NOTE 11—DEBT:

Debt consists of the following:

	2012						2011
As of December 31,	Balance Prior to Financial Statement Reclassification		Amounts Classified as Subject to Compromise		Indebtedness		Indebtedness
Unsecured revolving credit facility	$	1,489,000	$	(1,489,000)	$	-	$	917,000
8.125% notes due 2018, net of unamortized discount of $2,898 and $3,368		297,102		(297,102)		-		296,632
7.50% notes due 2024		146,000		(146,000)		-		146,000
8.75% debentures due 2013, net of unamortized discount of $11 and $20		63,592		(63,592)		-		63,583
Floating rate secured term loans, due through 2023		576,982		(576,982)		-		642,677
	$	2,572,676	$	(2,572,676)	$	-	$	2,065,892

The weighted average effective interest rate for debt outstanding at December 31, 2011, which takes into consideration related interest rate swaps, was 3.6%.

The withdrawal of reliance on the audited financial statements for the three years ended December 31, 2011 and for the quarters ended March 31, 2012 and June 30, 2012 coupled with the Company’s failure to file the quarterly report on Form 10-Q for the quarter ended September 30, 2012 and the filing of the Chapter 11 Cases, resulted in an event of default or otherwise triggered repayment obligations under the Company’s Unsecured Revolving Credit Facility, Unsecured Senior Notes due in 2013, 2018 and 2024, Unsecured Forward Start Revolving Credit Agreement and Secured Loan Facilities maturing in 2020 and 2023. Also, as a result of the commencement of the Chapter 11 Cases, the outstanding balances under the Unsecured Revolving Credit Facility, the Unsecured Senior Notes and Secured Loan Facilities have been classified as Liabilities Subject to Compromise in the consolidated balance sheet as of December 31, 2012.

Unsecured Revolving Credit Facility

In 2006, the Company entered into a $1,800,000 seven-year unsecured revolving credit agreement with a group of banks, which was scheduled to mature on February 8, 2013 (the “Unsecured Revolving Credit Facility”). In accordance with the terms of the credit agreement, the maximum amount the Company could borrow under the Unsecured Revolving Credit Facility decreased by $150,000 in February 2011 and by an additional $150,000 in February 2012. Borrowings under this facility bore interest at a rate based on LIBOR.

At December 31, 2012, the Company had $1,489,000 outstanding under the facility. Upon the event of default, the commitments under the Unsecured Revolving Credit Facility were terminated. Accordingly, as of December 31, 2012, no funds remained available for borrowing under the facility. Pursuant to the applicable bankruptcy law, the Company does not expect to make any principal payments on the Unsecured Revolving Credit Facility during the pendency of the Chapter 11 Cases. In accordance with ASC 852, Reorganizations, the Company reclassified the balance outstanding under the Unsecured Revolving Credit Facility and related accrued interest and unamortized deferred financing costs to Liabilities Subject to Compromise. Also, as interest on the Company’s unsecured debt subsequent to the Petition Date is not expected to be an allowed claim, the Company ceased accruing interest on the Unsecured Revolving Credit Facility on November 14, 2012. From November 14, 2012 to December 31, 2012, interest expense of $2,091, including $185 relating to the amortization of deferred financing costs, which would have been incurred had the indebtedness not been reclassified as a Liability subject to compromise, was not recorded.

Unsecured Forward Start Revolving Credit Agreement

The Company had taken steps to replace the borrowing capacity under the Unsecured Revolving Credit Facility, by entering into a $900,000 unsecured forward start revolving credit agreement on May 26, 2011, with a bank lending group that was due to mature on December 31, 2016. Under the terms of the agreement, OSG would have been able to draw on the forward start facility beginning on February 8, 2013, the date on which OSG’s Unsecured Revolving Credit Facility would have expired. Financial covenants under the unsecured forward start revolving credit agreement, which were more restrictive than those contained in the $1,800,000 unsecured credit facility (due principally to differences in definitions between the two agreements), would have first become applicable on December 31, 2012. The commitments under the unsecured forward start revolving credit agreement were terminated during the fourth quarter of 2012.

Unsecured Senior Notes

On March 29, 2010, the Company issued $300,000 principal amount of senior unsecured notes at a discount pursuant to a Form S-3 shelf registration filed March 22, 2010. The notes are due in March 2018 and have a coupon of 8.125%. The Company received proceeds of approximately $289,745, after deducting underwriting discounts and expenses. The Company used the net proceeds to reduce the outstanding indebtedness under its Unsecured Revolving Credit Facility.

On August 5, 2011, the Company repurchased and retired $9,665 par value of its outstanding 8.75% debentures due in 2013. The Company recognized a loss of $375 on this transaction.

The Company reclassified the Unsecured Senior Notes due in 2013, 2018 and 2024 and related accrued interest and unamortized debt discount to Liabilities Subject to Compromise in the consolidated balance sheets and ceased accruing interest on November 14, 2012. From November 14, 2012 to December 31, 2012, interest expense of $5,529, including $190 relating to the amortization of debt discount and deferred financing costs, which would have been incurred had the indebtedness not been reclassified as Liabilities Subject to Compromise, was not recorded.

Secured Loan Facilities

Term loans maturing in 2016 – On January 18, 2012, the Company prepaid the outstanding principal balance of $49,000 associated with term loans maturing in 2016 with borrowings from its Unsecured Revolving Credit Facility. The two vessels that were pledged as collateral under these term loans are no longer encumbered.

