| DEBT | Note 9 — Debt:
Debt consists of the following:
March 31,
December 31,
2020
2019
Core Term Loan Facility, due 2025, net of unamortized deferred finance costs of $5,191
$
294,809
$
-
Transition Term Loan Facility, due 2022, net of unamortized deferred finance costs of $787
44,213
-
Sinosure Credit Facility, due 2027-2028, net of unamortized deferred finance costs of $2,166 and $2,262
261,645
267,443
8.5% Senior Notes, due 2023, net of unamortized deferred finance costs of $1,073 and $1,142
23,927
23,858
2017 Term Loan Facility, due 2022, net of unamortized discount and deferred finance costs of $11,211
-
320,309
ABN Term Loan Facility, due 2023, net of unamortized deferred finance costs of $610
-
22,638
10.75% Subordinated Notes, due 2023, net of unamortized deferred finance costs of $1,084
-
26,847
624,594
661,095
Less current portion
(81,483)
(70,350)
Long-term portion
$
543,111
$
590,745
On January 28, 2020, except for the Sinosure Credit Facility and the 8.5% Senior Notes, the principal outstanding as of December 31, 2019 on all of the Company’s other debt facilities reflected in the above table were paid off or repurchased and the underlying credit agreements or Indentures were terminated or discharged in accordance with their respective terms in conjunction with the Company closing on the 2020 Debt Facilities, described below.
Capitalized terms used hereafter have the meaning given in these condensed consolidated financial statements or in the respective transaction documents referred to below, including subsequent amendments thereto.
2020 Debt Facilities
On January 23, 2020, International Seaways, Inc., International Seaways Operating Corporation (the “Borrower”) and certain of their subsidiaries entered into a credit agreement (the “Credit Agreement”) comprising $390,000 of secured debt facilities (the “2020 Debt Facilities”) with Nordea Bank Abp, New York Branch (“Nordea”), ABN AMRO Capital USA LLC (“ABN”), Crédit Agricole Corporate & Investment Bank, DNB Capital LLC and Skandinaviska Enskilda Banken AB (PUBL), or their respective affiliates, as mandated lead arrangers and bookrunners, and BNP Paribas and Danish Ship Finance A/S, as lead arrangers. Nordea is acting as administrative agent, collateral agent and security trustee under the Credit Agreement, and ABN is acting as sustainability coordinator.
The 2020 Debt Facilities consist of (i) a five-year senior secured term loan facility in an aggregate principal amount of $300,000 (the “Core Term Loan Facility”); (ii) a five-year revolving credit facility in an aggregate principal amount of $40,000 (the “Core Revolving Facility”); and (iii) a senior secured term loan credit facility with a maturity date of June 30, 2022 in an aggregate principal amount of $50,000 (the “Transition Term Loan Facility”). The Core Term Loan Facility contains an uncommitted accordion feature whereby, for a period of up to 18 months following the closing date, the amount of the loan thereunder may be increased up to an additional $100,000 for the acquisition of Additional Vessels, subject to certain conditions.
The Core Term Loan Facility and the Core Revolving Facility are secured by a first lien on 14 of the Company’s vessels built in 2009 or later (the “Core Collateral Vessels”), along with their earnings, insurances and certain other assets, while the Transition Term Loan Facility is secured by a first lien on 12 of the Company’s vessels built in 2006 or earlier (the “Transition Collateral Vessels”), along with their earnings, insurances and certain other assets. In addition, both facilities are secured by liens on the collateral relating to the other facilities, as well as certain additional assets of the Borrower.
On January 28, 2020, the available amounts under the Core Term Loan Facility and the Transition Term Loan Facility were drawn in full, and $20,000 of the $40,000 available under the Core Revolving Facility was also drawn. Those proceeds, together with available cash, were used to (i) repay the $331,519 outstanding principal balance under the 2017 Debt Facilities, (ii) repay the $23,248 outstanding principal balance under the ABN Term Loan Facility, (iii) repurchase the $27,931 outstanding principal amount of the Company’s 10.75% Subordinated Notes due 2023
On March 4, 2020, the $20,000 outstanding balance under the Core Revolving Facility was repaid in full using available cash on hand.
