Fixed Income: Business Moves to Asia

Debt refinancing activity was dramatic throughout 2005 – and this trend extended from the bank debt market into the United States high yield bond market, despite the usually high cost of calling bonds before maturity.The basic theme in the 2005 bond market, globally, was that if you didn’t need the cash, then you refinanced your bonds with cheaper bank debt and cash, but if you did need the cash or a maturity extension or amortization relief, then the fixed income market was there to offer the international shipping industry very good terms and pricing.

In the “didn’t need the cash” category, were General Maritime and CP Ships, both of which paid a whopping $115 to buy back each $100 face amount of bonds. On a net present value basis it was still cheaper to retire the issues when the companies analyzed the amortized premium versus the higher spread. Both bond issues were trading in the area of $115 when they were called. In the case of General Maritime, the company was also glad to get out from under some inconvenient covenants. Continue Reading

M&A: Liner’s Lunch Continues

Our thinking was that shipping companies would continue to generate loads of cash from operations and, combined with the abundance of capital markets financing and investor pressure to exploit operational and commercial synergies through growth, this meant that deals would get done.

Since the enterprise value of the dominant companies has grown so big in recent years, in order for it to be meaningful we expected this growth to come in the form of fleet acquisitions rather than single vessel purchases or orders. And as you can see from Figure 1, deal flow has certainly been brisk.

It is an accepted truth that the liner business is the most consolidated of the major shipping sectors, followed by the tanker sector and then dry cargo. There are different theories about why this is the case, but the most plausible explanation is that markets are naturally consolidating, or not, based on how much benefit is derived from the consolidation. Continue Reading

Private Equity: Putting a Band Together

Like so many deals that look like an overnight success, the seeds of this deal were planted a long time ago – 13 years to be exact. But when you consider that Jefferies Capital Partners generated a return on equity in excess of 700% from the period of 1999 until exiting the investment in late 2005, in a business that historically returns closer to 7%, I think all of our readers can agree that this deal is deserving of a Deal of the Year Award.

In order to really understand this deal, we need to rewind the clock to 1993 – when Jim Dowling and Brian Friedman at Furman Selz took public a company called Pacific Basin. At the time the deal was done the underwriters got to know the management, Paul Over and Chris Buttery. Fast-forward three years to when MISC makes a bid to buy PacBasin, to which the shareholders agree. Over and Buttery walk away with some cash, a non-compete agreement and the rights to use the name Pacific Basin in the future. Continue Reading

Bank Debt: Bankers Work Harder to Arouse Owners

Commercial bank debt is the most important capital source of shipping and, like a vessel and her crew that are doing their job well, it remains invisible almost all of the time. Continue Reading

A Harvest Year for Equities in 2005

Activity in the public equity market was absolutely blistering in 2005 – and not just in New York. Amazingly, we decided to select three winners among the dozens of deals done last year and as it turned out each was listed on a different continent!As you can see from Figure 1, equity issuance topped out with $7 billion of new equity coming into the business from the outside, nearly half of that coming from outside of America. If shipping is a cyclical business in which there are planting years and harvest years, then 2005 was the biggest harvest of all time.

When you factor in five times leverage, global equity sources contributed about $42 billion of buying power to the global shipping industry – nearly doubled the typical annual volume.

When combined with the torrent of fresh liquidity that was also entering the business from the high charter market, shipbrokers from Shanghai to Oslo tell us that it was enough to drive asset prices higher than they would have gone without this cash infusion. Continue Reading

Participating in History

For better or worse, there are times in all of our lives when we can actually feel that history is being made; and for those of us who are committed to the business of financing ships, 2005 was one of those times.

But unlike the events that define the constellations of our personal lives, such as matrimony, a first child being born and death, history-making between shipping and the capital markets is not a one time event.

In fact, as I tried to put the year 2005 into context, what I learned was that shipping and the capital markets seem to make history together about once every four years. What has been different this time around is that three of the last four years have been history making and the impact has been compounded.