As of December 31, 2012, 15 vessels, representing approximately 29% of the net book value of the Company’s vessels, are pledged as collateral under the following debt agreements:

Term loans maturing in 2020 – This facility, with an outstanding balance of $266,490 at December 31, 2012, provides secured term loans originally covering seven MR Product Carriers, one Aframax and one VLCC. The facility provides that the market values of the vessels pledged as collateral be compared with the outstanding loan balance semi-annually. In December 2011, the facility was amended to, among other things, reduce the minimum required loan-to-value ratio from 110% to 100% through January 2013. In connection with the exchange of the MR Product Carriers previously servicing the U.S. Maritime Security Program, the Company reflagged two of the seven MR Product Carriers originally pledged as collateral under the above term loans. Accordingly, in June 2012, the lenders under this facility agreed to accept replacing the two MR Product Carriers with two Panamax Product Carriers. The Company believes that the value of the collateral securing these loans as of the Petition Date was less than the outstanding balance of such loans and has therefore classified these secured term loans and related accrued interest and unamortized deferred financing costs as Liabilities Subject to Compromise in the consolidated balance sheet at December 31, 2012. As of December 31, 2012, the loan-to-value ratio was estimated to approximate 84%. From November 14, 2012 to December 31, 2012, interest expense of $480, including $34 relating to the amortization of deferred financing costs, which would have been incurred had the indebtedness not been reclassified as a Liability Subject to Compromise, was not recorded.

Term loans maturing in 2023 – This facility, with an outstanding balance of $310,492 as of December 31, 2012, financed the construction of three VLCCs and two Aframaxes in China, the last of which delivered in January 2012. As of December 31, 2010, the Company had unused availability of $89,807 under this facility, of which $61,548 was borrowed in January 2011 to finance the construction of one of the VLCCs. In December 2011, the Company entered into an amendment of the loan agreement which, among other things, reduced the total borrowing capacity of the facility by approximately $28,000 and reduced the minimum required loan-to-value ratio from 125% to 105% through January 2013. The Company believes that the value of the collateral securing these loans as of the Petition Date was less than the outstanding balance of such loans and has therefore classified these secured term loans and related accrued interest and unamortized deferred financing costs as Liabilities Subject to Compromise in the consolidated balance sheet on December 31, 2012. As of December 31, 2012, the loan-to-value ratio was estimated to approximate 86%. From November 14, 2012 to December 31, 2012, interest expense of $1,295, including $36 relating to the amortization of deferred financing costs which would have been incurred had the indebtedness not been reclassified as a Liability Subject to Compromise, was not recorded.

In conjunction with the amendments discussed above, the Company also prepaid $37,665 in principal installments due in 2012 and 2013 in December 2011.

On February 5, 2013, the Bankruptcy Court issued orders [D.I. 0459 and 0460] granting adequate protection to the secured lenders in consideration for (i) the granting of pari passu liens in the secured lenders’ collateral in connection with the Debtor in Possession loan facilities (the “OIN DIP loans”) issued by OSG International, Inc. (“OIN”), a wholly owned subsidiary of the Company, (ii) the imposition of the automatic stay, (iii) the Company’s use, sale or lease of vessels and other collateral encumbered by the security interest of the secured lenders, and (iv) with respect to the Export-Import Bank of China (“CEXIM”), the Company’s continued use of cash collateral for the ongoing operation and maintenance of the vessels securing the CEXIM term loan agreement. Pursuant to these orders, the Company and certain of its subsidiaries are authorized to make use of the funds generated from the ongoing operation of the encumbered vessels in the following order of priority (i) to reimburse its ship management subsidiaries and other affiliates for voyage expenses, vessel operating expenses, capital expenditures and drydocking expenses incurred on behalf of the encumbered vessels (ii) to fund a reserve for future drydocking expenses, (iii) to reimburse the secured lenders for certain legal costs, (iv) to pay the secured lenders amounts equal to current interest payments due on the outstanding pre-petition loan balances at the non-default contract rate of interest set forth in the term loan agreements (the “Adequate Protection Interest Payments” and together with amounts described in (iii), the “Adequate Protection Payments”) and (v) to pay any interest outstanding under the OIN DIP Loans. The Debtors and certain other parties in interest preserve the right to challenge the amount, extent, type or characterization of any Adequate Protection Payments or any other costs, fees or expenses, including the right to seek recharacterization of any such payments as payments on the prepetition principal amounts outstanding under the term loan agreements.

In accordance with ASC 852, no interest is accrued and/or paid on secured debt when the fair value of the underlying collateral is below the outstanding principal of the secured debt. Accordingly, the Adequate Protection Interest Payments when made will be classified as reductions of outstanding principal. Debt included in Liabilities Subject to Compromise will be paid in accordance with the ultimate claims resolution in the Bankruptcy Cases.

OIN Debtor in Possession Loan Facilities

Pursuant to the order issued by the Bankruptcy Court on February 5, 2013, OIN was given approval to enter into Debtor in Possession Loan Agreements with the Company’s subsidiaries that own and operate the vessels securing the term loans described above. Under the terms of the order, OIN is allowed to lend up to $10,000 to the Company’s subsidiaries operating the vessels securing the term loans maturing in 2020 and $15,000 to the Company’s subsidiaries operating the vessels securing the term loans maturing in 2023. The sole purpose of the OIN DIP Loans is to fund any shortfall in the funds available to cover ongoing operations, capital expenditures, drydock repairs and drydock reserves of the secured vessels and the Adequate Protection Payments due to the lenders as described above.

Outstanding Letters of Credit

The Company has a $9,146 of letter of credit outstanding as of December 31, 2012. This letter of credit, which was issued in connection with certain arbitration proceedings the Company is involved in, is fully cash collateralized.

Interest paid, excluding capitalized interest, amounted to $88,849 in 2012, $84,054 in 2011 and $59,689 in 2010.