Global Ship Lease (GSL) bondholders are claiming a proposed merger with Poseidon Container Holdings would constitute a change of control at the company, which could force it to repurchase the bonds.
Bondholders say the deal would oblige the London-based, New York-listed containership owner to make a “change of control offer” within 30 days of the merger — and that failure to do so would constitute a default.
The claims are contained in a letter sent to GSL and George Youroukos-controlled Poseidon by law firm Latham & Watkins on 7 November.
$780m merger deal
Just days earlier on 30 October, it was announced GSL had struck the $780m merger deal with Poseidon and its affiliate, K&T Marine.
The letter, a copy of which was obtained by TradeWinds, was signed by 23 fund managers, including 400 Capital Management, Aptior Capital and BSMA, which insist they control half of a $360m bond.
They argue that Youroukos-controlled Management Investor Co and his private equity partner, Kelso, comprise a “group” that will acquire beneficial ownership of a majority of the voting stock.
Ultimately, they say, the two parties will have the right to direct the voting share of capital stock representing 60.01% of the combined voting stock.
The bondholders cite historical links between Youroukos and Kelso, which have “directed the management and policies of Poseidon Container on a joint basis”.
The letter argues they will exercise joint control over GSL following the merger, under which Youroukos will join the entity as executive chairman and lead the management team, and Kelso will become the largest voting shareholder.
But while Kelso on its own will acquire the beneficial ownership of most of the total power of the voting stock, it will not hold majority voting power.
This is no coincidence. To the contrary, this is the unmistakable proof that Kelso always intended and fully expects to be in control of the company’s affairs, and to have the decisive say in any meeting of the company’s shareholders from the very moment the merger takes effect
Kelso has been allocated just 49.2% of the voting rights, despite, under the proposed merger, having 56.4% of economic ownership.
Bondholders argue the rationale behind giving Kelso less voting power than its economic stake is “to avoid the appearance of vesting Kelso with majority voting power, which would trigger a change of control under the indenture”.
Theyinsist that once the merger is completed, concerns over control will wane and Kelso will be free to exert its influence.
'Controlling shareholder'
“At that point, Kelso will be finally allowed to take its proper place as the controlling shareholder in the company’s governance,” bondholders say in the letter.
Bondholders cite an agreement between Kelso, CMA CGM and GSL chairman Michael Gross, to give Kelso the right to vote to 50.01% of the combined voting power post-merger.
“This is no coincidence," bondholders allege. "To the contrary, this is the unmistakable proof that Kelso always intended and fully expects to be in control of the company’s affairs, and to have the decisive say in any meeting of the company’s shareholders from the very moment the merger takes effect.”
Youroukos, best known as the founder of Technomar Shipping, could not be reached for comment.
But a spokesperson for GSL and Poseidon said the deal would not lead to a change of control under notes or debt facilities.
GSL chief executive Ian Webber also told TradeWinds after the merger with Poseidon was announced that the transaction was not a takeover.
'Misleading' denials
But the bondholders argue such denials are “misleading” and are keeping the bond price at an artificially depressed level.
They say GSL has “deliberately and meticulously structured the merger so as to circumvent the change of control provisions of the indenture”.
Any demand that GSL should repay the bond could destroy the ability to complete the transaction, financial sources believe.
“That might endanger the whole deal," one UK-based source said. "It would mean a massive sale of vessels, or they would have to issue a new bond at a much higher cost.”
GSL issued the $360m bond in October 2017, carrying interest of 9.875% First Priority Secured Notes due in 2022.
