FORM 10-Q

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934. 

For the quarterly period ended March 31, 2018

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from ____ to ____

COMMISSION FILE NUMBER

001-34228

GENER8 MARITIME, INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code (212) 763-5600

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒  No ☐

THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER’S CLASSES OF COMMON STOCK, AS OF MAY  4,  2018:

Common Stock, par value $0.01 per share 83,267,426 shares

GENER8 MARITIME, INC. AND SUBSIDIARIES

INDEX

Website Information

We intend to use our website, www.gener8maritime.com, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Such disclosures will be included in our website’s Investors section. Accordingly, investors should monitor the Investors portion of our website, in addition to following our press releases, SEC filings, public conference calls, and webcasts. To subscribe to our e-mail alert service, please click the “Investor Alerts” link in the Investors section of our website and submit your email address. The information contained in, or that may be accessed through, our website is not incorporated by reference into or a part of this document or any other report or document we file with or furnish to the SEC, and any references to our website are intended to be inactive textual references only.

PART I: FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS AS OF

MARCH 31, 2018 AND DECEMBER 31, 2017

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

See notes to condensed consolidated financial statements.

GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(DOLLARS IN THOUSANDS EXCEPT PER SHARE DATA)

(UNAUDITED)

See notes to condensed consolidated financial statements.

GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(DOLLARS IN THOUSANDS)

(UNAUDITED)

See notes to condensed consolidated financial statements.

GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(DOLLARS IN THOUSANDS)

(UNAUDITED)

See notes to condensed consolidated financial statements.

GENER8 MARITIME, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE THREE MONTHS ENDED MARCH 31, 2018 AND 2017

(DOLLARS IN THOUSANDS)

(UNAUDITED)

See notes to condensed consolidated financial statements.

GENER8 MARITIME, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(UNAUDITED)

1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS—Incorporated on August 1, 2008, under the laws of Republic of the Marshall Islands, Gener8 Maritime, Inc. (formerly named General Maritime Corporation) and its wholly-owned subsidiaries (collectively, the “Company”) provide international transportation services of seaborne crude oil and petroleum products. The Company’s owned fleet at March 31, 2018 consisted of 30 tankers; 21 Very Large Crude Carriers (“VLCCs”), six Suezmax tankers, one Aframax tanker, categorized as assets held for sale and two Panamax tankers. The Company operates its business in one business segment, which is the transportation of international seaborne crude oil and petroleum products.

The Company’s vessels are primarily available for employment in commercial pools, or for charter on a spot voyage or time charter basis.

The Company is party to certain commercial pooling arrangements. Commercial pools are designed to provide for effective chartering and commercial management of similar vessels that are combined into a single fleet to improve customer service, increase vessel utilization and capture cost efficiencies.

As of March 31, 2018, the Company employs all of its VLCC and Suezmax vessels in Navig8 Group commercial crude tanker pools including the VL8 Pool and the Suez8 Pool, respectively. In 2015, the Company’s VLCC, Suezmax and Aframax owning subsidiaries entered into pool agreements with the pool managers VL8 Pool Inc. and V8 Pool Inc., subsidiaries of Navig8 Limited. On March 21, 2018, the Company delivered notices, on behalf of the relevant ship owning subsidiaries, to VL8 Pool and V8 Pool advising of the termination of certain pool agreements and the withdrawal of the related vessels from the commercial crude tanker pools. As of March 31, 2018, none of the pool agreement terminations were effective. The termination of the pool agreements is effective 90 days following notice, subject to the applicable pool manager’s option to reduce or extend such period by 30 days and the fulfilment of any employment contracts entered into by the applicable pool manager in respect of the related vessels.

BASIS OF PRESENTATION—The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. GAAP for interim financial information. In the opinion of management of the Company, all adjustments, consisting of normal recurring adjustments necessary for a fair presentation of financial position and operating results, have been included in the condensed consolidated financial statements. Certain information and footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted. These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s financial statements for the year ended December 31, 2017, which provides a more complete understanding of our accounting policies. The results of operations for the current and prior periods are not necessarily indicative of the operating results for the full year. The financial statements of the Company have been prepared on the accrual basis of accounting and presented in United States Dollars (USD or $) which is the functional currency of the Company. A summary of the significant accounting policies followed in the preparation of the accompanying unaudited interim financial statements, which conform to accounting principles generally accepted in the United States of America, were included in our 2017 Annual Report on Form 10-K, as amended.  

GOING CONCERN—  The Company’s operations, cash flows, liquidity, and its ability to comply with financial covenants related to its senior secured credit facilities have been negatively impacted by a weaker tanker industry, lower charter rates, and higher interest costs on its outstanding indebtedness whereby the Company incurred a net loss of $35.2 million for the three months ended March 31, 2018 and had an accumulated deficit of $299.9 million as of March 31, 2018.  Management considered the significance of these negative financial conditions in relation to the Company’s ability to meet its current and future obligations and determined that these conditions raise substantial doubt about the Company’s ability to continue as a going concern as of March 31, 2018.  The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles applicable to a going concern, which contemplate 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 plan to address these factors, which may include refinancing its existing credit agreements, or obtaining waivers or modifications to its credit agreements from its lenders, raising additional capital through selling assets (including vessels), reducing or delaying capital expenditures or pursuing other options that may be available to it, which may include pursuing strategic opportunities and equity or debt offerings; (ii) return to profitability, and (iii) remain in compliance with its credit facility covenants, as the same may be modified. The realization of the Company’s assets and the satisfaction of its liabilities are subject to uncertainty. The accompanying unaudited condensed 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. 

