The Company’s recurring losses from operations, negative working capital, default on a scheduled debt amortization payment and anticipated non-compliance with covenants and other requirements in its financing facilities raise substantial doubt about its ability to continue as a going concern.  The accompanying consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which contemplates the realization of assets and extinguishment of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon, among other things, its ability to: (i) develop and successfully implement a restructuring plan within the timeframe of the Relief Agreements and the Restructuring Support Agreements described below, (ii) comply with the covenants contained in the Cash Collateral Order, including compliance with the approved budget and the payment of fees, expenses, and interest thereunder, and in any post-restructuring financing, (iii) reduce debt and other liabilities through the bankruptcy process, (iv) return to profitability, (v) generate sufficient cash flow from operations, and (vi) obtain financing sources to meet the Company’s future obligations.  Any restructuring plan could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements.  Further, the Chapter 11 Case described below could materially change the amounts and classifications reported in the historical consolidated financial statements, which do not give effect to any adjustments to the carrying value of assets or amounts of liabilities that might be necessary as a consequence of confirmation of a plan of reorganization.   Moreover, in the Chapter 11 Case, the Company may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the bankruptcy court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the Cash Collateral Order) for amounts other than those reflected in the accompanying consolidated financial statements.  The accompanying consolidated financial statements do not include any direct adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Case.

To allow discussions with the Company’s creditors concerning its restructuring to continue into April 2014 without the need to file for immediate bankruptcy relief, on March 31, 2014, the Company entered into the Relief Agreements with certain lenders under its 2007 Credit Facility, its $253 Million Term Loan Facility, and its $100 Million Term Loan Facility to obtain waivers or forbearances with respect to certain potential or actual events of default as of March 31, 2014 as follows:

The Relief Agreements, as supplemented by the April 1 agreements between the parties thereto, provide that the agent and consenting lenders will waive or forbear through 11:59 p.m. on April 21, 2014 to exercise their rights and remedies with respect to the foregoing potential or actual events of default, subject to earlier termination if a subsequent event of default occurs under the Company’s credit agreements other than those described above or if the Company breaches the terms of the Relief Agreements. Notwithstanding such waivers and forbearances, the fact that the Company did not make the scheduled amortization payment on March 31, 2014 constituted an event of default under its currently outstanding interest rate swap. In addition, under the indenture and supplemental indenture (the “Indenture”) governing its 5.0% Convertible Senior Notes issued on July 27, 2010 (the “2010 Notes”), its failure to make such payment would constitute an event of default under the Indenture if it fails to cure such default within 30 days after notice from the trustee under the Indenture.

On April 3, 2014, the Company and certain of its subsidiaries entered into the Support Agreement with the certain lenders under its 2007 Credit Facility, its $253 Million Term Loan Facility, and its $100 Million Term Loan Facility (the “Supporting Lenders”) and certain holders of its 2010 Notes (the “Supporting Noteholders” and, together with the Supporting Lenders, the “Supporting Creditors”).  Subject to the terms and conditions of the Support Agreement, the Company and the Supporting Creditors are bound to support the Company’s restructuring contemplated under the Support Agreement.  The Restructuring Term Sheet included in the Support Agreement (the “Term Sheet”) provides for the restructuring of the Company’s outstanding indebtedness through, among other things, the conversion of indebtedness under the 2007 Credit Facility and the 2010 Notes into equity of the reorganized Company; replacing the $253 Million Term Loan Facility and $100 Million Term Loan Facility with new senior secured credit facilities or amending the facilities to provide for extended maturity dates through August 2019 and certain other covenant modifications; and a $100 million rights offering. 

The Support Agreement is subject to termination in respect of the obligations of the Company and the Supporting Creditors in respect of a particular credit facility or the indenture for the 2010 Notes (a “Debt Instrument”) by the mutual written agreement of the Company and Supporting Creditors holding more than 66 2/3% in amount of the principal outstanding under such Debt Instrument (“Required Supporting Creditors”). The Support Agreement is subject to termination in a number of other circumstances, including, without limitation:

The Support Agreement provides for a termination fee of $26.5 million payable to Supporting Lenders under the 2007 Credit Facility and Supporting Noteholders if the Support Agreement is terminated under certain circumstances and the Company consummates an alternative transaction.

The Support Agreement contemplates that the proposed plan of reorganization (the “Plan”) will be implemented through a voluntary bankruptcy case (the “Chapter 11 Case”) under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”), which may include the filing of bankruptcy petitions by subsidiaries of Genco Shipping & Trading Limited other than Baltic Trading Limited and its subsidiaries. The Support Agreement also provides for the agreement of the Company and the Supporting Creditors to a form of Cash Collateral Order, under which the use of cash collateral of the Company’s creditors will be permitted during the Chapter 11 Case for working capital purposes, other general corporate purposes, and costs and expenses of the Chapter 11 Case, in each instance in accordance with a budget to be determined.

There can be no assurance that the Company will be able to fulfill the requirements of the Support Agreement, some of which must be satisfied prior to the expiration of forbearances or waivers from its lenders.  Furthermore, commencement of the Chapter 11 Case will subject the Company to risks and uncertainties, and there can be no assurance that the Company  can successfully achieve its restructuring in the Chapter 11 Case.

In addition, for purposes of preparing financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), the Company was required to assess future compliance with the original covenants at all quarterly measurement dates within twelve months from the date of such financial statements. The Company believed it was probable that the Company would not be in compliance with certain covenants at measurement dates within twelve months of March 31, 2013. Accordingly, the outstanding debt under the 2007 Credit Facility, the $253 Million Term Loan Facility and the $100 Million Term Loan Facility (as defined in Note 9 — Debt) was reclassified as a current liability in the consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of December 31, 2013.   If the Company fails to comply with its covenants under its credit facilities, the Company would also be in default under the Indenture for the 2010 Notes and its interest rate swaps.  Accordingly, the 2010 Notes and one swap previously classified as a long-term liability were likewise reclassified as current liabilities in the consolidated balance sheet beginning March 31, 2013 and remained classified as a current liability as of December 31, 2013.