Waterman Steamship Corporation (0640); N.W. Johnsen & Co., Inc. (8006); LMS Ship Management, Inc. (0660); U.S. United Ocean Services, LLC (1160); Mary Ann Hudson, LLC (8478); Sheila McDevitt, LLC (8380); Tower LLC (6755); Frascati Shops, Inc. (7875); Gulf South Shipping PTE LTD (8628); LCI Shipholdings, Inc. (8094); Dry Bulk Australia LTD (5383); Dry Bulk Americas LTD (6494); and Marco Shipping Company PTE LTD (4570).
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Pending Further Order of the Court; and (IV) Rejecting the Bareboat Charter Nunc Pro Tunc to January 1, 2017 , [Doc. 488] (the “Sale Motion”), and respectfully states: 1.
The above-captioned debtors and debtors-in-possession (collectively, the
“Debtors”) each filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code, commencing on July 31, 2016 (the “Petition Date”). The Debtors’ cases are being jointly administered, and the Debtors remain in possession of their assets and operation of their businesses, each as a “debtor in possession.”
An official Committee of Unsecured
Creditors pursuant to 11 U.S.C. § 1102(a) has been appointed in the Debtors’ cases. 2.
Prior to the Petition Date, Capital One provided a term loan to LCI Shipholdings,
Inc. (“LCI”), one of the Debtors (as successor by assignment from Waterman Steamship Corporation), in the original principal amount of $15,675,000.00 (the “Capital One Facility”). The Capital One Facility is evidenced by, among other things, certain collateral agreements and a Loan Agreement dated as of December 28, 2011, as amended, supplemented, modified, and/or assigned (collectively, the “Capital One Loan Documents”). 3.
LCI secured its obligations under the Capital One Facility by granting Capital
One a first priority lien and security interest in (i) the M/V Oslo Wave, Marshall Islands official number 4991, Call Sign V7AG6 (the “Oslo Wave”), and (ii) certain assets, contracts, and rights related to the Oslo Wave, including that certain Bareboat Charter (the “Bareboat Charter”) initially dated December 19, 2014, as amended, between LCI and Oslo Bulk Holding PTE, LTD (“Charterer”) (collectively, the “Collateral”), some of which constitutes cash collateral under 11 U.S.C. § 363 (the “Cash Collateral”), all as more fully described in the Capital One Loan Documents and confirmed in the Final Order (1) Authorizing Debtors to (A) Obtain Post-Petition
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Financing, (B) Use Cash Collateral, and (C) Grant Certain Protections to Prepetition Lenders and (2) Granting Certain Related Relief [Doc. 180] (the “Final DIP Financing Order”). 4.
As of the Petition Date, LCI owed an outstanding principal balance of
$5,915,591.48 under the Capital One Facility. 5.
Capital One is also one of the Senior Facility Lenders to International Shipholding
Corporation and certain other Debtors under the Senior Facility, as defined and described in the Final DIP Financing Order. This Response and Reservation of Rights is being filed solely to protect Capital One’s rights and interests under the Capital One Facility; Regions Bank, as Agent under the Senior Facility, will relate the position, if any, of the Senior Facility Lenders with respect to the Sale Motion to this Court. 6.
It is confirmed in the Final DIP Financing Order that Capital One is the holder of
a first priority security interest in the Collateral, including the Oslo Wave, the Bareboat Charter and the Cash Collateral.
In the Final DIP Financing Order and associated pleadings
(collectively, the “Financing Orders”), the Debtors stipulated that the value of the Collateral “substantially exceeds the aggregate amount of the obligations owed under the Capital One Facility.” 7.
Now, in contradiction to that stipulation in the Financing Orders, the Debtors seek
to sell the Oslo Wave for a price that does not appear to adequately protect Capital One’s interests in the Oslo Wave, the Bareboat Charter its related contracts and their collective proceeds. For example: a. The Debtors fail to specify what offers LCI received pre-petition that it did not consider “adequate” as alleged in paragraph 17 of the Sale Motion; b. The Debtors fail to adequately explain the discrepancy between the sale price ($3,300,000) it has agreed to with the Charterer and Oslo Wave PTE LTD (collectively, the “Buyer”) and the recent appraised value of $4,400,000 to $4,600,000 as described in paragraph 15 of the Sale Motion; 3
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c. The Debtors attach as Exhibit B to the Sale Motion, the Memorandum of Agreement ostensibly as the final document relative to the sale of the Oslo Wave, yet the Declaration of Manuel G. Estrada, submitted in support of the Sale Motion, states that, “[t]he Debtors are still in arm’s length negotiations with the Buyer regarding the final terms of the agreement for the sale of the Oslo Wave.” The “final terms” are critical to Capital One’s consent and the Sale Motion should not be approved without their disclosure; d. The Debtors fail to appropriately describe the benefit that the Buyer is receiving through the rejection of the Bareboat Charter (between LCI and the Charterer) and why any such benefit is not leading to a commensurate increase in the purchase price. Specifically, the Charterer is obligated to pay LCI in excess of $2,500,000, as described in the Motion for no less than three remaining calendar years under the Bareboat Charter. The Debtors fail to provide a calculation of the present value of the cash flow remaining due under the Bareboat Charter, which income stream represents Capital One’s Cash Collateral; e. Despite the fact that both the Financing Orders and the Sale Motion acknowledge Capital One’s priority lien position in the Oslo Wave, the Sale Motion does not provide that Capital One will immediately receive the proceeds of the sale at closing, instead subjecting Capital One’s collateral position to the vagaries and timing of confirmation of the Debtors’ plan of reorganization; f. The Debtors fail to disclose in the Sale Motion what, if any, due diligence the Debtors have performed to determine the existence of any operational liens which may be imposed on the Oslo Wave (or the sale proceeds) as a result of the Charterer’s possession and control of the vessel pursuant to the Bareboat Charter nor what protections are being provided to the estate or Capital One in the event any such claims exist or are asserted; g. The Debtors fail to disclose in the Sale Motion what notice, if any, is being provided to those potential claimants of the intent to sell the vessel; h. Finally, the Debtors fail to disclose in the Sale Motion why the disbursement of the sale proceeds is not being made to Capital One immediately upon closing of the sale, in light of the finality of the recognition of Capital One’s lien position in the Oslo Wave pursuant to the provisions of the Financing Orders. 8.
The Sale Motion accurately states that Capital One does not object to the purchase
price “so long as it receives not less than $3.3 million.” Unfortunately, the Motion does not provide any assurance that Capital One will ever receive the full $3.3 million, but to the contrary proposes that distribution of the sale proceeds will be stayed, subjecting the proceeds of the sale to further process and claims in the case, including the priming lien of the DIP Lenders in the amount of $1.25 million.
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Since the filing of the Motion, Capital One has made limited progress with respect
to addressing the issues noted above. Negotiations are continuing, but Capital One is optimistic that an agreement can be reached between the Parties. 10.
Capital One expressly reserves its rights to raise additional objections to the Sale
Motion and expressly reserves its rights under the Final Cash Collateral Order or otherwise to pursue the allowance of claims, including a priority and/or administrative expense claim resulting from the post-petition diminution of the value of its Collateral and the use by the Debtors of its Cash Collateral. MCGLINCHEY STAFFORD By:
/s/ Deborah A. Reperowitz Deborah A. Reperowitz E. Stewart Spielman 112 West 34th Street, Suite 1515 New York, New York 10120 T: (646) 362-4000 Counsel to Capital One, National Association