NOTE 5 – DEBT AND LEASE OBLIGATIONS

The Company and its domestic subsidiaries (which we sometimes refer to as the “credit parties”) are indebted under five secured financing agreements. We have pledged, among other things, all of the vessels that we own to secure our obligations under these agreements. All five of our principal credit agreements require us to comply with various loan covenants, including financial covenants that require minimum levels of net worth, working capital, liquidity, and interest expense or fixed charges coverage and a maximum amount of debt leverage. Since early 2014, we have struggled to meet certain of our required debt covenants. Consequently, we solicited and received from our lenders amendments to or waivers from various of these covenants to assure our compliance therewith as of the end of the first, third, and fourth quarters of 2014 and the end of the first, second, third and fourth quarters of 2015. For more complete information regarding these historical waivers, see the discussion of our debt covenant compliance set forth in our periodic reports filed since January 1, 2014 with the SEC and as set forth in our Annual Report on Form 10-K for the year ended December 31, 2015.

Since late September 2015, our lenders and lessors have provided a series of additional default waivers, including waivers granted in connection with recent credit facility amendments entered into on or prior to November 16, 2015. These amendments also effected a series of additional substantive amendments to each of our credit facilities, including but not limited to accelerated repayment terms, increased interest rates, and required asset divestitures by specified milestone deadlines and at specified amounts. Since November 16, 2015, we have received various additional types of relief from our lenders to address certain covenant defaults and to authorize changes to our divestiture plans. Please refer to Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015 and the additional disclosures herein for further details regarding these waivers and amendments.

We are currently in default on our loan agreements. In February of 2016, we received letters of default from three of our secured lenders as a result of failing to timely execute the sale of certain assets and failing to meet certain financial covenants. Since then, we defaulted under several other provisions of our credit facilities, including certain payment defaults. While our principal lenders had the right to remedy the events of default at any time, they subsequently agreed to defer payments or forbear from exercising these rights in the short term under the terms and conditions specified below in Note 22 – Subsequent Events. While none of our lenders or lessors have exercised their full rights under the credit facilities, including calling for immediate full payment, we cannot assure you that they will not exercise their rights in the future. As a result of the matters described herein, including the uncertainty regarding our ability to fully execute the Strategic Plan, our secured lenders’ abilities to demand payment and foreclose on our vessels under our debt agreements and our limited refinancing prospects, there is substantial doubt about our ability to continue as a going concern.

During the first quarter of 2016, we made principal payments on debt of approximately $12.0 million. Of these payments, approximately $5.0 million was related to regularly-scheduled principal payments and $7.0 million was related to various requirements from lenders imposed in connection with transactions undertaken pursuant to our Strategic Plan. Additionally, we sold our two handysize vessels and capesize bulk carrier, all of the proceeds of which were furnished directly to our lenders, resulting in approximately $30.8 million in non-cash activity that reduced our consolidated indebtedness.

Because of the uncertainties associated with our ability to implement the Strategic Plan within the required time constraints, since September 30, 2015, we have classified all of our debt obligations (net of deferred debt issuance costs), which were approximately $113.7 million at March 31, 2016, as current, which has caused our current liabilities to far exceed our current assets since such date. While we have classified all of our outstanding debt as current on our consolidated balance sheet as of March 31, 2016, none of our creditors have thus far accelerated our debt and demanded immediate full payment prior to a mutually agreed upon maturity date (except for mandatory prepayments in connection with the sale of specified collateral).

As of March 31, 2016 and December 31, 2015, we had deferred debt issuance costs of approximately $3.3 million and $3.0 million, respectively, which we include as an offset to current maturities of long-term debt on our Condensed Consolidated Balance Sheets. Amortization expense related to these charges was $0.4 million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively.

