Pegasus Shipping (Hellas) Ltd., (Aug. 13, 1998)

[LETTER OF INQUIRY]

August 12, 1998

Office of Chief Counsel
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Re: Pegasus Shipping (Hellas) Ltd. and its Consolidated Subsidiary Guarantors

Ladies and Gentlemen:

On behalf of Pegasus Shipping (Hellas) Ltd., a Bermuda company (the "Company"), and Sancho Maritime Ltd., Pandama Shipping Corporation, Whitley Maritime Inc., Wotan Shipping Corporation, Pearl Shipping Corp., Sunny Skies Shipping Corp., Gillian Shipping Corporation, Sonnet Investments Corporation, Vero Shipping Corporation, Renaissance Shipping Corporation, Deepblue Maritime Corporation and Plaka Shipping Corporation, each a Liberian company and wholly owned subsidiary of the Company (collectively, the "Subsidiary Guarantors"), we respectfully request an order from the Securities and Exchange Commission (the "Commission") pursuant to Section 12(h) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), exempting the Subsidiary Guarantors from compliance with the periodic reporting requirements of Sections 13 and 15(d) of the Exchange Act. Alternatively, we hereby request confirmation from the Division of Corporation Finance of the Commission (the "Division") that it will neither object, nor recommend to the Commission any enforcement action, if the Subsidiary Guarantors do not comply on a continuing basis with the periodic reporting requirements of Sections 13 and 15(d) of the Exchange Act based on the facts and under the circumstances described below.

A. Background

The Company directly through its Liberian subsidiaries, owns and operates Panamax tanker vessels for the transportation of crude oil and other petroleum products (i.e., primarily fuel oils and vacuum gas oils) along North American, South American and Caribbean trade routes. The Company presently owns, operates and charters to third parties 12 Panamax tankers ranging in size between approximately 50,000 and 60,000 deadweight tons ("dwt") and totalling approximately 710,000 dwt. On November 26, 1997, the Company issued and sold $150,000,000 million aggregate face amount due at maturity ("principal amount") of its 11-7/8% First Preferred Ship Mortgage Notes due 2004 (the "Old Notes") in a transaction not requiring or otherwise subject to registration under the Securities Act of 1933, as amended (the "Securities Act"). ¹ On April 21, 1998, the Commission declared effective under the Securities Act the registration statement (the "Registration Statement") on Form F-4 (No. 333-8248) of the Company and the Subsidiary Guarantors relating to the Companys offer to exchange (the "Exchange Offer") $150,000,000 aggregate principal amount of its 11-7/8% Series A First Preferred Ship Mortgage Notes due 2004 (the "New Notes, and collectively with the Old Notes, the "Notes") for all then outstanding Old Notes. ² Upon such effectiveness, the Company and each of the Subsidiary Guarantors (who signed the Registration Statement as additional co-registrants and who, as more fully described herein, have fully and unconditionally guaranteed payment of the Notes and whose capital stock has been pledged by the Company as a portion of the collateral package securing payment of the Notes) became subject to the periodic reporting requirements of Section 15(d) of the Exchange Act (as applicable to a "foreign private issuer" within the meaning of Rule 3b-4 under the Exchange Act). ³ The Exchange Offer expired on May 22, 1998 and approximately $144,000,000 principal amount of Old Notes were validly tendered (and not subsequently withdrawn) and accepted by the Company for exchange pursuant thereto. ⁴ Section 4.02 of the Indenture dated as of November 26, 1997, as amended (the "Indenture"), among the Company, the Subsidiary Guarantors and The Bank of New York, as trustee (the "Trustee") requires the Company to file with the Trustee and provide to holders of Notes within certain prescribed time periods copies of its annual report and of the information, documents and other reports (or copies of such portions of any of the foregoing as the Commission may by rules and regulations prescribe) which the Company is required to file with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

B. Discussion

Rule 3-10(a) of Regulation S-X generally requires a reporting companys periodic Exchange Act reports and Securities Act registration statements to include the financial statements of (i) each guarantor of the reporting companys securities and (ii) each affiliate of the reporting company whose securities constitute a "substantial portion of the collateral" securing the reporting companys securities. ⁵ Paragraph (b) of Rule 3-10 provides, in relevant part, that "securities of a person shall be deemed to constitute a substantial portion of collateral if the aggregate principal amount, par value, or book value of the securities as carried by the registrant, or the market value of such securities, whichever is the greatest, equals 20 percent or more of the principal amount of the secured class of securities."