RECENT ACCOUNTING PRONOUNCEMENTS—In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2016-02, Leases. ASU 2016-02 is intended to increase the transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. In order to meet that objective, the new standard requires recognition of the assets and liabilities that arise from leases. A lessee will be required to recognize on the balance sheet the assets and liabilities for leases with lease terms of more than 12 months. The new standard is effective for public companies for fiscal years beginning after December 15, 2018, and interim periods within those years, with early adoption permitted. The Company is currently evaluating the effect that adopting this standard will have on its condensed consolidated financial statements and related disclosures.

In April 2016, the FASB issued ASU No. 2016-10—Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. ASU No. 2016-10 suggests guidance for stakeholders on identifying performance obligations and licenses in customer contracts. In May 2014, the FASB issued ASU No. 2014‑09, Revenue from Contracts with Customers. In March 2016, the FASB issued ASU No. 2016‑08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). In May 2016, the FASB issued ASU No. 2016‑12, Revenue from Contracts with Customers (ASC 606) Narrow-Scope Improvements and Practical Expedients. In December 2016, the FASB issued ASU No. 2016‑20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The core principle is that a company should recognize revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014‑09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Collectively, the Company will refer to these as “Revenue ASUs”. The standard is effective for annual periods beginning after December 15, 2017, and interim periods therein, and shall be applied either retrospectively to each period presented or as a cumulative‑effect adjustment (“modified retrospective”) as of the date of adoption. The requirements of this standard include an increase in required disclosures.

The Company adopted the Revenue ASUs on January 1, 2018, using the modified retrospective transition method applied to those contracts which were uncompleted as of January 1, 2018. The adoption of the Revenue ASU’s

only impacts the vessels traded on spot market and not pooling agreements. As of December 31, 2017 and March 31, 2018, the Company had only three vessels (Gener8 Companion,  Genmar Compatriot and Gener8 Defiance) that were traded on the spot market, outside Navig8 pools and their uncompleted voyages were impacted by the adoption of the Revenue ASUs. The adoption had no material impact on our condensed consolidated financial statements and no additional disclosures was required.

In June 2016, the FASB issued ASU 2016-13-Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments in this ASU require the measurement of all expected credit losses for financial assets, which include trade receivables, held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. The guidance in this ASU is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted for interim and annual periods beginning after December 15, 2018. The Company is currently evaluating this ASU and any potential impacts the adoption of this ASU will have on our condensed consolidated financial statements revised guidance for the accounting and reporting of financial instruments.

In August 2016, the FASB issued ASU 2016-15-Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The new guidance was effective for fiscal years beginning after December 15, 2017,

including interim periods within those fiscal years. Early adoption was permitted. Entities must apply the guidance retrospectively to all periods presented but may apply it prospectively from the earliest date practicable if retrospective application would be impracticable. The Company adopted ASU 2016-15 in the interim period ended March 31, 2018 utilizing the retrospective transition method.  The adoption of ASU 2016-15 resulted in insurance proceeds for hull and machinery claims to be separately disclosed in the cash flows from investing activities. These amounts were previously recorded in the cash flows from operating activities as the change in prepaid expenses and other current assets. Additionally, as part of the ASU, any cash payments for debt prepayment or extinguishment costs (including third-party costs, premiums paid, and other fees paid to lenders) must be classified as cash outflows for financing activities and for any debt instruments that contain interest payable in kind - the portion of payments received upon settlement of other debt instruments with coupon interest rates that are insignificant relative to the effective interest rate of the borrowing that is attributable to accreted interest (including debt instruments that contain periodic interest coupons that are payable in kind) should be classified as operating activities. The principal portion received on these debt instruments would continue to be classified as investing activities. The adoption of this standard did not result in any other material effect on our condensed consolidated financial statements and related disclosures.

In November 2016, the FASB issued ASU 2016-18-Statement of Cash Flows (Topic 230): Restricted Cash. The new guidance is intended to reduce diversity in practice by adding or clarifying guidance on classification and presentation of changes in restricted cash on the statement of cash flows. The new guidance should be applied retrospectively and is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption was permitted. The Company adopted ASU 2016-18 in the interim period ended March 31, 2018 utilizing the retrospective transition method. As a result of the adoption, restricted cash was included within cash and cash equivalents on our statements of cash flows. The adoption of this standard did not result in any material effect on our condensed consolidated financial statements and related disclosures.