Credit Facility

We currently maintain a senior secured credit facility with a syndicate of lenders led by Regions Bank, which was comprehensively amended on November 13, 2015 (as so amended, the “Credit Facility”). At March 31, 2016, we had an aggregate of $65.8 million of credit outstanding under the Credit Facility, consisting of (i) $31.0 million of borrowings under the revolving credit facility component thereof (the “LOC”), (ii) $28.0 million under the term loan facility component thereof and (iii) $6.8 million of letters of credit issued under the LOC. We currently have no additional borrowing capacity under this facility. For more information, refer to “Recent Financing Agreement Waivers and Amendments” below.

Under the Credit Facility, each of our domestic subsidiaries is a joint and several co-borrower. The obligations of all the borrowers under this facility are secured by all personal property of the borrowers, excluding certain real property, but including the U.S. flagged vessels owned by our domestic subsidiaries and collateral related to such vessels. Several of our international-flagged vessels are pledged as collateral securing several of our other secured debt facilities.

The Credit Facility includes usual and customary covenants and events of default for credit facilities of its type, including, among others, (i) covenants that restrict our ability to engage in certain asset sales, mergers or other fundamental changes, to incur liens or to engage in various other transactions or activities and (ii) various financial covenants, including those stipulating as of March 31, 2016 that we maintain a consolidated leverage ratio not to exceed 5.0 to 1.0, an EBITDAR to fixed charges ratio of at least 1.05 to 1.0, liquidity of not less than $20.0 million, and a consolidated net worth of not less than the sum of $228.0 million, minus impairment losses, plus 50% of our consolidated net income earned after December 31, 2011, excluding impairment loss, plus 100% of the proceeds of all issuances of equity interests received after December 31, 2011 (with all such terms or amounts as defined in or determined under the Credit Facility). Since December 31, 2015, the lenders have agreed to waive our non-compliance with the consolidated net worth, minimum liquidity, consolidated fixed charge coverage ratio and the consolidated leverage ratio covenants through March 31, 2016. For more information, refer to “Recent Financing Agreement Waivers and Amendments” within Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015.

Other Financing Agreements

As of March 31, 2016 and December 31, 2015, our debt obligations were as follows:



(All Amount in Thousands)	Interest Rate				Maturity	Total Principal Due
Description of Secured Debt	March 31, 2016		December 31, 2015		Date	March 31, 2016		December 31, 2015
ING – Variable Rate 1	-	%	4.6930	%	2018	$	-	$	8,589
ING – Variable Rate 1	4.9106		4.6947-4.7336		2018		1,851		25,146
ING – Variable Rate 1	-		4.8199		2018		-		2,800
Capital One N.A. – Variable Rate 2	2.7885		2.5938		2017		6,274		6,904
Regions – Variable Rate 3	9.6900		9.4400		2017		27,965		33,090
Regions Line of Credit 3	9.6900		9.4400		2017		31,000		31,000
DVB Bank SE – Fixed Rate 4	6.3500		6.3500		2020		32,348		33,664
RBS – Variable Rate 5	4.1874		3.9900		2021		17,632		18,651
							117,070		159,844
			Less: Current Maturities				(113,721)		(156,807)
			Less: Debt Issuance Costs				(3,349)		(3,037)
			Long-Term Debt			$	-	$	-

1.We entered into a variable rate financing agreement with ING Bank N.V, London branch in August 2010 for a seven year facility to finance the construction and acquisition of three handysize vessels. Pursuant to the terms of the facility, the lender agreed to provide a secured term loan facility divided into two tranches which corresponded to the vessel delivery schedule. Tranche I covered the first two vessels delivered with Tranche II covering the last vessel. Tranche I was fully drawn in the amount of $36.8 million, and Tranche II fully drawn at $18.4 million We entered into a variable rate financing agreement with ING Bank N.V., London branch in June 2011 for a seven year facility to finance the acquisition of a capesize vessel and a supramax bulk carrier newbuilding, both of which we acquired a 100% interest in as a result of our acquisition of Dry Bulk. Pursuant to the terms of the facility, the lender agreed to provide a secured term loan facility divided into two tranches: Tranche A, fully drawn in June 2011 in the amount of $24.1 million, and Tranche B, providing up to $23.3 million of additional credit. Under Tranche B, we drew $6.1 million in November 2011 and $12.7 million in January 2012. In order to aid in the collateral value coverage covenant, both of the above facilities were merged into one facility without altering the debt maturities or terms of our indebtedness. Effective November 4, 2015, the interest rate was increased from LIBOR plus 2.5% to LIBOR plus 4.5%. For other changes to the credit facility, refer to “Recent Financing Agreement Waivers and Amendments” within Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015.

