While on the Topic of Restructuring….

Normally, in these difficult times, sale-leaseback transactions would be plentiful. However, lacking leverage and a continuing gap between sellers and buyers’ expectations, buyers remain on the sidelines. We would hypothesize a minimum 15% cash-on-cash return is required by investors for an all-equity deal, but, with leverage, the number is more likely 25%, if not higher. To bridge this value gap and get the deal done, a very willing seller might want to consider seller’s credit. The seller’s credit would be subordinated to the bank debt and hence, would have no impact on the leverage ratios, the LTV improves, with the asset and related debt disappearing, and there may even be cash coming back.

Finally, based simply upon logic, a cost benefit analysis should tilt in favor of junk bonds these days. As we watch the parade of restructurings, we see that many facilities begin to reduce or amortize beginning in 2010 and future availability is unknown. Moreover, there seems to be some high yield issuance recently, albeit expensive, as well as interest on the part of individual investors. Should owners take this opportunity to access this market today to pay down less expensive bank debt and gain the flexibility of no amortization and few if any covenants?

OMG, There Is Actually New Business to Report

While not exactly ship finance, the newly committed Aegean Marine Petroleum Network $300 million dollar senior secured revolving and letter of credit facility does deal with one of the more pressing issues these days, trade credit. The new two-year facility was underwritten by HSH Nordbank and The Royal Bank of Scotland.

Under the terms of the commitment, the facility will bear interest at LIBOR plus a margin of 0.50% for documentary letters of credit, 1.50% for standby letters of credit and guarantee, and 2.50% for direct borrowings. The facility also has an accordion feature by which Aegean can increase the availability subject to lender commitments. Upon closing of the new facility, Aegean will have a total of $320 million in senior secured revolving credit facilities.
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The Accountants Have Not Left the Building

Today, Camillo Eitzen & Co. issued a profit warning due to lower than expected earnings from the gas segment combined with increased provisions against postponement of cargos under COAs and potential but unrealized losses on FFAs.

As a result of the weak market, the company has impairment tested the book value of the gas fleet resulting in a write down of $40.9 million. The lower market values have also resulted in the breach of two of six covenants of the Eitzen Gas loan. The minimum value covenant was restored through the payment of the regularly scheduled installment while the minimum adjusted capital ratio, related to Camillo Eitzen, remains in default and discussions with the banks have begun in an effort to obtain a waiver. As a result of the breach, the entire outstanding $158 million gas facility will be posted as short-term until a waiver has been obtained.
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Half Sized, But Still in Shipping

After reporting last week a preliminary consolidated net loss of EUR 2.8 billion before restructuring costs, taxes and loss participation, HSH Nordbank provided more details on its strategic realignment. In terms of today’s crucial numbers, the capital base is to be increased by EUR 3 billion with the bank to be shielded from further risks to the tune of EUR 10 billion.

“We are aware of our responsibilities. In particular, it is against the backdrop of the current macroeconomic setting that we, HSH Nordbank, are called upon more than ever to ensure lending to businesses and to key local industries. Our business purpose is clear: we are the top address for clients in our home region and for the shipping, transportation and renewable energies sectors,” said Dirk Jens Nonnenmacher, CEO of HSH Nordbank.
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Opportunity to Bolster the Balance Sheet While Providing an Exit

While simultaneously working with its bankers, Star Bulk was also preparing a shelf registration to issue $250 million in securities, which may include: common shares, preferred shares, debt securities, warrants, purchase contracts and units. In addition, the prospectus provides for a secondary offering by existing shareholders to sell up to 14.3 million shares and 1.1 million warrants that were previously acquired in private transactions. Unless specified otherwise in a prospectus supplement, the net proceeds from the sale of securities will be used for capital expenditures, repayment of debt, working capital, vessel acquisitions or general corporate purposes. The prospectus went effective on Tuesday.

Banks Take a Somewhat Harder Line

Up to now negotiations between the banks and the borrowers have been reasonably friendly with few demands made by the former other than with respect to pricing and some adjustments to amortization as the quid pro quo for the waivers required. Star Bulk Carriers was not as fortunate.

Last week, the company reached agreements in principle with its lenders to obtain waivers for certain covenants, including minimum asset coverage covenants, contained in its loan agreements. The related terms are described below:
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Postponing the Inevitable

Or so it appears to us in the case of U.S. Shipping Partners. We reported back in December, that the company and its bankers entered into a waiver and forbearance agreement based upon its failure to pay the December installment of principal and interest due under its senior credit facility. Provided there was no other default, the forbearance agreement and waivers were scheduled to terminate on February 10th. Last week, the company announced that the lenders had agreed to extend the waivers and the forbearance agreement through February 20th. At this juncture, the sale outcome seems less likely but one can hope.

Pure Greek

Sticking to its roots, Euroseas Ltd., on Monday, announced the continuation of its fleet renewal and expansion program. The company acquired the 1997 built Panamax bulkcarrier, M/V Glorious Wind, on a charter-free basis, for $18.4 million. In addition, Euroseas disclosed the simultaneous sale of the M/V Nikolaos P, a 34,780 DWT bulkcarrier built in 1984 for $2.4 million. The new Panamax will be employed in the spot market and according to Justin Yagerman of Wachovia Capital will be likely be funded from internally generated cash flow including, the sales proceeds. He further suggests that the company will obtain 50% financing at a later date.
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No Surprise Here Either

On Wednesday, the Excel sponsored SPAC, Oceanaut, announced that it would begin the process of dissolution as management has determined that it is unlikely that the company will consummate a business combination by the March 6th deadline specified in its charter.

Prior to the IPO, Excel had purchased in a private placement two million insider warrants at a price of $1 per warrant as well as 1.125 million insider units at a price of $8 per unit for a total consideration of $11 million.

Oceanaut estimates the liquidation price per share to be $8.27. No payments will be made with respect to outstanding warrants or to any of the company’s initial shareholders with respect to any shares owned by them prior to the IPO except for 625,000 shares of common stock included in the 1.125 million units purchased by Excel. As a result Excel expects to write-off $6 million of its investment.

Smart Buying AND Astute Selling

In late December of 2007 when the financial debacle had begun to unfold from a housing crisis to a credit crunch, Pacific Basin took the challenge and launched its convertible offering – the largest by an Asian shipping company ever and the second largest convertible offering by a Hong Kong issuer since the beginning of 2006. Raising USD 390 million with the overallotment exercised for 5 years at a fixed 3.3% on an unconditional and unsecured basis was truly remarkable especially in such tough market conditions.

Fast forward to a year later and the deteriorating global market conditions have created opportunities for Pacific Basin to retire the convertible bonds early at a very attractive price. Over a 4 day execution period between 14 October and 17 October 2008, the company was able to buy back convertible bonds worth USD 60 million at face value for USD 39.35 million or an average price of only 65.6%. This off-market buyback exercise immediately created USD 22 million of net present value for the company. At the time of publication, we noticed that Pacific Basin has bought back and cancelled USD 76.05 million convertible bonds, at around 20-35% discount, and we expect the management to continue to do so given its current strong balance sheet. All these transactions will save the company around USD 23.6 million at the time of redemption on the amount repurchased. Continue Reading