Since 2010, TORM has worked on improving the Company's capital structure and liquidity position e.g. by seeking to tap into different corporate bond markets. Due to the Company's capital structure, its strategic position as a spot-oriented company and the generally challenging conditions in the capital markets, TORM was unable to obtain this type of financing. With the continuously low freight rates and cyclical low vessel values since fall 2011, TORM's Board of Directors has not found it prudent to inject new equity in the Company as planned without substantial amendments to the existing credit facilities. In October 2011, TORM presented a proposal to the banks that combined an equity injection of USD 100 million with subscription rights for existing shareholders and a bank moratorium supported by TORM's largest shareholders. The proposal was not accepted, but the Company achieved a standstill agreement with the banks, which has been extended several times during 2012 to secure that a long-term, comprehensive financing solution was found and implemented.
Throughout the whole process, TORM's Board of Directors and Executive Management have worked on avoiding bankruptcy or other in-court solutions in Denmark or abroad in order to best preserve value and put all stakeholders in the best possible position. However, as a precautionary measure a US "chapter 11" filing has also been negotiated and prepared in detail as part of the process. In the spring of 2012, TORM succeeded in obtaining conditional offers from reputable, international shipping investors as well as institutional investors, who were prepared to make new investments in the Company provided that substantially amended bank terms were agreed. However, the banks chose not to enter into substantive negotiations on the basis of any of these offers as they did not find the investor proposals sufficiently attractive.
Since fourth quarter of 2011 the Company's liquidity situation has been tight, and the total bank debt could be called at any time at the banks' discretion due to breaches of certain financial covenants. Through negotiations with the bank group during 2012 it became clear that the only achievable solution with the bank group would not provide immediate debt relief in the balance sheet nor any new equity contribution. However, the only solution that could be found was one where TORM gained time for a potential market improvement in order to best preserve shareholder value. Therefore, TORM signed a conditional agreement in principle with the banks and the major time charter partners regarding a long-term financing solution as stated in announcement no. 14 dated 4 April 2012 and elaborated in announcement no. 20 dated 23 April 2012. This agreement in principle forms the basis for the signed restructuring agreement, which has become very comprehensive and includes a number of supplementary agreements with certain counterparts, including amendments to TORM's existing finance documentation. The banks have been advised by the international financial advisor Lazard & Co. ltd.