The proposed plan for the restructuring of Rickmers Maritime Trust's $100 million, 8.45 per cent notes due next May contains highly unfavourable terms for its note holders ("Rickmers gets deal to refinance debt"; Sept 8, and "Note holders slam Rickmers' proposal"; last Friday).
The trustee-manager wants note holders to exchange their $100 million notes for $28 million of new securities, or an immediate loss of 72 per cent.
Although the new securities are convertible into units of the trust, the conversion ratio represents only 20 per cent of the existing units outstanding.
This conversion ratio favours unit holders, who are not required to take any losses upfront and will suffer only a potential 20 per cent dilution on their shares.
The trustee-manager suggests that unit holders have already suffered enough, as the value of their investment has fallen by more than 95 per cent since the initial public offering.
However, its proposal is grossly unfair, since, in the event of any recoveries from a liquidation, note holders would rank higher than unit holders. Thus, the same principle should apply for restructuring.
While the trustee-manager is obliged to act in the best interests of unit holders, it cannot do so at the expense of its creditors.
The proposed plan could also set an unhealthy precedent for other bond issuers that are facing difficulties in meeting their repayment obligations.
Tan Hua Joo