Plan B(LT)

Berlian Laju Tanker (“BLT”)’s acquisition of Camillo Eitzen & Co ASA (“CECO”) may have hit a speed bump when its initial transaction structure, which involved the issuance of mandatory exchangeable bonds (“MEBs”), was rejected by the Indonesian market regulator. But we understand that the company and its advisor RS Platou Markets remain resolute and are working hard on an alternative plan. Since then, a series of developments have occurred that added uncertainty to BLT’s quest for CECO and we hereby provide a summary of these developments in chronological order.

On 1 October 2009, Eitzen Chemical ASA (“ECHEM”) reached an agreement with most of its lenders (all syndicate loans and most bilateral loans) on the restructuring of its bank debt. However, this was conditional upon a new equity issue of a minimum USD 100 million by November. ECHEM was in dire need of capital injection. Continue Reading

A Wisp of Spring

While sitting home in the midst of a blizzard and with the knowledge that the omniscient Punxatawny Phil announced on Ground Hog Day that we still have 6 more weeks of winter, we know, nonetheless, that spring will inevitably come. Yesterday we attended the morning session of the Hellenic/Norwegian-American Chambers of Commerce 16th Annual Joint Shipping Conference and we felt similarly that the winter of ship finance may also break. While the tone wasn’t exactly upbeat, there certainly were no dirges being sung and it, in fact, appears by their comments that the bankers may be ready and able to return from their year plus long sabbatical. But as Nikolai Nachamkin of DnB and the conference co-chairman would remind me, I am getting off topic.
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The Tough but Correct Call

What do you do when you have just spent two weeks raising equity to fund the acquisition of a capesize bulk carrier and then watch the world change? This was the challenge faced by Seanergy, which did the right thing, which in this case was to terminate the MOA for the acquisition of the vessel, which decision was made somewhat easier by the fact that the deposit had not been placed.

The risk was straightforward. The vessel was purchased at a high price reflecting its above market charter and is clearly destined to move ore to China. Unfortunately, China announced last week, as the deal concluded, that it intended to moderate its stimulus plan by restricting Chinese banks’ lending activities. This had implications for infrastructure spending and consequently for ore demand, leading to both market and credit risk. On that basis, the board determined that it would be in the best interests of the company and its shareholders to terminate the agreement.

In line with its stated goal of the use of funds for fleet expansion, the company is scouring the market to identify other vessels that meet its criteria.

On Hiatus

No matter how good the story or how well prepared the company is the uncontrollable variable in a market offering is uncertain and volatile markets. Continuing their downward trend of the last couple of weeks, both the stock and credit markets reacted negatively last week to possible Fed tightening and the uncertainty in Europe.

With this as the backdrop, Songa Offshore SE was on the road launching its $200 million 7 year notes. Price talk for the notes was in the area of 10.25% or approximately LIBOR + 700 on a swap adjusted basis. The notes are unsecured and non-callable for 4 years. Moody’s and S&P rated the notes Caa1 and B+ respectively with a stable outlook.
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A Helping Hand

We thought Capital Products Partners’ solution to the upcoming off hire of two of its product carriers was also elegant. The two vessels, one 47,000 DWT built in 2007 and the other 37,000 DWT built in 2006, are coming off their charters with BP Shipping at rates of $20,500 and $19,750 respectively. Have perused the market, they found the best deal available was to charter the vessels to subsidiaries of its sponsor, Capital Maritime. Both vessels were fixed for 12 months at $12,750 and $12,000 per day gross. A 50-50 profit sharing for breaking IWL and the relatively short duration of the charters make this deal attractive for both. Capital Product Partners maintains its high utilization and generates cash flow with upside if the market turns. The sponsor group supports its affiliate while potentially earning profits from trading spot. Not a bad solution at all.

Price Sensitive

While not close followers of the cruise business, we followed the Regent Seven Seas Cruise $200 million senior secured note offering due in 2017, because of our interest in high yield. The notes were to be issued Seven Seas Cruises S. DE R.L. in a 144A offering. The notes would be guaranteed by the subsidiaries that own the company’s three cruise ships and the notes and the guarantees would be secured by a second priority lien on the same collateral securing the existing senior secured credit facilities, including 2nd priority mortgages on the ships.

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Why is Navios Moving from Norwalk to New York City?

The simple answer is that they were spending too much time in New York raising capital and the commutation costs were becoming excessive. In the latest iteration, Navios Maritime Partners announced on Tuesday a follow-on offering of 3.5 million common units. This is its first offering of this year and follows three such offerings done last year that raised approximately $135 million.
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More BLT

On Wednesday, Berlian Laju Tankers announced that it had successfully priced and privately placed a $100 million 12% guaranteed convertible bond issue due 2015. Based upon very strong investor demand, the underwriters utilized the $25 million upsize option. The capital was sourced worldwide: 32% Hong Kong, 22% U.S., 12% Indonesia, 12% UK, 11% Norway and 11% Singapore and other.

The terms including the coupon and conversion feature are very attractive to investors. The initial conversion price for the bonds is IDR 737 (with a fixed IDR/USD exchange rate of IDR 9,362/$1) and the conversion premium is 10% above the closing price of IDR 670 on February 2nd on the Indonesia Stock Exchange. There is a cap in the form of a call option which allows BLT to call the bonds after 3 years provided the share price is at least 130% of the strike price.
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The Market Speaks

Last Friday, Seanergy Maritime Holdings successfully closed its follow-on offering raising $25 million from the public and an additional $5 million from insider, Victor Restis. When the process began with the filing of the initial registration statement on January 11, the shares were trading at $2.81 necessitating a sale of approximately 8.8 million shares.

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Addition by Subtraction

In its financial report on the 4th quarter and year-end 2009, Navios Maritime Partners reported that it had amended its existing credit facility last month. Throughout 2009, the company met its amended covenants, while posting additional quarterly cash reserves. With three follow-on equity offerings, fleet additions and the avoidance of any writedowns, the company’s balance sheet was pristine and the company applied these cash reserves, totaling $12.5 million, to the pay down of its debt. This allowed the company to borrow an additional $24 million to refinance the acquisitions of the Apollon and Hyperion as well as the exercise of the option on the Sagittarius. But just as importantly, the company was able to revert back to the original covenants and interest rate margins, generating substantial savings in interest expense. While there is nothing terribly exciting in the news, it does illustrate one of the many reasons Navios is successful. It carefully manages every aspect of its business at a micro level.