Over the course of the last 20 years, shipping and the capital markets have come together on four major occasions, for a variety of reasons that we will explain in the following pages. The reason why the harvest was so bountiful in 2005 was because the conditions couldn’t have been better. Continue Reading

The Rustless Wonder

By Jens Alers, Atlantic Marine LP, Member of the Schulte Group, Hamilton, Bermuda

In January of this year I travelled to India. Together with two of my most senior shipmasters, on home leave from the fleet at that time, I visited the Qutab Minar Fortress in India’s capital Delhi. Moments after walking through the front gate of this ancient fortress, I saw the most fascinating metal object that I have ever seen – the Rustless Wonder of India.

This iron pillar has withstood corrosion for over 1,600 years. Because it simply does not rust, despite its full exposure to the elements since the 4th century, it is an object of perennial interest and curiosity. As such, it continues to attract the attention of archaeologists and scientists, as well as the odd visiting shipmanager, all of whom want to unfold the secret behind its strength.

The pillar is believed to have been a standard for supporting an image of Garuda, the bird carrier of Lord Vishnu. It is 23 ft and 8 inches high and weighs 6 tons – a great symbol of Indian metallurgical excellence.

The composition and microstructure of the Rustless Wonder is truly wonderful: Continue Reading

Ten Questions with Simon Rose

By Matt McCleery

Every so often, we like to take a relative newcomer to the business and use this forum as an opportunity to introduce them to our readers. We try to pick a figure who has really impacted the ship finance landscape and revolutionized in some way how certain facets of it work. Simon Rose, having founded along with his partner his own shippingfocused investment bank, is just such a person. Add to that his inside view into several of the recent IPOs, and we are sure you will find him of interest.

1. Q: Dahlman Rose is a relatively new name to shipping. What is the background of the firm? What or who brought you into this industry and why?

A: We founded the firm because we felt that there was a significant opportunity to create a bank that focused on one of the largest industries in the world, that had very little representation in the U.S. markets, that was capital intensive, and that with the IMO phase out in 2010 had visibility going forward for the need of capital. We felt that we could translate our prior successes in other industries into shipping. All this being said, it is the people that keep me fascinated – there are great characters in the industry. Continue Reading

Is M&A the Right Approach to Growth in Container Shipping?

By Charles de Trenck, Head of Regional Transport, Citigroup Investment Research

I was asked to write on M&A in container shipping. However I unfortunately cannot comment on current specific M&A activities. But I can review the main issues in perspective. The following is a quick thought piece.

M&A in container shipping always has been a tough slog to be sure. Maersk took years to integrate SeaLand, both before and after the official acquisition. NOL also took several years to fully integrate APL, a company ultimately bigger than itself. Failure to properly integrate acquisitions for mid-sized carriers can also lead to the buyer becoming an acquisition target.

At the core of the problem for M&A deals is that often one plus one does not equal two, but something closer to 1.x, with the primary risk being revenues declining faster than costs during downturns. And if a downturn comes on the heels of an acquisition, the risk of going bust rises dramatically because of increased leverage at the wrong point in the cycle. Continue Reading

Checking the Load Lines for Corporate Communications

By Carleen Lyden-Kluss, President, Morgan Marketing & Communications

Much as if the Titanic had managed a last-minute turn before the iceberg, the value of corporate communications is slowly being accepted by the maritime industry. While OPA 90 mandated the need for transparency following in the wake of the largest public relations fiasco yet known, the need to communicate openly and directly has been reinforced to publicly traded companies through their compliance with Sarbanes- Oxley and Reg. FD.

But what are the elements of corporate communications, and how can their effectiveness be measured? Both qualitative and quantitative information is now becoming available.

Corporate communications is the umbrella term for a myriad of disciplines and techniques used to transfer information to desired target audiences. Its reach extends from media relations to financial communications, employee and government relations, and crisis management. Used effectively, communications can be a highly leveragable tool in the C-suite’s tool belt.

One of the most important outcomes of effective corporate communications is the establishment of management’s strategic capability, an important measure of corporate strength and viability. Please see Figure 1. Continue Reading