NOVEMBER 14, 2012 — Reacting to Overseas Shipholding Group Inc.'s voluntary Chapter 11 filing today (see earlier story) Standard & Poor's lowered its long-term corporate credit rating on the tanker giant to 'D' from 'CCC-' and its ratings on the company's senior unsecured debt to 'D' from 'CCC-'. The '3' recovery rating remains unchanged, indicating S&P's expectation that lenders will receive a meaningful (50 percent-70 percent) recovery in a payment default scenario. All ratings were removed from CreditWatch, where they were placed by the ratings agency, with negative implications, on Oct. 22, 2012.

"The downgrade reflects the fact that OSG announced today that it had filed chapter 11 bankruptcy protection," said Standard & Poor's credit analyst Funmi Afonja. "We are keeping our '3' recovery ratings unchanged for now. However, our recovery ratings do not take into account any potential tax liabilities that the company may have."

As of June 30, 2012, OSG had unrecognized deferred U.S. income tax of approximately $770 million because of undistributed earnings from shipping income of its foreign subsidiaries or its less-than-50 percent-owned foreign shipping joint ventures. The recovery could fall into the 10 percent to 30 percent range (corresponding with a '5' rating) if actual tax liability is consistent with the amount of unrecognized deferred U.S. income tax and if that liability is treated as a priority claim.

On Oct. 22, 2012, OSG filed an 8-K stating it is reviewing a tax issue arising from the fact that the company is domiciled in the United States and has substantial international operations, and relating to the interpretation of certain provisions contained in the company's loan agreements. As a result of that continuing process, OSG stated its previously issued financial statements for the three years ended Dec. 31, 2011, and associated interim periods for the quarters ended March 31 and June 30, 2012, should no longer be relied upon.

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