FreeSeas Inc., one of many shipping companies negatively affected by historically low charter rates, is trying to restructure with one of its lenders.
In April, the company’s accountant expressed substantial doubt about its ability to continue as a going concern, or without the threat of liquidation. In a filing with the U.S. Securities and Exchange Commission, FreeSeas says that if it is forced to liquidate, the amount it could get for its assets would likely be substantially less than the assets’ carrying value.
The doubt was indicated because of the FreeSeas’ recurring losses, working capital deficiency, and failure to meet scheduled payment obligations, the company says in an amendment to a 20-F filing with the SEC on June 7. The company’s ability to continue depends on it finding the financing to meet its loan payments and pay its debt.
The shipping company has been able to negotiate with two of its lenders.
On May 31, 2012, FreeSeas and Credit Suisse AG entered into a sixth supplemental agreement to a loan the company has with the bank. The amendment allows FreeSeas to defer principal payments until March 31, 2014.
On September 7, 2012, FreeSeas entered into an amended and restated facility with Deutsche Bank Nederland NV, which reduced and deferred a balloon payment due from November 2012 to December 2015.
FreeSeas received notifications from Greece’s First Business Bank (FBB) that it defaulted under its loan agreements in February, March, April, November and December, 2012, and January 2013, because it did not pay interest on some of its loans, the company says in an SEC filing.
The company is trying to restructuring its loan with FBB, but if they don’t reach an agreement, the debt could be accelerated.
In addition to restructuring loans, FreeSeas is considering offering common stock through structured financing agreements, selling certain vessels and reducing operating and other costs so it can meet working capital needs.
The company sold one vessel in November 2011 for $22 million.
Like other shipping companies, including Excel Maritime Carriers Inc., Global Ship Lease and Seanergy Maritime Holdings Corp. , which are all on Mergers & Acquisitions’ Distressed Company Watch List, FreeSeas is suffering from low charter rates.
The shipper listed assets of $114,359 and an accumulated deficit of $123,534 as of Dec. 31. For that same time period, the company says in an SEC filing that it had cash equivalents of $29.
Between 2010 and 2012, FreeSeas incurred losses of about $22,000, $88,000 and $31,000, respectively.
FreeSeas has no employees, and runs everything through Free Bulkers SA, its manager. Ion Varouxakis, FreeSeas’ CEO, is the controlling shareholder of Free Bulkers.
For more on distressed shipping companies, see “Finance Finesse: Marine Shippers Aim to Stay Afloat.”
For the last edition of Turnaround Tuesday, see “Idera Raises Cash After Accounting Firm Raises Red Flag.”
For more struggling companies, see Mergers & Acquisitions’ Distressed Company Watch List.