2. MERGER AGREEMENT

On December 20, 2017, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Euronav NV (“Euronav”) and Euronav MI Inc., a corporation organized under the laws of the Republic of the Marshall Islands and a wholly-owned subsidiary of Euronav (“Merger Sub”). Pursuant to the Merger Agreement, among other things, Merger Sub will merge with and into the Company, with the Company continuing its corporate existence as the surviving corporation and as a wholly-owned subsidiary of Euronav (which transactions we refer to as the “Merger”).

At the effective time of the Merger, each common share, par value $0.01 per share, of the Company (the “Gener8 common shares”), issued and outstanding immediately prior to such time (other than certain Gener8 common shares that will be canceled as set forth in the Merger Agreement), will be canceled and automatically converted into the right to receive 0.7272 of an ordinary share, no par value per share, of Euronav (the Euronav ordinary shares to be issued pursuant to the Merger, the “Merger Consideration”) in the manner described in the Merger Agreement.

Any Gener8 common shares held by the Company, Euronav, Merger Sub, or their respective subsidiaries will be canceled and no consideration will be delivered for those canceled shares.

3. (LOSS) / INCOME PER COMMON SHARE

The computation of basic (loss) income per share is based on the weighted-average number of common shares outstanding during the period. The computation of diluted net (loss) income per share assumes the exercise of all dilutive stock options using the treasury stock method and the lapsing of restrictions on unvested restricted stock awards, for which the assumed proceeds upon lapsing the restrictions are deemed to be the amount of compensation cost attributable to future services and not yet recognized using the treasury stock method, to the extent dilutive.

The reconciliation of basic to diluted net (loss) income per common share was as follows (in thousands, except per share amounts):

Options to purchase 309,296 shares of common stock, which expired on May 7, 2017, were excluded from the above calculation for the three months ended March 31, 2017, because the impact is anti-dilutive. Options to purchase 13,420 shares of common stock, which expired on July 8, 2017, were also excluded from the above calculation for the three months ended March 31, 2017, because certain market conditions were not met.

On June 24, 2015, in connection with the pricing of the Company’s IPO, the Company granted members of management restricted stock units (“RSUs”) of the Company’s common stock pursuant to the Company’s amended 2012 Equity Incentive Plan. The final remaining RSUs will vest on December 1, 2018, or, if earlier, the consummation of the Merger, subject to employment with the Company through the applicable vesting date. On December 5, 2017, the Company issued 278,480 shares in settlement of RSUs that had vested on December 1, 2017. As of March 31, 2018, 44,919 RSUs were forfeited and 317,757 shares are remaining to be issued in 2018, following the vesting date for the final increment.

On September 9, 2016, in accordance with the Company’s amended 2012 Equity Incentive Plan, the Company granted certain non-employee directors 28,752 RSUs. The RSUs, which were valued at $6.26 per share. On May 16, 2017, the RSUs vested and the Company issued 28,752 shares in settlement of the RSUs.

On May 16, 2017, in accordance with the Company’s amended 2012 Equity Incentive Plan, the Company granted certain non-employee directors 44,856 RSUs. The RSUs, which were valued at $5.35 per share, will generally vest on the earliest of (a) the date of the Company’s next annual meeting of shareholders, (b) the date that is 30 days following the first anniversary of the grant date and (c) the consummation of the Merger, subject to the director’s continued service with the Company through the applicable vesting date.

The RSUs granted in June 2015 and May 2017 were excluded in determining the diluted net (loss) / income per share for the three months ended March 31, 2018 and 2017, because the impact is anti-dilutive.

For the three months ended March 31, 2018 and 2017, weighted-average RSUs outstanding of 482,286 and 755,187, respectively, were excluded in determining the diluted net (loss) income per share, because the impact is anti-dilutive.

On January 5, 2017, Peter C. Georgiopoulos, Chief Executive Officer and Chairman of the Board of the Company and Leonard J. Vrondissis, Executive Vice President, Secretary and Chief Financial Officer of the Company were each granted awards of stock options, pursuant to the Company’s amended 2012 Equity Incentive Plan. Mr. Georgiopoulos received stock options to purchase 500,000 shares of common stock. Mr. Vrondissis received stock options to purchase 25,000 shares of common stock. The stock options granted were excluded in determining the diluted net (loss) income per share for the three months ended March 31, 2018, because the impact is anti-dilutive. The stock options granted were included in determining the diluted net (loss) income per share for the three months ended March 31, 2017. See Note 14, Stock Based Compensation, for more details.

At the effective time of the Merger (the “Effective Time”), each then outstanding stock option will terminate and be canceled in exchange for the right of the former holder to be paid immediately after the Effective Time, a cash payment equal to the product of (i) the number of shares of our common stock subject to such outstanding option and (ii) (a) the product of (A) the closing price per share of Euronav shares on the New York Stock Exchange on the last trading day prior to the Effective Time and (B) an amount equal to (1) the aggregate merger consideration divided by (2) the aggregate number of shares of our common stock issued and outstanding immediately prior to the Effective Time or subject to our RSUs issued and outstanding immediately prior to the Effective Time minus (b) the exercise price applicable to such shares of our common stock subject to such stock option. If the number in clause (ii) of the immediately foregoing sentence is a negative number or zero, no consideration will be paid with respect to such stock option. 