The undersigned has been advised by the Companys Chief Financial Officer and representatives of the Companys independent public accountants that the book value (i.e., the relevant measurement criterion) of the shares of common stock of each of the Subsidiary Guarantors (as reflected in the accounts of and as carried by the Company) does not equal or exceed 20% of the aggregate principal amount of the Notes. Accordingly, the Company represents to the Division that such shares of capital stock (which have been pledged to the Trustee by the Company as a portion of the collateral package securing the Notes) do not constitute a "substantial portion of the collateral" within the meaning of Rule 3-10(b).

Moreover, in paragraph H of Topic 1 of the Staff Accounting Bulletin, added by Staff Accounting Bulletin 53 ("SAB 53"), the Division announced that where a registration statement covers the issuance by a parent-issuer of a security that is guaranteed by its subsidiary, financial statements of the subsidiary generally are required. However, beginning with a no-action letter requested by and addressed to Anheuser-Busch Companies, Inc. (available May 4, 1987), the Division has taken the position that the disclosure criteria contained in Paragraph G of SAB 53 (relating to "downstream" parent guarantees of securities issued by subsidiary-issuers) may be applied by analogy to situations covered by Paragraph H (relating to "upstream" subsidiary guarantees of securities issued by parent-issuers) for purposes of determining the requisite level of disclosure.

Paragraph G of SAB 53 specifies financial statement requirements applicable to subsidiary-issuers whose securities are guaranteed by the parent company. Where the parent-guarantor has more than minimal independent operations, the subsidiary-issuer is wholly owned by the parent-guarantor and the guarantee is full and unconditional, Paragraph G of SAB 53 states that the Staff generally will not require the subsidiary-issuer to present all the financial information specified by the applicable Securities Act registration statement form if the registration statement contains summarized financial information regarding the subsidiary-issuer. The interpretive response to Question 2 of Paragraph G of SAB 53 states that the Staff generally will apply the same criteria used in determining the level of disclosure for the issuer of a guaranteed security under the Securities Act to govern questions regarding such issuers periodic Exchange Act reporting obligations. In addition, footnote 2 to Paragraph G of SAB 53 provides that "in situations where the parent-guarantor of an issuer-subsidiary in either the first or second category is a reporting company under the Exchange Act, upon application to the Commission such subsidiary would be conditionally exempted pursuant to Section 12(h) of the Exchange Act from reporting obligations under [the Exchange Act]." We believe that because the Division has accepted that the financial disclosure standards of Paragraph G of SAB 53 can be applied by analogy to situations covered by Paragraph H of SAB 53, it follows by analogy that footnote 2 also should conditionally exempt a subsidiary-guarantor of a parent-issuers securities from the periodic reporting requirements of the Exchange Act.

Indeed, in a series of no-action letters published subsequent to Anheuser-Busch, the Division has applied the parent-guarantor standards from Paragraph G to exempt subsidiary-guarantors from providing separate financial information in a Securities Act registration statement and to exempt such subsidiary-guarantors, pursuant to Section 12(h) of the Exchange Act, from the periodic reporting requirements of Sections 13 and 15(d) of the Exchange Act. See e.g., Precise Technology, Inc. (available November 14, 1997); Lockheed Martin Corporation (available July 1, 1996); Airborne Freight Corporation (available March 21, 1996); Fleming Companies, Inc. (available December 9, 1994); Affinity Group, Inc. (available June 15, 1994); AIM Management Group, Inc. (available January 6, 1994); TransTexas Gas Corporation and TransTexas Transmission Corp. (available December 10, 1993); Presidio Oil Company (available October 22, 1993); Wyman-Gordon Company (available May 28, 1993); Evergreen International Aviation, Inc. (available March 31, 1993); APS Holding Corporation (available July 24, 1991); and Kay Corporation (available December 12, 1987).

