Consafe Offshore AB, through its subsidiary Safe Concordia Ltd, has come into an agreement with Keppel Offshore & Marine Limited to obtain the remaining 85% shareholding in the special purpose company Joy Venture Investments Ltd.  Joy was set up by Keppel Offshore & Marine and JCE Group as the 85/15 joint venture company to own the semi-submersible accommodation vessel Safe Concordia.  Since then, JCE Group has shifted its rights and obligations to Consafe Offshore. Consafe Offshore has made a deposit payment of $34.5 million to Keppel Offshore & Marine and will pay the $50 million balance with interest from that point on by September 30, 2005 in order to finalize the share purchase.

Consafe Offshore’s requirement to pay the balance purchase price is provisional upon the arrangement of financing as anticipated by way of new equity and debt. If Consafe Offshore is unable to arrange such financing, its shareholding in Joy will as stated in the agreement, only be increased to 50% and the acquisition will be limited to 35% of the shares. In such case the $34.5 million deposit payment will then be applied towards the share purchase, and Joy will continue as a joint venture.  The Safe Concordia was finished and delivered to Consafe Offshore in March 2005 and was deployed by ConocoPhillips at the Bayu-Undan field in East Timor for a short timecharter until late May.

Top Tankers recently received shareholder support to double its authorized common stock from 50-100 million shares. CEO Evangelos Pistiolis asked for the raise in shares to give the company more flexibility in order to support future acquisitions. Currently, Top has roughly 27 million outstanding shares.  This comes after the company’s $147 million IPO last summer, $148 million follow-on offering and withdrawn $300 million convertible offering. These offerings allowed Top to expand to a fleet of 23 vessels, made up of suezmax tankers and product carriers (they expanded so fast, in fact, that we even lost track of their NAV for a couple weeks). Mr. Pistiolis and his management have certainly demonstrated that they are both determined and highly energetic.

Others were not so lucky in the bond market. PT Berlian Laju Tanker has postponed for two months the sale of 500 billion rupiah worth of bonds initially scheduled for end-June due to the high interest rates demanded by the market. Finance Director Kevin Wong said investors have requested a coupon rate of more than 13%.

Titan Oil is expected to sell $50 million of convertible notes that can be traded for Titan Petrochemical shares at HKD 0.88 ($0.11) each, a 15% premium to Tuesday’s closing price. Titan Oil owns 56.5% of the tanker division, which consists of 34 vessesl, including 12 VLCCs and two chartered aframaxes. However, this percentage could be reduced to 47.4% if bondholders exercise their option to change to equity. This offering follows on the plans Titan announced in March to issue $400 million in bonds to finance expansion and repay debt.

Sources indicate that in mid-June Ocean Rig closed a $430 million bank loan with DnB NOR. The credit facility has a 6-year term and is priced at LIBOR plus a variable margin between 1.10% and 1.85%. The credit facilities have semi annual installments and final maturity after six years.

Freshly Minted also understands that Ocean Rig priced a $150 million bond issue on June 23. The coupon on the bond, which is a lifetime 144A, is fixed at 8.375% and maturity is July 1, 2013. The deal was rated B, and we think the pricing was outstanding. Although most shipping companies have been focused on using the equity markets at this point in the cycle, this shows that the high yield market remains open for the right projects. Ocean Rig has an optional redemption right from July 1, 2009 at 104.188%, from July 1, 2010 at 102.094% and from July 1, 2011 at 100%. Until July 1, 2008, Ocean Rig may redeem up to 35% of the bonds issued through an equity claw back at 108.375%. Morgan Stanley acted as bookrunner with DnB NOR Markets as co-manager. Trading of the bonds commenced the day they were priced.

The blended cost for the bank loans and the bond issue is about 6%, which over the next 12 months is expected to result in approximately $18 million in reduced interest costs based on the financing arrangements being replaced.

Newly public TBS International announced late last week that the company has entered into a $25 million credit facility with the Bank of America and immediately drew down $7.8 million secured by a mortgage on the Chesapeake Belle. TBS said that advances drawn down under the credit facility will be used for working capital and to fund the purchase of additional vessels. The five year deal has heavy amortization of 50% during the first 2 years, 40% over the subsequent 2 years and the final 10% during the final year.  TBS said in the a filing with the SEC that it will have the option of paying interest at Adjusted LIBOR plus 2.75% or 1.25% over a Base Rate.