On March 12, 2020, the Company entered into a Side Letter agreement with the 2020 Debt Facilities lenders relating to the mortgage for the Seaways Mulan, a 2002-built VLCC that has been detained by the Indonesian authorities since February 8, 2020 pending the completion of their investigation of a claim that the vessel had illegally anchored in Indonesian territorial waters while awaiting orders for its next voyage. The mortgage requires the vessel owner to secure the release of a vessel that has been arrested or taken into custody under color of legal authority within 30 days of the initial detention of such vessel and grants the vessel owner an additional 30 days thereafter to cure the non-release of the vessel before being considered to be in default under the terms of the Credit Agreement. Although a process to obtain release of the vessel was and remains ongoing, the vessel had been in the custody of the Indonesian authorities for more than 30 days. If the vessel’s detention was not cured or waived by April 8, 2020, the Company would be in default under the terms of the Credit Agreement. Accordingly, pursuant to the terms of the Side Letter agreement, the Lenders granted the Company an additional 60 days from the initial arrest date to secure the release of the Seaways Mulan from arrest by the Indonesian authorities by May 8, 2020 after which the Company would have an additional 30 days (i.e., through June 7, 2020) to cure the non-release of the vessel before being considered to be in default under the terms of the Credit Agreement. If the release of the Seaways Mulan does not occur by June 7, 2020,
Debt Covenants
The Company was in compliance with the financial covenants under all of its debt facilities as of March 31, 2020.
The 2020 Debt Facilities contain customary representations, warranties, restrictions and covenants applicable to the Company, the Borrower and the subsidiary guarantors (and in certain cases, other subsidiaries), including financial covenants that require the Company (i) to maintain a minimum liquidity level of the greater of $50,000 and 5% of the Company’s Consolidated Indebtedness; (ii) to ensure the Company’s and its consolidated subsidiaries’ Maximum Leverage Ratio will not exceed 0.60 to 1.00 at any time; (iii) to ensure that Current Assets exceeds Current Liabilities (which is defined to exclude the current potion of Consolidated Indebtedness); (iv) to ensure the aggregate Fair Market Value of the Core Collateral Vessels will not be less than 135% of the aggregate outstanding principal amount of the Core Term Loans and Revolving Loans and the aggregate Fair Market Value of the Transition Collateral Vessels will not be less than 175% of the aggregate outstanding principal amount of the Transition Term Loans, respectively; and (v) to ensure the ratio of Consolidated EBITDA to Consolidated Cash Interest Expense will not be lower than (A) 2.25:1.00, for the period ending on June 30, 2020 and (B) 2.50:1.00 at all times thereafter.
