Business And Basis Of Presentation

9 Months Ended

Sep. 30, 2011

Business And Basis Of Presentation [Abstract]

Business And Basis Of Presentation

Note 1 — Business and Basis of Presentation

Nature of Business

TBS International plc ("TBSI") and all of its directly and indirectly owned subsidiaries (collectively with TBSI, the "Company", "we", "us" or "our") are engaged in the ocean transportation of dry cargo offering shipping solutions through liner, parcel, and bulk services, as well as vessel chartering supported by a fleet of multi-purpose tweendeckers and handysize and handymax bulk carriers.  Substantially all subsidiaries of TBSI are non-U.S. corporations and conduct their business operations worldwide.

Basis of Presentation

The unaudited consolidated financial statements presented herein have been prepared in accordance with U.S. generally accepted accounting principles for interim financial reporting ("GAAP") and with Article 10 of Regulation S-X and the instructions to Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.  All significant intercompany transactions and balances have been eliminated in the consolidated financial statements.  In the opinion of management, the financial statements include all adjustments, consisting of normal recurring accruals that are considered necessary for a fair statement of the Company's consolidated financial position, results of operations and cash flows for the interim periods.  Operating results for the three and nine month periods ended September 30, 2011 are not necessarily indicative of results that may be expected for the year ending December 31, 2011.  These consolidated financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010.

Effective January 28, 2011, the Company and its lenders amended various terms of the credit agreements to which they are parties, including the principal repayment schedules and waived any existing defaults.  However, the Company continued to experience a further deterioration of freight voyage rates during the first half of 2011 and along with a combination of worldwide factors, such as increased fuel costs, industry over-capacity and the negative impact on shipping demand due to adverse weather conditions and natural disasters, management did not believe that there would be an immediate recovery.  On April 18, 2011, the Company and its lenders agreed to temporarily modify the financial covenants related to the Company's consolidated leverage ratio, consolidated interest coverage ratio and minimum cash balance, as well as certain other terms through December 31, 2011.

Under the modified credit agreements, the minimum consolidated interest charge coverage ratio was reduced for the quarter ended September 30, 2011, and the quarter ending December 31, 2011 from 3.35 to 1.00 to 2.50 to 1.00.  In addition, the amendments increased the maximum consolidated leverage ratio for the same periods from 4.00 to 1.00 to 5.10 to 1.00 and reduced the minimum average weekly cash requirement from $15.0 million to $10.0 million through the week ending January 1, 2012.  Thereafter, the financial covenant requirements will revert back to the levels set forth in the January 28, 2011 amendments.

The economic malaise inherent in the global marketplace for the transportation of bulk dry cargo, as well as increased fuel costs and industry over-capacity, continue to have a materially adverse impact on freight rates, the Company's results of operations and cash flows, the market values of its vessels, and its future ability to pay scheduled principal amounts when due and to maintain financial ratios as required by its credit facilities.  Consequently, on September 7, 2011, the Company entered into forbearance agreements ("Forbearance Agreements") with all lenders participating in the various credit facilities.  In accordance with the terms of the Forbearance Agreements, the lenders have agreed to forbear from exercising their rights and remedies against the Company for events of default under the various credit agreements related to the Company's failure to: (i) pay the scheduled principal amount due to the lenders on September 30, 2011, (ii) comply with the Minimum Consolidated Interest Charges Coverage Ratio and the Maximum Consolidated Leverage Ratio as defined in the various credit agreements, and (iii) maintain a Loan Value equal to or in excess of the Total Outstandings, as defined in the various credit agreements.

In addition, the lenders have agreed to forbear from exercising their rights and remedies under the various credit agreements for the Company's potential failure to: (i) provide the required minimum Qualified Cash Flow Forecasts that evidence the required minimum Qualified Cash, as defined in the various credit agreements, and (ii) maintain the required minimum Qualified Cash, as defined in the various credit agreements.

The Forbearance Agreements terminate on the earlier of: (i) December 15, 2011 or (ii) the date that the Company fails to comply with any of the terms or undertakings of the Forbearance Agreements and the related credit agreements, as amended, including events of default not identified above.  During this forbearance period, the Company and its lenders have been discussing a variety of matters, including the restructuring of our indebtedness and the sale of certain vessels.  We have contracted for the sale of three vessels, with closings scheduled for November and December 2011, with the sale proceeds scheduled for repayment of related secured debt.  While our discussions with our lenders have not reached the stage where the terms of a restructuring have been agreed upon, we believe that the lenders would not accept that our common equity has any value and, therefore, would not agree to a restructuring in which any value were attributed to our common equity.

At December 31, 2010, the Company was in compliance with all financial covenants relating to its debt.  However, absent waivers, the Company would not have been in compliance with the value to loan requirements of the Berenberg and the Credit Suisse credit facilities.  As previously discussed, the Company was not in compliance with all financial covenants relating to its debt at September 30, 2011.  GAAP requires that long-term loans be classified as current liabilities when either a covenant violation that gives the lender the right to call the debt has occurred at the balance sheet date, or such covenant violation would have occurred absent a waiver of those covenants, and in either case it is probable that the covenant violation will not be cured within the next twelve months.  Consequently, long-term debt is classified as a current liability in the consolidated balance sheet at both September 30, 2011 and December 31, 2010.

Even if the Company is successful in restructuring scheduled principal amounts or the Forbearance Agreements are extended, the Company will need to raise additional funds to facilitate principal repayments subsequent to December 15, 2011, and to remain in compliance with the minimum cash liquidity covenant or other covenants under its credit facilities.  As a result, there continues to be substantial doubt about the Company's ability to continue as a going concern.