Last week, DnB Nor Markets, Enskilda and Fearnley Fonds executed a rather challenging deal very smoothing. The transaction resulted in a $125 million private placement for Aker American Shipping ASA (AKAS).  Sources in Oslo tell us the deal was priced at the high point of the range and was 5x oversubscribed.  It is important to point out the equity execution development that was seen in Oslo, which demonstrates that Norwegian bankers have developed a clever way to control deal risk in today’s choppy market. As we saw with the recent B+H placement, issuers are now hiring underwriters to sell shares on a private placement basis, with the agreement that these shares will later acquire a public listing.

Profits generated by the AKAS offering will be used to fund the construction and ownership of 10 U.S. flag product tankers, which will be delivered at the Kvaerner Philadelphia Shipyard from 2006 to 2010 and bareboat chartered to OSG. In addition to the offering, Aker will be listed on the Oslo Stock Exchange next week. Our calculations tell us that AKAS sold roughly 45% of its shares in the recent equity offering for $125 million.

There are two aspects of the AKAS deal that got investors excited.  First, investors in AKAS will also own the Kvaerner Philadelphia Shipyard, which is positioning itself as the most efficient builder of vessels to replacing the aging U.S. Jones Act Fleet.  Second, Norwegian and international investors and OSG are excited about the “simple math” involved in the supply and demand outlook for U.S. flag product tankers.

According to the structure of the deal, AKAS will bareboat the ships to OSG, who will then timecharter them to an OSG subsidiary called OSG PT, which was formed for the purpose of the transaction and will then time charter them to U.S. oil majors. Under the terms of the bareboat, OSG will take the first five vessels for seven years and the next five vessels for five years. Also, OSG negotiated an unlimited number of charter extension options of three or five years plus one year.

While the exact details of the deal have not been revealed, market sources say AKAS is planning to deliver the vessels at an average of $86.4 million. AKAS will initially fund the equity portion of the deal with funds raised through the recent offering and later with free operating cashflow once the vessels have been delivered and can be financed. As for the economic aspect, we understand that OSG will take the vessels from AKAS on bareboat charter rates in the mid $20,000 range.

There are definite risks that this deal carries for everyone involved.  For OSG, the risk takes the form of the time charters. From a return on equity standpoint, however, OSG has little to lose.  They have no money in the deal, so any money OSG makes will essentially equate to an enormous return on investment. For shareholders in AKAS, the major risk comes earlier than for OSG. It is absolutely critical that the Kvaerner Philadelphia Shipyard deliver these vessels on time and on budget, which shipyards in the U.S. are not known to do.  If AKAS cannot produce the ships at or under budget there will be little or no return to the shareholders.  While OSG will pay a floor rate that will keep the deal current with its lenders, the upside from this equity will be limited by charter rates and what new business the shipyard is able to generate.  For both AKAS and DnB, there is the outstanding value exposure to the shareholders of AKAS.  Each vessel will produce $7.3 million EBITDA, ($20,000 bareboat per day for 365 days), meaning that vessels are valued at 11.7x initial EBITDA.

In sum, we feel this was a well-done deal.  While of course there are still risks involved, close management of the construction process and smart commercial management will ensure success for all parties involved. And afterall, doing good shipping deals always require the assumption of risk.

FM understands that Genco executives made their presentation to the sales force at Joint Bookrunner Morgan Stanley today in preparation for the start of their roadshow on Monday.

The firm is certainly in the middle of the action these days. Morgan Stanley is also a Joint Bookrunner with Citigroup on the Quintana deal, which is currently on the road, with the New York investor launch and pricing expected next Thursday. However, since Jefferies is the lead manager of the Genco deal, the sales force at Morgan Stanley will not be playing as central a role in that deal as they are in the Quintana deal.

In the light of the fact that at least 3 IPOs (Quintana, Genco and Wexford/Cavan) will be coming to market before the equity community goes on holiday in August, and another 5 have been completed recently, we thought it would be interesting to take a look at the valuations of these deals at the time of issue to see what, if anything, we could conclude about valuation trends and investor preferences.

As you can see from the deals in Figure 1, which are presented in reverse chronological order, it is very difficult to compare shipping deals to each other in a true “apples to apples” way. Some fleets are focused on a certain sector while others are diversified, some are new while others are older, some are exposed to the spot market while others have term time charter coverage, some companies charter-in tonnage while others prefer to own their ships – some pay hefty dividends while others conserve their capital for further growth and fleet replacement.