Under the Sinosure Credit Facility, the Obligors (as defined in the Sinosure Credit Facility) are required to comply with various collateral maintenance and financial covenants, including with respect to:
(i)
minimum security coverage, which shall not be less than 135% of the aggregate loan principal outstanding under the Sinosure Credit Facility. Any non-compliance with the minimum security coverage shall not constitute an event of default so long as within thirty days of such non-compliance, Seaways Subsidiary VII, Inc. has either provided additional collateral or prepaid a portion of the outstanding loan balance to cure such non-compliance ;
(ii)
maximum consolidated leverage ratio, which shall not be greater than 0.60 to 1.00 on any testing date;
(iii)
minimum consolidated liquidity, under which unrestricted consolidated cash and cash equivalents shall be no less than $25,000 at any time and total consolidated cash and cash equivalents (including cash restricted under the Sinosure Credit Facility) shall not be less than the greater of $50,000 or 5.0% of Total Indebtedness (as defined in the Sinosure Credit Facility) or $9,000 (i.e., $1,500 per each VLCC securing the Sinosure Credit Facility); and
(iv)
interest expense coverage ratio, which for Seaways Holding Corporation, shall not be less than 2.00 to 1.00 during the period commencing on July 1, 2018 through June 30, 2019 and will be calculated on a trailing six, nine and twelve-month basis from December 31, 2018, March 31, 2019 and June 30, 2019, respectively. For the Company, the interest expense coverage ratio shall not be less than 2.25 to 1.00 for the period commencing on July 1, 2019 through June 30, 2020 and no less than 2.50 to 1.00 for the period commencing on July 1, 2020 and thereafter and shall be calculated on a trailing twelve-month basis. No event of default under this covenant will occur if the failure to comply is capable of remedy and is remedied within thirty days of the Facility Agent giving notice to the Company or (if earlier) any Obligor becoming aware of the failure to comply, and (i) if such action is being taken with respect to a Test Date falling on or prior to December 31, 2020, then such remedy shall be in the form of cash and cash equivalents being (or having been) deposited by Seaways Holding Corporation to a restricted Minimum Liquidity Account within the thirty day period mentioned above in the manner and in the amounts required to remedy such breach as tested at the Seaways Holding Corporation level and (ii) if such action is being taken with respect to a Test Date falling on or after January 1, 2021, then any such remedy and the form of the same shall be considered and determined by the lenders under the Sinosure Credit Facility in their absolute discretion .
The 8.5% Senior Notes Indenture contains certain restrictive covenants, including covenants that, subject to certain exceptions and qualifications, restrict our ability to make certain payments if a default under the Indenture has occurred and is continuing or will result therefrom and require us to limit the amount of debt we incur, maintain a certain minimum net worth and provide certain reports. The Indenture also provides for certain customary events of default (subject, in certain cases, to receipt of notice of default and/or customary grace or cure periods).
Pursuant to the limitation on borrowings covenant, the Company shall not permit Total Borrowings (as defined in the Indenture) to equal or exceed 70% of Total Assets (as defined in the Indenture). The Company shall also ensure that Net Worth (defined as Total Assets, less Intangible assets and Total Borrowings, as defined in the Indenture) exceeds $600,000 pursuant to the Minimum Net Worth covenant.
The Company’s credit facilities also require it to comply with a number of covenants, including the delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with the Employee Retirement Income Security Act of 1974 ("ERISA"); maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on transactions with affiliates; and other customary covenants and related provisions.
Interest Expense
Total interest expense, including amortization of issuance and deferred financing costs (for additional information related to deferred financing costs see Note 2, “Significant Accounting Policies”), commitment, administrative and other fees for all of the Company’s debt facilities for the three months ended March 31, 2020 and 2019 was $11,852 and $17,226, respectively. Interest paid for the Company’s debt facilities for the three months ended March 31, 2020 and 2019 was $7,155 and $11,172 respectively.
Debt Modifications, Repurchases and Extinguishments
During the three months ended March 31, 2020, the Company incurred debt issuance costs aggregating $7,329 in connection with 2020 Debt Facilities. Issuance costs paid to lenders and third-party fees associated with the Core Revolving Facility aggregating $752 were capitalized as deferred finance charges. Issuance costs paid to lenders and third-party fees associated with Core Term Loan Facility and Transition Term Loan Facility totaled $6,577, of which $6,345 were capitalized as deferred finance charges and $232 associated with third-party fees paid that were deemed to be a modification were expensed and are included in third-party debt modification fees in the accompanying condensed consolidated statement of operations. Issuance costs incurred and capitalized as deferred finance charges have been treated as a reduction of debt proceeds. In addition, aggregate net losses on the repurchases and extinguishment of the Company’s debt facilities totaling $13,493 were recognized during the three months ended March 31, 2020 and are included in other income/(expense) in the accompanying condensed consolidated statement of operations. The net loss reflects a prepayment fee of $992 related to 10.75% Subordinated Notes and a write-off of $12,501 of unamortized original issue discount and deferred financing costs associated with the payoff of the 2017 Term Loan, ABN Term Loan Facility, and the 10.75% Subordinated Notes, which were treated as extinguishments. |
