THE PERFECT STORM: The BLT Restructuring Story

Connecticut Maritime Association Luncheon

February 18, 2016

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Based Upon Actual Events

The True Story of the Four Year Restructuring of

Berlian Laju Tanker

Prologue – Fair Winds & Following Seas: 1981-2007

• Hadi Surya founds Berlian Laju Tanker in 1981 (BLT) as a time-charter operator;

firstly securing cargo requirements and then chartering-in the ships to perform

• In the 1980s BLT begins transition to owner-operator purchasing 2nd hand tonnage

• 1990: BLT lists on the Jakarta Indonesia Stock Exchange (IDX)

• 1998: BLT acquires Gold Bridge Shipping of Hong Kong

• 2006: BLT lists on the Singapore Stock Exchange (SGX)

• December 2007 – BLT acquires Chembulk Tankers for $850M and is acclaimed as

the world’s 3rd largest owner-operator of stainless steel chemical tankers

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If you have too much cargo, there is always a solution ….

If you don’t have enough cargo, there is no solution – Stolt-Nielsen Chartering Mgr. 1985

Chapter 1 – The Gathering Storm: 2008-2011

• 2008: Sub-prime mortgage crisis triggers global economic meltdown ending the good chemical tanker market of the previous 5 years

• 2009 – 11: Oil prices increase from mid-$40s to ~$100/BBL

• 2008-11: BLT takes delivery of 13 Japanese stainless steel chemical tanker NBs

• US$ declines significantly vs. JPY making the NBs 25-33% more costly at delivery

• NBs are financed almost entirely through sale and lease-back arrangements

• BLT increases debt load via various bond offerings

• 2011: Refinance of the 39 owned ships (BLT-GB-CBT) by DNB led 7-bank MLA

• The sustained chemical tanker market trough, coupled with rising oil prices, substantial finance cost and the mounting debt prove too much for BLT to endure

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“The trick to making money in shipping is to have a cheap ship”

– Stolt-Nielsen Managing Director 1985

Chapter 2 – The Storm is Upon Us!

February 2012 – Creditors commence enforcement tactics:

Three lessors repossess 5 bareboat leased tankers following defaults

Another lessor files maritime law Rule B in US Federal Court in Hartford, CT

Two bunker suppliers arrest two BLT tankers while performing Chembulk voyages

Some other BLT tankers arrested by various creditors in various jurisdictions

• A few of BLT’s customers suspend business relationship/void COAs

• Facing a difficult reality, an air of disbelief pervades across BLT Group BUs

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• January 25, 2012 – BLT announces suspension

of stock trading and debt-standstill !

• FTI Consulting appointed as restructuring

advisors by MLA syndicate

• Early January 2012 – BLT informs MLA syndicate

of impending cash crunch

• MLA mandates all revenues to DNB earnings acct

Chapter 3 – Maintaining Stability

February 2012

• The Chembulk Tankers BU continues

to be fully solvent going concern, but ...

• Numerous in-person meetings and

conference calls with customers

• Business disruptions are minimal as

Chembulk business partners remain

supportive.

• MTI Network engaged by Chembulk to

assist with and manage PR

• Chembulk engages direct dialogue with

MLA lead bank DNB

• CBT CEO circulars assure customers,

vendors and staff that “all is well”

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Chapter 4 – Hove to and Damage Control

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Everything going to be OK!

• Borrelli Walsh appointed by BLT as its

restructuring advisor and Cos Borrelli

is named Chief Restructuring Officer

• Borrelli requests hands-on assistance in Jakarta from Chembulk management team

March 2012

• Borrelli immediately “quarantines” the

solvent Chembulk and Gold Bridge

BUs from BLT

• Other damage control measures to

“stop the bleeding” are implemented

• Jack Noonan and COO Dan Dahlgard begin the first of alternating month-long

assignments in Jakarta which will continue into early 2015

• Damage control measures implemented, a mood that “all will be OK” sets in

Chapter 5: Commencing Navigation Out of the Storm

• Key vendors – i.e. bunker suppliers, tugboat

companies, port agents etc. – are engaged

• Payment schedules/plans are established

• Remaining bareboat leases reworked into

new BB or or time charters with CBT

• Commence transition process from GBLT

(BLT in-house ship mgt) to 3rd party

technical managers for owned ships

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It’s not personal. It’s strictly business.

I’m going to make them an offer they

can’t refuse

• Fifteen loss-making ships are sold, scrapped or redelivered to their owners

• The first draft of the restructuring plan is presented to the MLA on June 30th

• Unprofitable COAs are not renewed at expiration

• BLT offices in Shanghai, Dubai and Mumbai are closed

April – June 2012

Chapter 6: Salvage Operations – The PKPU

• On July 2nd, an Indonesian bank invokes a PKPU – literally translated meaning

“suspension of payments” – on BLT

• The PKPU process safeguards BLT’s assets and must be concluded within 270 days

• During the process, new payment plans cannot be made, assets disposed of or new

loans obtained without the Jakarta court-appointed Administrators’ consent

• The restructuring plan is submitted to participating creditors for approval

• If approved, the plan becomes binding on all participating creditors irrespective whether

they voted for approval or not

• If creditors reject the plan, or if the PKPU process is not concluded within the 270 days,

the company is required to be liquidated.