At the risk of being overly simplistic, if companies want to have any chance of pricing their deal at a high premium to net asset value, then they have to demand that value from investors. What we have seen in recent deals is that investors are now in discount mode and will likely put in limit orders at 10% or more off the bottom end of the price range. Although this led to a disastrous result for Capital Shipping last week, which had set its initial range at a reasonable level, it did not have a major impact on Eagle, which set its initial range very high. And the winner in this category is DryShips. In looking at why this company was able to achieve nearly 2x all-time high net asset values, it is clear that momentum played a role. In the world of IPOs, in which many investors buy deals simply to flip them for a quick profit, buyers do not care if they overpay so long as someone else will over pay more once the deal starts trading. The same was true of Arlington, which priced at 120% of net asset value, but did so with under the market charters, which would have effectively reduced their cash flow generation power.

In looking at this metric, it is clear that two of the highest valuations, Aries and Arlington, went to the companies with the longest term employment of their vessels. Diana, boasting the highest cash flow valuation, also had what would qualify at the time as long-term contract cover, though as the market has come down this approach has come more into vogue. The lowest valuation, on the other hand, went to TBS and DryShips, which do not place any emphasis on long-term contracts. Another factor here is that this latter pair of companies also has the oldest vessels which also trade at the lowest multiples to cash flow because of the diminished productive life of their assets.

And, finally, with respect to dividends, it is unclear whether investors are really paying up for them when those dividends are not backed up by long-term underlying contracts. What is clear, however, is that when it comes to IPOs investors like to buy into markets that have positive momentum and the chance for a quick profit.

Last week, DnB Nor Markets, Enskilda and Fearnley Fonds executed a rather challenging deal very smoothing. The transaction resulted in a $125 million private placement for Aker American Shipping ASA (AKAS).  Sources in Oslo tell us the deal was priced at the high point of the range and was 5x oversubscribed.  It is important to point out the equity execution development that was seen in Oslo, which demonstrates that Norwegian bankers have developed a clever way to control deal risk in today’s choppy market. As we saw with the recent B+H placement, issuers are now hiring underwriters to sell shares on a private placement basis, with the agreement that these shares will later acquire a public listing.

Profits generated by the AKAS offering will be used to fund the construction and ownership of 10 U.S. flag product tankers, which will be delivered at the Kvaerner Philadelphia Shipyard from 2006 to 2010 and bareboat chartered to OSG. In addition to the offering, Aker will be listed on the Oslo Stock Exchange next week. Our calculations tell us that AKAS sold roughly 45% of its shares in the recent equity offering for $125 million.

There are two aspects of the AKAS deal that got investors excited.  First, investors in AKAS will also own the Kvaerner Philadelphia Shipyard, which is positioning itself as the most efficient builder of vessels to replacing the aging U.S. Jones Act Fleet.  Second, Norwegian and international investors and OSG are excited about the “simple math” involved in the supply and demand outlook for U.S. flag product tankers.

According to the structure of the deal, AKAS will bareboat the ships to OSG, who will then timecharter them to an OSG subsidiary called OSG PT, which was formed for the purpose of the transaction and will then time charter them to U.S. oil majors. Under the terms of the bareboat, OSG will take the first five vessels for seven years and the next five vessels for five years. Also, OSG negotiated an unlimited number of charter extension options of three or five years plus one year.

While the exact details of the deal have not been revealed, market sources say AKAS is planning to deliver the vessels at an average of $86.4 million. AKAS will initially fund the equity portion of the deal with funds raised through the recent offering and later with free operating cashflow once the vessels have been delivered and can be financed. As for the economic aspect, we understand that OSG will take the vessels from AKAS on bareboat charter rates in the mid $20,000 range.

There are definite risks that this deal carries for everyone involved.  For OSG, the risk takes the form of the time charters. From a return on equity standpoint, however, OSG has little to lose.  They have no money in the deal, so any money OSG makes will essentially equate to an enormous return on investment. For shareholders in AKAS, the major risk comes earlier than for OSG. It is absolutely critical that the Kvaerner Philadelphia Shipyard deliver these vessels on time and on budget, which shipyards in the U.S. are not known to do.  If AKAS cannot produce the ships at or under budget there will be little or no return to the shareholders.  While OSG will pay a floor rate that will keep the deal current with its lenders, the upside from this equity will be limited by charter rates and what new business the shipyard is able to generate.  For both AKAS and DnB, there is the outstanding value exposure to the shareholders of AKAS.  Each vessel will produce $7.3 million EBITDA, ($20,000 bareboat per day for 365 days), meaning that vessels are valued at 11.7x initial EBITDA.

In sum, we feel this was a well-done deal.  While of course there are still risks involved, close management of the construction process and smart commercial management will ensure success for all parties involved. And afterall, doing good shipping deals always require the assumption of risk.