4. ASSETS HELD FOR SALE

At the end of every reporting period the Company reviews and evaluates all of its vessels to determine the vessels, if any, that meet the criteria for “held for sale” as stated in ASC 360-10 – Property, Plant and Equipment (“ASC 360-10”.) As of March 31, 2018, all the criteria of ASC 360-10 were met for the Gener8 Defiance and the vessel was qualified as assets held for sale. The vessel was written down to its fair value, less cost to sell.

On April 10, 2018 the Company entered into an agreement for the sale of the 2002-built Aframax tanker the Gener8 Defiance for gross proceeds of $10.0 million. As of March 31, 2018, the vessel was qualified as assets held for sale. As a result of this classification, the Company recorded a loss of $7.6 million as Loss on disposal of vessels, net, on the condensed consolidated statement of operations for the three months ended March 31, 2018. On April 26, 2018, the sale of the Gener8 Defiance was finalized. The Company used the net proceeds to repay $6.5 million of the related portion of the senior secured debt outstanding under the Refinancing Facility associated with the vessel.

As of December 31, 2017, the Company had no assets held for sale.

5. CASH FLOW INFORMATION

The Company excluded from cash flows from investing and financing activities in the condensed consolidated statements of cash flows items included in accounts payable and accrued expenses for accrued milestone but unpaid and supervision payments of $0 for the period ended March 31, 2017. Capitalized interest amounted to $1.4 million for the three months ended March 31, 2017. No milestone payments or capitalized interest were recorded in the three months ended March 31, 2018.

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consist of the following (dollars in thousands):

Insurance claims receivable consists substantially of payments made by the Company for repairs of vessels that the Company expects, pursuant to the terms of the insurance agreements, to recover from the carrier within one year, net of deductibles which have been expensed. For more information regarding the $25.1 million recorded as of March 31, 2018 in Working capital due from Navig8, see Note 13 – Related Party Transactions.

As of March 31, 2018 and December 31, 2017, Other includes $4.0 million and $8.1 million, respectively, of advances to our third‑party technical managers.

7. OTHER NONCURRENT ASSETS

Other noncurrent assets consist of the following (dollars in thousands):

Working capital for 2011 VLCC pool and Long-term due from charters represent amounts due from the 2011 VLCC Pool and the Atlas charter disputes. A hearing of the Atlas Claimant’s procedural challenge and application for permission to appeal on certain points of law has been scheduled for May 24, 2018. See Note 15, commitments and contingencies for more details.

8. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following (dollars in thousands):

9. LONG‑TERM DEBT

Long‑term debt consists of the following (dollars in thousands):

Unamortized discount and debt financing costs include an unamortized discount related to the Company’s Senior Notes and debt financing costs comprised of insurance, bank fees and legal expenses associated with securing new loan facilities. These debt financing costs are amortized based upon the effective interest rate method over the life of the related debt, which is included in interest expense, net in the condensed consolidated statements of operations.

As of March 31, 2018 and 2017, the weighted average interest rate for the credit facilities are 1.47% and 1.32%, respectively.

Refinancing Facility

On September 3, 2015, the Company entered into a term loan facility, which we refer to as the “Refinancing Facility,” dated as of September 3, 2015, by and among Gener8 Maritime Subsidiary II (“Gener8 Maritime Sub II”), as borrower, Gener8 Maritime, Inc., as parent, the lenders party thereto, and Nordea Bank AB (publ), New York Branch as Facility Agent and Collateral Agent, in order to refinance our former senior secured credit facilities. As of December 31, 2017, $188.3 million of borrowings were outstanding under the Refinancing Facility, and no further borrowings were available under this facility. The loans under the Refinancing Facility will mature on September 3, 2020.

The Refinancing Facility bears interest at a rate per annum based on LIBOR plus a margin of 3.75% per annum. If there is a failure to pay any amount due on a loan under the Refinancing Facility and related credit documents, interest shall accrue at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. The Refinancing Facility is secured on a first lien basis by a pledge of our interest in Gener8 Maritime Sub II, a pledge by Gener8 Maritime Sub II of its interests in the 11 vessel-owning subsidiaries it owns, which we refer to as the “Gener8 Maritime Sub II Vessel Owning Subsidiaries,” and a pledge by such Gener8 Maritime Sub II Vessel Owning Subsidiaries of substantially all their assets, and is guaranteed by the Company and the Gener8 Maritime Sub II Vessel Owning Subsidiaries. In addition, the Refinancing Facility is secured by a pledge of certain of our and Gener8 Maritime Sub II Vessel Owning Subsidiaries’ respective bank accounts. As of December 31, 2017, the Gener8 Maritime Sub II Vessel Owning Subsidiaries owned two VLCCs, six Suezmax vessels, one Aframax vessel and two Panamax vessels.

Gener8 Maritime Sub II is obligated to repay the Refinancing Facility in 20 consecutive quarterly installments, which commenced on December 31, 2015, on each January 15, April 15, July 15, and October 15, until it is fully repaid. Gener8 Maritime Sub II is also required to prepay the Refinancing Facility upon the occurrence of certain events, such as a sale of vessels held as collateral or total loss of a vessel.