2.In December 2011, we entered into a variable rate financing agreement with Capital One N.A. for a five year facility totaling $15.7 million to finance a portion of the acquisition price of a multi-purpose ice strengthened vessel. This loan requires us to make 59 monthly payments with a final balloon payment of $4.7 million in January 2017.

3.Our original senior secured Credit Facility was scheduled to mature on September 24, 2018 and included a term loan facility in the principal amount of $45.0 million and a LOC in the principal amount of up to $40.0 million. The LOC facility originally included a $20.0 million sublimit for the issuance of standby letters of credit and a $5.0 million sublimit for swingline loans. As discussed above, on November 13, 2015, the Credit Facility was amended. The maturity date was accelerated to July 20, 2017. Additionally, the interest rate increased from LIBOR plus 3.5% to LIBOR plus 9.25% which is effective from November 13, 2015 through June 30, 2016 and LIBOR plus 10.0% from July 1, 2016 through July 20, 2017. For other changes to the credit facility, refer to “Recent Financing Agreement Waivers and Amendments” within Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015.

4.We entered into a fixed rate financing agreement with DVB Bank SE, on August 26, 2014 in the amount of $38.5 million, collateralized by our 2007 PCTC at a rate of 4.35% with 24 quarterly payments and a final balloon payment of $20.7 million in August 2020. This loan requires us to pre-fund a one-third portion of the upcoming quarterly scheduled debt payment, which, at March 31, 2016, constituted $0.5 million and is included as restricted cash on our Condensed Consolidated Balance Sheet. Effective November 4, 2015, the interest rate increased from 4.35% to 6.35%. For other changes to the credit facility, refer to “Recent Financing Agreement Waivers and Amendments” within Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015.

5.We have a $23.0 million loan with Citizens Asset Finance (formerly RBS Asset Finance) that is collateralized by one of our 1999 PCTCs at a variable rate equal to the 30-day Libor rate plus 2.75% payable in 84 monthly installments with the final payment due August 2021. Late in 2015, this loan agreement was amended to include an increase to the annual interest rate of 1.0% and in April 2016 this loan agreement was further amended to include an additional increase to the annual interest rate of 0.5%. For additional changes to this facility, refer to “Recent Financing Agreement Waivers and Amendments” within Note F – Debt Obligations of our Annual Report on Form 10-K for the year ended December 31, 2015.

During the first quarter of 2015, we paid off approximately $13.5 million in debt in connection with the sale of one of our handysize vessels. Additionally, we wrote off approximately $95,000 of unamortized loan costs associated with the debt instrument which is reflected in loss on extinguishment of debt on our Condensed Consolidated Statements of Operations.

Operating Lease Obligations

As of March 31, 2016, we held two container vessels and two multi-purpose vessels under operating contracts, as well as a 2008 mini-bulk carrier that we exchanged for our minority investments in two unconsolidated entities and subsequently sold during the first quarter of 2016. Additionally, we held seven vessels under bareboat charter or lease agreements, which included the molten-sulphur carrier in our Jones Act segment, two PCTCs, and two tankers and two multi-purpose heavy lift dry cargo vessels in our Specialty Contracts segment.