The no-action letters referred to above articulate four factors that the Division has considered when determining whether to grant no-action relief. In particular, the Staff consistently has taken a no-action position with respect to the exemption from periodic Exchange Act reporting obligations where the following conditions are present: (i) each of the guarantor-subsidiaries is a wholly owned subsidiary of the parent-issuer; (ii) each subsidiary-guarantor has guaranteed payment of the parent-issuers securities on a joint and several, full and unconditional basis; (iii) either all of the parents subsidiaries have guaranteed the parent-issuers securities or, if the parents consolidated group includes non-guarantor subsidiaries, such non-guarantor subsidiaries are immaterial to the consolidated financial statements of the parent taken as an entirety; and (iv) the parent-issuer has more than minimal operations and its periodic reports under the Exchange Act include, in an appropriate footnote to its financial statements, summarized financial information concerning the subsidiary-guarantors. See, supra, Precise Technology; Airbone Freight; Fleming Companies; Affinity Group; and TransTexas Gas/Transmission.

The Company believes that the facts presented herein are substantially similar to those the Division has considered in prior no-action requests and that the criteria considered by the Division when previously having granted the relief sought (as described in such prior requests), are satisfied in the instant case of the Subsidiary Guarantors.

With respect to the first of the foregoing criteria, the Company owns all of the outstanding capital stock of each of the Subsidiary Guarantors, has no separate operations from those of the Subsidiary Guarantors, within the meaning of SAB 53, and was organized solely for the purpose of issuing the Notes and to own all of the outstanding capital stock of the Subsidiary Guarantors.

Second, the guarantee issued by the Subsidiary Guarantors in favor of the holders of the Notes provides for payment of the Notes on a joint and several, full and unconditional basis. Such guarantee does, however, limit the guarantee of each Subsidiary Guarantor to the maximum amount that will result in the obligations of such Subsidiary Guarantor not constituting a fraudulent conveyance or fraudulent transfer under any applicable federal, state or foreign law. This fraudulent conveyance (savings) clause does not impose a specific dollar limitation or formula. The Staff has taken the position that a guarantee which contains this type of fraudulent conveyance limitation nevertheless satisfies the full and unconditional guarantee requirement. See e.g., Consoltex Group, Inc. (available August 12, 1994); Marriott Corporation (available August 18, 1993); UNC Incorporated (available July 21, 1993); Wyman-Gordon Co.; Food 4 Less Supermarkets, Inc. (available April 15, 1992); and Presidio Oil Co, supra.

Third, all of the Companys subsidiaries have guaranteed the Notes in the manner described in the preceding paragraph.

Finally, it is contemplated that the periodic Exchange Act reports filed by the Company with the Commission will include, in an appropriate footnote to the Companys consolidated financial statements, summarized financial information in respect of the Subsidiary Guarantors for such time as the Notes remain outstanding and are guaranteed by the Subsidiary Guarantors. Such summarized information will be presented at the same dates and for same periods ended for which financial statements are presented for the Company and will include the information prescribed by Rule 1-02(bb) of Regulation S-X. In addition, the proposed footnote disclosure will include the statement that the Notes are fully and unconditionally guaranteed, on a joint and several basis, by all of the Companys subsidiaries, each of which is wholly owned, and that separate financial statements of the Subsidiary Guarantors have not been provided because the Companys management has determined that such financial statements would not be material to investors.

C. Conclusion; Requested No-Action Relief or Exemptive Position

Based upon the foregoing, we believe that it is not inconsistent with the public interest and the protection of investors for the Company not to include separate financial statements for each of the Subsidiary Guarantors in its future periodic Exchange Act reports and for the Subsidiary Guarantors not to be required to comply, as separate registrants, with the periodic reporting requirements of the Exchange Act, subject to the condition that the periodic Exchange Act reports filed by the Company with the Commission contain summarized financial information in respect of the Subsidiary Guarantors as described in the preceding paragraph. Management has advised that it believes the preparation of separate financial reports for each Subsidiary Guarantor would be administratively burdensome and involve considerable additional costs in connection with the Companys continuing financial reporting obligations under the Exchange Act.