See Note 11, FINANCIAL INSTRUMENTS, for the Company’s interest rate risk management program related to the credit facility.

Korean Export Credit Facility

On September 3, 2015, the Company entered into a term loan facility (the “Korean Export Credit Facility”) to fund a portion of the remaining installment payments due under shipbuilding contracts for 15 VLCC newbuildings

owned by the Company at that time. The borrower under the Korean Export Credit Facility is Gener8 Maritime Subsidiary VIII Inc., the Company’s wholly owned subsidiary, and the Korean Export Credit Facility is guaranteed by the Company. The Korean Export Credit Facility provides for term loans up to the aggregate approximate amount of $963.7 million, which is comprised of a tranche of term loans to be made available by a syndicate of commercial lenders up to the aggregate approximate amount of $282.0 million (the “Commercial Tranche”), a tranche of term loans to be fully guaranteed by the Export-Import Bank of Korea (“KEXIM”) up to the aggregate approximate amount of up to $139.7 million (the “KEXIM Guaranteed Tranche”), a tranche of term loans to be made available by KEXIM up to the aggregate approximate amount of $197.4 million (the “KEXIM Funded Tranche”) and a tranche of term loans insured by Korea Trade Insurance Corporation (“K-Sure”) up to the aggregate approximate amount of $344.6 million (the “K-Sure Tranche”). As of March 31, 2018 the Korean Export Credit Facility was fully drawn.

At or around the time of delivery of each of the VLCC newbuildings, a loan was available to be drawn under the Korean Export Credit Facility in an amount equal to the lowest of (i) 65% of the final contract price of such VLCC newbuilding, (ii) 65% of the maximum contract price of such VLCC newbuilding and (iii) 60% of the fair market value of such VLCC newbuilding tested at or around the time of delivery of such VLCC newbuilding. Each such loan is referred to herein as a “Korean Vessel Loan.”

Each Korean Vessel Loan will mature, in respect of the Commercial Tranche, on the date falling 60 months from the date of borrowing of that Korean Vessel Loan and, in respect of the other tranches, on the date falling 144 months from the date of borrowing of that Korean Vessel Loan. KEXIM and K-Sure have the option of requiring prepayment of their respective tranches if the Commercial Tranche is not, upon its termination date, fully refinanced or renewed by the commercial lenders. Upon exercise of such option, all outstanding amounts under the relevant tranche must be repaid on the final repayment date in respect of the Commercial Tranche. Originally, repayment dates were each date that a repayment installment is required to be made, on March 31, June 30, September 30, and December 31 of the applicable year. Commencing from March 24, 2017, repayment dates are each date that a repayment installment is required to be made, on January 15, April 15, July 15 and October 15 of the applicable year.

The Company is obligated to repay the Commercial Tranche of each loan in 20 equal consecutive quarterly installments (excluding a final balloon payment equal to 2/3 of the applicable loan) of such loan and is obligated to repay the other tranches of each loan in 48 equal consecutive quarterly installments. The Company is also required to prepay the loans upon the occurrence of certain events, including a default under a shipbuilding contract, a sale or total loss of a vessel, and upon election by the majority lenders, upon a change of control of the Company.

The Korean Export Credit Facility bears interest at a rate per annum based on LIBOR plus a margin of, in relation to the Commercial Tranche, 2.75% per annum, in relation to the KEXIM Guaranteed Tranche, 1.50% per annum, in relation to the KEXIM Funded Tranche, 2.60% per annum and in relation to the K-Sure Tranche, 1.70% per annum. If there is a failure to pay any amount due on a Korean Vessel Loan, interest accrues at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. See Note 10, FINANCIAL INSTRUMENTS, for the Company’s interest rate risk management program related to the Korean Export Credit Facility. The Korean Export Credit Facility is secured on a first lien basis by a pledge of various assets, including, as of March 31, 2018, 13 VLCC vessels.

On March 24, 2017, the Company amended the Korean Export Credit Facility to revise the dates on which amortization payments are due to April 15, July 15, October 15 and January 15. Prior to entry into this amendment, the payment dates were March 31, June 30, September 30 and December 31.

Sinosure Credit Facility

On December 1, 2015, the Company entered into a term loan facility (the “Sinosure Credit Facility”) to fund a portion of the installment payments due under shipbuilding contracts in respect of three VLCC newbuildings which were being built at Chinese shipyards and to refinance a credit facility. The borrower under the Sinosure Credit Facility is Gener8 Maritime Subsidiary VII Inc. (“Gener8 Maritime Sub VII”), the Company’s wholly owned subsidiary, and the Sinosure Credit Facility is guaranteed by the Company. The Sinosure Credit Facility provided term loans up to the aggregate approximate amount of $259.6 million. On June 29, 2016, the Company amended the Sinosure Credit Facility to, among other things, include (i) Gener8 Chiotis LLC and Gener8 Miltiades LLC as owner guarantors under the

Sinosure Credit Facility and (ii) two additional term loan tranches having an aggregate amount of up to approximately $125.7 million, for purposes of financing deliveries of an additional two VLCC newbuilding vessels, the Gener8 Chiotis and the Gener8 Miltiades.  The amendment on November 8, 2017 replaced the debt service coverage ratio with a conforming interest expense coverage ratio, and revised the consolidated leverage ratio from 0.65 to 0.60 to conform to the two other credit facilities. As of March 31, 2018, the Sinosure Credit Facility funded the delivery of six VLCC newbuildings and refinanced a credit facility. The Sinosure Credit Facility provided for term loans up to the aggregate amount of approximately $385.2 million.