As of March 31, 2016, we held three vessels under operating lease contracts, which included the molten-sulphur carrier in our Jones Act segment and the two PCTCs discussed above. These lease agreements impose certain financial covenants, including defined minimum working capital and net worth requirements, and prohibit us from incurring, without the lessor’s prior written consent, additional debt or lease obligations, subject to certain specified exceptions. These financial covenants are generally similar, but not identical, to the financial covenants set forth under our Credit Facility discussed above. Additionally, our vessel operating lease agreements contain early buy-out options and fair value purchase options that enable us to purchase the vessels under certain specified circumstances. In the event that we default under any of our operating lease agreements, we may be forced to buy back the three vessels for a stipulated aggregate loss value of approximately $70.6 million as of March 31, 2016. As discussed further in Note 22 – Subsequent Events, (i) one of our lessors has executed a contingent agreement to defer through May 15, 2016 receipt of certain specified payments and (ii) the other two lessors have declined to execute similar deferral agreements, and thereby have retained all of their rights to declare us in default under the leases and to exercise all of their default remedies, including forcing us to buy back the vessels leased from them at the prices stipulated in the leases.

As of March 31, 2016, we had deferred gains related to certain of these leased vessels. As of March 31, 2016, the unamortized balance of these deferred gains was $22.5 million, of which $21.3 million was included in other long-term liabilities and $1.2 million was included in accounts payable and accrued expenses. As of December 31, 2015, the unamortized balance of these deferred gains was $15.3 million, of which $14.9 million was included in other long-term liabilities and $0.4 million was included in accounts payable and accrued expenses. During the three months ended March 31, 2016, we had additional deferred gains of $8.1 million related to the sale of our 2008 mini-bulk carrier, which was slightly offset by amortization expense of $0.9 million.

Other Lease Obligations

We also conduct certain of our operations from leased office facilities. In 2008, we executed a lease agreement, which expires in June of 2018, for office space in New York, New York to house our brokerage operations. In 2013, we executed a five year lease agreement for office space in Tampa, Florida housing our UOS employees. The lease calls for graduated payments in equal amounts over the 60-month term of the lease. In addition to the Tampa office, we have a month to month lease agreement for our Shanghai, China office space, which we are currently in the process of closing.

We are in the process of relocating our corporate headquarters from Mobile, Alabama to New Orleans, Louisiana. We expect the transition to be completed by the second quarter of 2017. We estimate that we will be committed to pay up to approximately $2.7 million for the early cancelation of our Mobile office lease. We received two grants from the State of Louisiana of approximately $5.2 million and $5.1 million, which will partially offset costs related to the New Orleans office building and other relocation expenses, respectively.

Recent Financing Agreement Waivers and Amendments

During the first quarter of 2016, we executed additional amendments with each of our lenders and lessors. The substance of each of these amendments included extending the deadlines to certain transactions that were part of our Strategic Plan, including the sales of our inactive Jones Act barge, rail repair facility, certain contracts and the sale or sale leaseback of our New Orleans office building. In addition to approving the aforementioned extensions, certain of our lenders and lessors approved the substitution of the sale of certain assets, certain lower specified divestiture prices, and redefining the definition of EBITDA to include non-cash gains and losses. In connection with entering into these amendments, we have further agreed to pay various fees to our lenders and lessors and to reimburse them for various of their costs incurred in connection with the amendments or their future monitoring of our financial position or performance. We have also agreed to take or omit to take various other actions designed to protect the interest of the creditors, including agreements to create various earnings or retention accounts, to provide enhanced information about our financial position or performance, to deliver certain appraisals and to provide certain subordination undertakings.

The descriptions of our recent credit facility amendments set forth above are general summaries only and are qualified in their entirety by reference to the full text of those amendments that we have filed with the SEC.

Guarantees

In addition to the obligations discussed above, at December 31, 2015, we guaranteed two separate loan facilities of two separate shipping companies in which one of our wholly-owned subsidiaries had indirect ownership interests. As of December 31, 2015, these guarantee obligations were approximately $3.4 million and $1.0 million respectively. During the first quarter of 2016, we discharged both of these guarantees in connection with the exchange of our interests in these entities for a 2008 mini-bulk carrier.