In the event that the Company does not successfully amend the facility agreement by June 30, 2009 or agree a further waiver of the need to perform loan to value tests, and its loan to value ratio is above 100%, the lenders may declare an event of default and accelerate some or all of the debt. Any amount of the long term debt which is declared to be immediately repayable will be reclassified as current.
I think either GSL is going to pay much higher loan rates to stay afloat or will be liquidated. In either case,no dividends.
There is no way GSL will be liquidated. Take a look at AHR, a company who blew many covenants, and was begging their lenders not to forclose for months. They just got a great deal from their lenders that lasts a year. I follow many companies in different sectors, and lenders have been bending over backwards to avoid liquidating companies. Another company, DRYS, a dry bulk shipper was given several covenant wavers. GSL is in no danger of liquidation.
Paisadar, where do you get the idea that it's grim news. It is exactly what we expected. The company continues to make a nice profit with fully leased ships and is growing. The only problem is the loan value to ship value test that can't be done through no fault of GSL. We've known about that for many weeks and have been discussing it since then. Where have you been? If this is grim, you need some help interpreting the numbers.
You may be right about higher interest rates, but liquidation is a far-fetched probability at this point for the reason that bobgrant outlined above. Rarely if ever do banks accelerate repayment due to a technical default...because in the end it screws them. They have to mark down the loan and take a hit to their loan loss reserves. If banks called in every technical default we'd have to go through a whole new round of gov't bailouts.
As an aside, I've heard that banks are showing up on the steps of county courthouses and buying back their defaulted loans at face value, well above market, simply so they don't have to mark the loans down. Those loans are sitting in their REO (real-estate owned) account on their books at par. There is a boat-load of "shadow inventory" simply because banks would be stupid to list every house at once which would flood the market even more, and more importantly, they don't want to mark down the loans because it would make the further undercapitalized from an accounting perspective.
This sort of behavior is consistent with the conclusion that accelerating repayment by GSL is a near zero probability event, in my opinion.
This issue is not news.
Liquidation is not on the table by definition. What bank would liquidate performing assets because there is no current market value for them? Hence it wouldn't be a very successful liquidation. That being said it is a problem. However, it is a problem that has allowed us to buy into a profitable company for absurdly low prices. If there was no covenant issue, this would be trading at $4.00 today.
They reported "on a going concern basis."
Does that mean that they are noting issues that affect GSL's ability to remain a "going concern" or are they making the assumption that GSL can continue as a "going concern?"