Loans under the Sinosure Credit Facility were drawn down at or around the time of delivery of each newbuilding funded by the Sinosure Credit Facility. Each loan drawn under the Sinosure Credit Facility is referred to as a “Sinosure Vessel Loan.”

The Sinosure Credit Facility bears interest at a rate per annum based on LIBOR plus a margin of 2.00% per annum. If there is a failure to pay any amount due on a Sinosure Vessel Loan, interest shall accrue at a rate 2.00% higher than the interest rate that would otherwise have been applied to such amount. See Note 10, FINANCIAL INSTRUMENTS, for the Company’s interest rate risk management program related to the Sinosure Credit Facility.

Gener8 Maritime Sub VII is obligated to repay each Sinosure Vessel Loan in equal consecutive quarterly installments (excluding a final balloon payment equal to 20% of the applicable loan), each in an amount equal to 1 2/3% of such loan, on each of March 21, June 21, September 21 and December 21 until the loan’s maturity date. On the respective maturity date, Gener8 Maritime Sub VII is obligated to repay the remaining amount that is outstanding under each Sinosure Vessel Loan. Gener8 Maritime Sub VII is also required to prepay the loans upon the occurrence of certain events, including a default under a shipbuilding contract, a sale or total loss of a vessel and, upon election by The Export-Import Bank of China and one other lender, upon a change of control of the Company.

Senior Notes

On March 28, 2014, the Company and Gener8 Maritime Sub V entered into a note and guarantee agreement (the “Note and Guarantee Agreement”), with affiliates of BlueMountain Capital Management, LLC (“BlueMountain”), in respect of the Company’s issuance of senior unsecured notes due 2020 (the “Senior Notes”). On May 13, 2014, the Company issued the Senior Notes in the aggregate principal amount of $131.6 million for proceeds of approximately $125 million (before fees and expenses), after giving effect to the original issue discount provided for in the Note and Guarantee Agreement. As of March 31, 2018 and December 31, 2017, the discount on the Senior Notes was $3.5 million and $3.8 million, respectively, which the Company amortizes as additional interest expense until March 28, 2020.

Interest on the Senior Notes accrues at the rate of 11.0% per annum in the form of additional Senior Notes and the balloon repayment is due 2020, except that if the Company at any time irrevocably elects to pay interest in cash for the remainder of the life of the Senior Notes, interest on the Senior Notes will thereafter accrue at the rate of 10.0% per annum.

Pursuant to a letter agreement among the Company, Gener8 Maritime Subsidiary V Inc., and certain affiliates of BlueMountain, dated December 20, 2017, the Senior Notes will be prepaid and redeemed in full contemporaneously with the closing of the Merger. As of December 31, 2017, the Senior Notes have a carrying value of  $194.4 million. Euronav expects the prepayment of the Senior Notes to be approximately $207.0 million (which includes a 1% prepayment penalty), which Euronav expects to finance in full with cash on hand and drawings under its credit facilities.

Lender Consents

In connection with the consummation of the Merger, the Company is required to obtain (i) the consent of the required parties under its applicable credit agreements to (1) permit Euronav’s ownership of our equity interests; (2) remove the requirement that at least one of Peter Georgiopoulos, Gary Brocklesby or Nicolas Busch remains a director of the Company; (3) permit the Merger; (4) permit the prepayment in full of the indebtedness incurred by the Company pursuant to the Senior Notes and (5) remove the requirement that our shares remain listed on the New York Stock Exchange; and (ii) such other amendments, consents and waivers under its applicable credit agreements and related transaction documents in order to allow the Merger to be properly entered into and documented without causing a breach

of any of the terms of such agreements (the consents described in this paragraph, collectively, the “Specified Approvals”). The Specified Approvals have been obtained.

Interest Expense, net

Interest expense, net consists of the following (amounts in thousands):

Financial Covenants

Under the Refinancing Facility, the Korean Export Credit Facility and the Sinosure Credit Facility, the Company is required to comply with various collateral maintenance and financial covenants, including with respect to its maximum leverage ratio, minimum cash balance and an interest expense coverage ratio covenant. The lenders also require the Company to comply with a number of customary covenants, including covenants related to the delivery of quarterly and annual financial statements, budgets and annual projections; maintaining required insurances; compliance with laws (including environmental); compliance with ERISA: maintenance of flag and class of the collateral vessels; restrictions on consolidations, mergers or sales of assets; limitations on liens; limitations on issuance of certain equity interests; limitations on restricted payments; limitations on transactions with affiliates; and other customary covenants and related provisions. As of March 31, 2018, the Company was in compliance with all such covenants that were in effect on such date, after giving effect to the interest coverage ratio waivers described below.

