CP Ships: The Value of Goodwill

It is the rare item that inspires a bargain hunter to pay a premium. That’s why when CP Ships, whose very identity is defined by buying out-offavor companies, marched up to the Wall Street counter and ordered $200 million worth of bonds yielding 10.75%, the ship finance industry was momentarily in shock.

As details of the transaction were disseminated, the usual post-capital markets deal battle cries rumbled through the June air. “The company was skinned alive,” commercial bankers condemned. “The company’s management are amateurs!” pundits proffered. “Solly and MoStan came too late and destroyed the market for future issuers!” other underwriters uttered. We disagree.

As the fog of naiveté, competing interest, misinformation, and even bona fide bewilderment clears, let us remind you of a few compelling, and permanent, realities; (1) that one of the world’s smartest and most patient shipping consolidators chose to exchange 6% financing for 10% financing on the precipice of a capital markets meltdown; (2) that investors bought into an unsecured shipping deal amidst a truly horrible high yield market and an uncertain economic outlook and; (3) that the first liner company has been added to the ranks of quality high yield issuers – and will likely earn as much goodwill for our industry as Teekay, Stena and a few others have.

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