On behalf of the Company and the Guarantors, we respectfully request the Division to confirm that it will not raise any objection if, on a continuing basis, (i) the Company does not include any separate information, including financial information, concerning the Subsidiary Guarantors in its future periodic Exchange Act reports, other than summarized financial information that includes all of the Subsidiary Guarantors on a combined basis as prescribed by Rule 1-02(bb) of Regulation S-X at the same dates and for the same periods ended as the consolidated financial statements provided therein for the Company and (ii) the Subsidiary Guarantors accordingly do not comply as separate registrants with the periodic reporting requirements of Sections 13 and 15(d) of the Exchange Act for such time as the Company remains an Exchange Act reporting company and files with the Commission consolidated financial statements that include the assets and financial results of the Subsidiary Guarantors, as well as the disclosure described in item (i) above in an appropriate footnote to the Companys consolidated financial statements. The undersigned has been advised that the Company acknowledges and understands that any exemptive relief granted or no-action position taken by the Division pursuant to the request made hereby would be based on the representations set forth herein, that any different facts or conditions might require the Division to reach a different conclusion, and that any such relief or position would not constitute a legal conclusion in respect of the questions presented herein but, instead, only would constitute an expression of the Divisions position on enforcement with respect thereto.

Pursuant to the requirements of Release No. 33-6269, seven additional copies of this letter are enclosed herewith. If the Division is not inclined to respond favorably to the relief requested herein, the undersigned would appreciate the opportunity to discuss with the Divisions staff (the "Staff") any concerns prior to receipt of a written response. If the Staff has any questions or needs additional information in respect of this no-action request, please do not hesitate to call the undersigned at (212) 922-2216.

Kindly acknowledge your receipt hereof by file-stamping the enclosed duplicate and returning it to the undersigned in the self-addressed, postage paid envelope provided for such purpose.

Very truly yours,

Clifford E. Neimeth

WATSON, FARLEY & WILLIAMS

[APPENDIX]

August 13, 1998

Mr. Clifford E. Neimeth
Watson, Farley & Williams
380 Madison Avenue
New York, New York 10017

RE: Pegasus Shipping (Hellas) ltd. (the "Company")

Dear Mr. Neimeth:

In regard to your letter of August 12, 1998, our response thereto is attached to the enclosed photocopy of your correspondence. By doing this, we avoid having to recite or summarize the facts set forth in your letter.

Sincerely

Catherine T. Dixon
Chief Counsel

[STAFF REPLY LETTER]

August 13, 1998

RESPONSE OF THE OFFICE OF CHIEF COUNSEL
DIVISION OF CORPORATION FINANCE

Re: Pegasus Shipping (Hellas) Ltd. (the "Company")
and its Consolidated Subsidiary Guarantors("Subsidiary Guarantors")

Incoming letter dated August 12, 1998

Based on the facts presented, the Division will not object if the Subsidiary Guarantors do not file reports with respect to the New Notes (as defined in your letter) pursuant to Sections 13 and 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"). In reaching this position, we note the following:

1. The Company is a holding company with no independent operations;

2. The Subsidiary Guarantors have fully and unconditionally guaranteed the New Notes on a joint and several basis;

3. Each of the Subsidiary Guarantors is a wholly-owned subsidiary of the Company; and

4. The Subsidiary Guarantors comprise all of the Companys direct and indirect subsidiaries.

As a condition to this position, the Company must include certain narrative disclosure and financial statement information in its Exchange Act reports.

First, the Company must state, in a footnote to its financial statements in its Exchange Act reports, that:

1. The Company is a holding company with no assets or operations other than its investments in its subsidiaries;

2. The Subsidiary Guarantors are wholly-owned subsidiaries of the Company and have fully and unconditionally guaranteed the New Notes on a joint and several basis;

3. The Subsidiary Guarantors comprise all of the direct and indirect subsidiaries of the Company; and

4. The Company has not presented separate financial statements and other disclosures concerning each Subsidiary Guarantor because management has determined that such information is not material to investors.

Finally, the Companys Exchange Act reports also must include:

1. The disclosure contemplated by Rule 4-08(e)(3)(i) and (ii) of Regulation S-X regarding restrictions on any Subsidiary Guarantors ability to make distributions to the Company; and

2. In the Managements Discussion and Analysis section, appropriate disclosure regarding restrictions on distributions from any Subsidiary Guarantor to the Company.

This position is based on the representations made to the Division in your letter, and any different facts or conditions might require a different conclusion. Moreover, this response expresses the Divisions position on enforcement action only and does not express any legal conclusions on the question presented.

Sincerely,

Catherine Dixon
Chief Counsel

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