Pursuant to interest expense ratio covenants under the Company’s senior secured credit facilities, its ratio of consolidated EBITDA to consolidated cash interest expense, each as defined in the underlying credit agreements, must be no less than 2.5x. We refer to this ratio as the “Interest Coverage Ratio” and the related covenants as the “Interest Coverage Ratio Covenants. ”  Due to the weaker tanker industry, low charter rates, and higher interest costs management determined it was virtually certain as of the date the 2017 financial statements were available for issuance that the Company would not be in compliance with the Interest Coverage Ratio Covenants as of March 31, 2018. As a result, the Company has obtained short-term waivers from its lenders for the Interest Coverage Ratio. The waivers for (i) the Sinosure Credit Facility and Korean Export Credit Facility cover the covenant test period ending on March 31, 2018, and (ii) the Refinancing Facility cover the same period, and automatically extend to include the subsequent test period ending on June 30, 2018, provided that the Merger is consummated. Consequently, as of March 31, 2018, the Company was in compliance with the Interest Coverage Ratio Covenants.

For the four consecutive fiscal quarters testing period, as defined in the underlying credit agreements, ended December 31, 2017, the Company’s Interest Coverage Ratio was 3.3x. It is reasonably likely, absent further waivers or amendments to its senior secured credit facilities, that the Company will be in breach of the Interest Coverage Ratio Covenants as early as the end of the second quarter of 2018, subject to covenant testing. To address this issue, the Company may pursue alternatives which may include further waivers or amendments from its lenders, discussions with its lenders and/or Euronav regarding other potential options, debt financings, equity offerings and/or other options. Any

such actions may be subject to conditions. If market or other conditions are not favorable, or if such discussions do not result in a favorable outcome, the Company may be unable to take any such actions or obtain waivers or amendments from its lenders on acceptable terms or at all.

Absent such waivers or amendments, if the Company does not comply with these covenants and fails to cure its non-compliance following applicable notice and expiration of applicable cure periods, it would be in default of one or more of its senior secured credit facilities. If such a default occurs, the Company would also be in default under its senior notes. Each of the Company’s senior secured credit facilities and senior notes contain cross default provisions that would be triggered by its failure to comply with these covenants. As a result, approximately $1.1 billion and $1.2 billion of the Company’s indebtedness as of March 31, 2018 and December 31, 2017, respectively, could be declared immediately due and payable. The Company may not have sufficient assets available to satisfy its obligations. Substantially all of its assets, including all of its vessels, are pledged as collateral to its lenders, and its lenders may seek to foreclose on their collateral if a default occurs. The Company may have to seek alternative sources of financing on terms that may not be favorable to it or that may not be available at all. Therefore, the Company could experience a material adverse effect on its business, financial condition, results of operations and cash flows. Euronav’s obligations to effect the Merger are not subject to the Company obtaining any such waivers or amendments. However, Euronav’s obligations to effect the Merger are subject to, among other things, there not having occurred any material adverse effect with respect to the Company. Euronav may, to the extent permitted by law, waive any such condition of the Merger.

The Refinancing Facility, the Korean Export Credit Facility and the Sinosure Credit Facility also contain certain restrictions on payments of dividends and prepayments of the indebtedness under the Note and Guarantee Agreement. The Refinancing Facility, the Korean Export Credit Facility and the Sinosure Credit Facility permit the Company to pay dividends and make prepayments under the Note and Guarantee Agreement so long as the Company satisfies certain conditions under these facilities’ minimum cash balance and collateral maintenance tests subject to a limit of 50% of consolidated net income earned by the Company after the date of the respective facility. For purposes of calculating consolidated net income, consolidated net income will be adjusted, without duplication, by adding noncash interest expense and amortization of other fees and expenses; amounts attributable to impairment charges on intangible assets, including amortization of goodwill; non-cash management retention or incentive program payments; non-cash restricted stock compensation; and losses on minority interests or investments less gains on such minority interests or investments. The Company is also permitted to pay dividends in an amount not to exceed net cash proceeds received from our issuance of equity after the date of the respective facility. It may also make prepayments under the Note and Guarantee Agreement from the proceeds received from sale of assets so long as it satisfies certain conditions under its minimum cash balance and collateral maintenance tests. Further, the Company is allowed to refinance the Note and Guarantee Agreement subject to certain restrictions and repay the outstanding indebtedness under the Note and Guarantee Agreement on the maturity date of the Note and Guarantee Agreement.

Under the Note and Guarantee Agreement, the Company is permitted to make dividend payments if, after giving effect to the dividends, the ratio of the Company’s secured indebtedness minus its cash to the Company’s aggregate fair market value of all of its vessels is less than 60%, and the Company satisfies certain conditions under the Note and Guarantee Agreement’s cumulative consolidated net income and net cash proceeds tests. In addition, in order to make dividend payments under the Note and Guarantee Agreement, the Company must have irrevocably elected to pay interest on the Senior Notes in cash rather than additional Senior Notes.

