95% of Zim debt holders agree to restructure plan
The embattled Israel-based ocean carrier Zim on Tuesday laid out a detailed debt restructuring that the company says will secure its short-term and long-term financial future.
Zim, like other liner carriers, has been hit hard by falling freight volumes and rock-bottom rates in the ocean transport industry this year, leading to projections by its parent company that the line could lose up to $1 billion through 2013. Analysts have suggested the line is precariously placed due to a substantial order book of new vessels and a shortfall in cash.
However, the company's parent, Israel Corp., has been negotiating in recent months with lenders and shareholders to defer debt repayments and inject the line with short-term emergency financing to allow it to weather the current demand downturn in hopes that when the global economy recovers, Zim would as well.
On Tuesday, Zim said it would receive $500 million in new financing from the company's existing banks in Israel and abroad. The money will be provided through the rest of this year and 2010.
'This funding will be scheduled for repayment over more than 10 years and enable Zim to finalize its purchase of new vessels in the coming years,' the carrier said. 'Delivery of most of Zim’s ordered vessels has already been deferred by periods of two to five years.'
As of Tuesday, Zim has 27 vessels on order, representing 239,000 TEUs, or more than 87 percent of its current fleet, according to the maritime news service Alphaliner.
'This funding is part of a larger restructuring agreement with the banks that also includes the rescheduling of debt repayments ' with repayment periods in some instances extending up to 10 years,' the line said. 'Additionally, the banks have also agreed to grant Zim full or partial grace periods of up to three years on principle repayments.'
The vessel additions are considered key to the future viability of Zim, since they include orders for post-Panamax vessels that provide economies of scale lacking in Zim's existing fleet. The company recently took delivery of its first two large vessels.
In addition to the bank financing, Israel Corp. shareholders have agreed to invest $450 million in the line, including the conversion of existing loans to Zim. The carrier's parent will also provide a $100 million 'safety net to ensure sufficient liquidity for Zim should circumstances require.'
Israel Corp. said it will also maintain a financial reserve of $50 million to be used as needed for Zim’s short-term liquidity needs and operational purposes, with Israel Corp. to use the reserve at its discretion.
Meanwhile, Zim's outstanding bonds (worth about $350 million), which were previously due for repayment between 2012 and 2015, will now be paid in full and deferred to 2016, with an option to defer further to 2017 to 2020.
“This plan stabilizes Zim's financial position and creates a solid foundation for the company,' said Israel Corp., CEO Nir Gilad, in a statement. 'This will enable Zim to overcome the current shipping crisis successfully and provide a strong return on Israel Corporation's investment. The complexity and scale of this restructuring plan are so great that it can only be achieved with the participation and cooperation of all parties.'
Israel Corp. shareholders are set to meet Nov. 1 for a general meeting, with the company stating agreements on the plan have been reached with banks, bondholders, shipyards and shipowners that in total hold more than 95 percent of the company's debts and obligations.
'We are pleased to have reached agreements with so many parties who expressed their confidence in the company,' Zim CEO Rafi Danieli said. 'Many analysts are pointing to signs of an industry recovery, with expectations that most companies will break even in 2010, and return to profitability in 2011. The financial arrangements detailed in the latest transaction report will enable Zim to capitalize on this recovery.'
In late September, Zim said that if a restructuring plan was agreed by its lenders and shareholders, it projected an operating profit of $100 million by 2011. ' Eric Johnson