• On March 14th creditors approve the plan which is then sanctioned by the Jakarta court

• The MLA had not participated in the PKPU but instead tried unsuccessfully to sell its debt

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“If I owe you 100 pounds, I have a problem; if I owe you one million, the problem is yours.”

– John Maynard Keynes 1883-1946

July 2012 – March 2013

No Chapter 7

The PKPU process was successful and BLT was spared

from liquidation.

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Therefore no need for a Chapter 7!

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Chapter 8: Riding Out the Storm

April 2013 – January 2014

• The PKPU ruling is recognized under US Chapter 15 and Singapore Section 210 and is deemed internationally sanctioned

• In return for MLA support of the PKPU approved plan and an infusion of working capital, it is granted share pledges over the Chembulk Tanker operating platform

• Having bottomed out, the chemical tanker markets gradually but steadily begin to improve

• Sensing an increased value in its security over the remaining 27 owned ships and the Chembulk platform, MLA banks begin to tender for sale their debt in BLT

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“This is my boat. We're gonna ride this thing out, not for fun, for safety.

Do what I've always done: go with the flow.” – Sebastian Junger: The Perfect Storm

Chapter 9: Underway and Making Way

February – April 2014

• Member banks in the MLA begin to successfully market their share of the debt

• KKR leads the way buying a percentage similar to lead bank DNB (~30%)

• York Capital follows suit and buys a sizeable share

• Together KKR and York jointly own the majority of the debt (ultimately ~85%)

• A number of other PE firms and investment banks purchase smaller tranches

• All 7 banks in the original MLA exit as these PE firms and banks ultimately buy and

own all of the secured debt in BLT, providing them with:

• Security over 27 owned ships – 23 chemical tankers and 4 LPG carriers – and

• Share pledges over the Chembulk operating platform inclusive of 7 leased ships with

purchase options, 5 time-chartered ships and all of the COAs.

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“One man’s trash is another man’s treasure.” – 17th century English proverb

Chapter 10: Change of Command

• May 2014 – April 2015: Negotiations take place between BLT and KKR & York for a

Restructuring Support Agreement (RSA) providing for the conversion of debt to

equity in a new company to retain the name Chembulk Tankers.

• April 24th – the RSA is successfully concluded

• August 14th – BLT’s creditors overwhelmingly (85%) vote to approve the RSA

• November 17th – BLT’s shareholders overwhelmingly (70%) vote to approve the RSA

• November 30th – the owned ships and Chembulk operating platform are successfully

transitioned out of BLT

• December 1st – Chembulk Tankers and its 39-ship fleet commence operations as an

independent company, with KKR & York as its majority shareholders

• BLT emerges from restructuring a considerably smaller, but solvent, going-concern.

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CHAPTER 11

CHAPTER 11

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Epilogue: The Value of the Security

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“Money itself isn't lost or made, it's simply transferred from one

perception to another.”

• The MLA originally held security over 27 ships, but

not over Chembulk’s operating platform

• Enforcement on the ships would have netted much less than what was ultimately

achieved, with those buyers benefitting instead of the MLA syndicate

Laws of Conservation of Mass and Energy:

…. They can be neither created nor destroyed – High School Chemistry 101

As per Gordon Gekko perhaps the Laws of

Conservation do apply to money ….. or intrinsic value

• Absent the platform, the value of the MLA’s security

was a fraction of the par value of the debt

• Chembulk Tankers would have likely been dissolved resulting in:

The intrinsic value not destroyed but “transferred from one perception to another.”

- The time-chartered ships and purchase options going back to the head owners

- The COAs going to other owners and operators

- The management team and staff being employed elsewhere

Summary: Sailing into the Eye of the Storm

• Acquiring Chembulk Tankers at the very peak of asset-valuations

• Embarking on an aggressive Japanese NB program during a period when:

the US$ was falling vs. the JPY and forex risk was not properly managed

the chemical tanker market had peaked and was in decline

oil prices, and therefore voyage expenses, were rising

the over-supply of tonnage, including many NBs, was foreseen but disregarded

• Irrational optimism that market conditions would sufficiently improve

• Capital was inexpensive and easily obtained from eager providers

The Takeaway

The principal of cargo procurement before tonnage procurement was ignored

BLT didn’t have cheap ships

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Summary: Making it out of the Storm – Why the Restructuring Worked

• The appointment of restructuring advisor Borrelli Walsh

• Damage control measures implemented before it was too late, including:

strict cash management protocol

ensuring uninterrupted supply of bunkers and other key services

• Disposal of EBITDA-negative tonnage and discontinuing unprofitable COAs

• Rationalization of G&A infrastructure: office closures, headcount reduction

• The PKPU 270 day deadline forced timely creation of a credible restructuring plan

• Customer and vendor support providing for “business as usual”

• Getting out in front of the news – be it bad or good / keeping customers informed

• Debt so large that any enforcement action would mean “zero” for most creditors

• A fleet and commercial operating platform worth keeping in-tact

• The vision of KKR & York to buy the debt and to reach a consensual plan with BLT

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Thank you for your attention today

and for your loyal support of

CHEMBULK TANKERS

during the challenging past four years!

Q & A