Guarantees

The Company may issue debt securities in the future. All or substantially all of the subsidiaries of the Company may be guarantors of such debt. Any such guarantees are expected to be full, unconditional and joint and several. Each of the Company’s subsidiaries is 100% owned by the Company. In addition, the Company has no independent assets or operations outside of its ownership of the subsidiaries and any such subsidiaries of the Company other than the subsidiary guarantors are expected to be minor. Other than restrictions contained under applicable provisions of the corporate, limited liability company and similar laws of the jurisdictions of formation of the subsidiaries of the Company, no restrictions exist on the ability of the subsidiaries to transfer funds to the Company through dividends, distributions or otherwise.

10. FINANCIAL INSTRUMENTS

Interest Rate Risk Management

On May 2, 2016, certain of the Company’s wholly-owned subsidiaries entered into six pay-fixed, receive-variable interest rate swap transactions having amortizing notional amounts to hedge a portion of the LIBOR floating rate interest expense on the Company’s credit facilities as discussed in Note 9, LONG TERM DEBT.  Under each interest rate swap transaction, a subsidiary of the Company makes a fixed payment each period in an amount equal to the interest rate for such transaction multiplied by the relevant notional amount for that period in exchange for a payment from the respective swap counterparty in an amount equal to a variable rate based on the applicable LIBOR rate for that period multiplied by the same notional amount. In December 2016, the Company modified the two interest rate swap transactions hedging the Refinancing Facility to align the payment dates under those interest rate swap transactions to the principal and interest repayment dates under the Refinancing Facility. The swaps were dedesignated and the revised swaps were simultaneously redesignated with no interruption in hedge accounting. In April 2017, all six of the swap agreements were monetized (the then current fair market value of $18.2 million was received from the swap counterparties) and dedesignated. The effective portion of the gain on the swaps at dedesignation was deferred in Other Comprehensive Income / (loss) and the Company is recognizing the gain over the original hedge periods (September 2, 2020 for the swaps hedging the Refinancing Facility, February 20, 2029 for the swaps hedging the Korean Export Credit Facility and May 6, 2028 for the swap hedging the Sinosure Credit Facility). Simultaneously, the revised swaps were designated in a cash flow relationship with a fair market value at designation of zero, which included changes to the notional amounts and maturity dates of, and increases in the fixed rates payable under, the interest rate swap transactions. The applicable period, LIBOR rate and notional amounts for each interest rate swap transaction is identified in the table below.

Two of the swaps effectively fix the interest rate on approximately 56% of the aggregate variable interest rate borrowings expected to be outstanding under the Refinancing Facility through September 3, 2020, three of the swaps effectively fix the interest rate on approximately 91% of the aggregate variable interest rate borrowings expected to be outstanding under the Korean Export Credit Facility through September 30, 2020, and the remaining swap effectively fixes the interest rate on approximately 100% of the aggregate variable interest rate borrowings expected to be outstanding under the Sinosure Credit Facility through March 21, 2022 (excluding the incremental increase in available borrowings pursuant to the June 2016 amendment to the Sinosure Credit Facility). Under certain limited circumstances, the relevant subsidiary of the Company has the right to transfer the related interest rate swap(s) to a qualifying third party, which would have the effect of terminating the subsidiary’s obligations under those interest rate swaps and/or to cause the novation of the related interest rate swap(s) to a third party replacement derivatives dealer prior to the relevant termination date for that interest rate swap. Otherwise, upon the termination of an interest rate swap transaction on the relevant termination date, the Company may elect to enter into a new swap to hedge the remaining borrowings outstanding under the applicable credit facility as of the swap termination date.

The Company’s objective in entering into the interest rate swap transactions is to limit the variability of cash flows associated with changes in LIBOR interest rate payments due on its credit facilities by using the interest rate swaps to offset the future variable rate interest payments made by the Company. The Company has elected to apply hedge accounting and designated the swaps as cash flow hedges. The Company uses regression analysis to test if the swaps are expected to be highly effective (defined as the swaps offsetting at least 80% and not more than 125% of the hedged interest exposure) on both a prospective and retrospective basis. See Note 1, BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES,  in the Company’s 2017 Annual Report on Form 10-K, as amended, for more details on the recent adoption of ASU 2017-12. 

The changes in fair market value of the swaps, including adjustments for non-performance risk, which are designated and qualify as cash flow hedges, are classified in Other Comprehensive Income (Loss). These amounts are reclassified from Accumulated Other Comprehensive Income (Loss) (“AOCI”) to interest expense when the hedged interest payments are recognized in interest expense, net in the condensed consolidated statements of operations.

Amounts in Accumulated Other Comprehensive Income (Loss) expected to be reclassified into earnings in the next 12 months total a gain of $8.6 million.

At March 31, 2018, the Company was a party to the following interest rate swaps, which are designated as cash flow hedges that effectively fix the interest rates for a portion of the Refinancing Facility, the Korean Export Credit Facility and the Sinosure Credit Facility (dollars in thousands): 

The tables below provide quantitative information about the impact of derivatives on the Company’s condensed consolidated balance sheet and statement of operations (dollars in thousands):