Rickmers Maritime in Focus

On Monday, Rickmers Maritime announced a 67% year-over-year increase in net profit, largely due to an enlarged fleet in 2008. In the hour long analyst conference call, questions asked centered on the following three issues:

1) Potential loan-to-market value covenant breach in existing loan facilities

Management pointed out that the current loan to value (LTV) ratio is within range based on valuations conducted last December, but at the same time cautioned that continuing decline in ship values may impact LTV covenants under the current terms of loan facilities. Many analysts in Singapore have expressed concerns that the plunging asset valuations could lead to technical defaults among the shipping trusts (with the exception of Pacific Shipping Trust) and this could be one reason for the lackluster share performance of the trusts. While banks have the right to request revaluations at any time and any breaches in covenants could lead to a re-pricing of debt, we believe lenders are not likely to call in the loans as long as the shipping trusts continue to remain financially sound with strong cash flows. Rickmers Maritime has cash flow visibility until 2020 with about USD 2 billion in committed charter revenue and so far none of the charterers have approached the shipping trust for charter rate renegotiations or early vessel delivery.    Continue Reading

Nepline Ships Seized

Bank Pembangunan Malaysia (“Bank Pembangunan”) has appointed a receiver over three oil tankers of Nepline Group after the Malaysian shipowner failed to make payment on three debt facilities amounting to RM 44.8 million (USD 12.4 million). The receiver has seized control of a 1986-built, 2,751 dwt product tanker MT Damanara, the 1995-built, 6,902 dwt MT Nepline Mas and a 7,000 dwt product tanker newbuilding constructed at Zhejiang Shenzhou Shipbuilding which represent over half of Nepline’s fleet.  

Following a demand letter on the outstanding payments last September, the bank was unable to agree on the loan structuring proposal put forward by the shipowner which subsequently led to the termination of the credit facilities on 30 December 2008. Continue Reading

Helping Hands

Over the past three months, we have seen policymakers around the globe introducing massive economic stimulus packages, most notably from the United States and China in response to the rapidly deteriorating global economic outlook and tightening credit conditions. Some market watchers have criticised policymakers and regulators for taking a more reactive stance rather than being proactive and preventive and have argued that the timing of policy initiatives is as important as the measures themselves. Without the support of coherent and decisive policy initiatives, even companies with sound business models are facing cash drainage in today’s extremely challenging macro environment as economic activities plunge beyond any reasonable expectations.

As President Obama takes power, he is clearly aware of the urgency to put his recovery plan in place to break free from the “vicious cycle” where rising unemployment leads to reduced consumer spending and in turn more lay-offs. We remain hopeful that the recently approved USD 786 billion dollar stimulus package will be able to jolt the US economy back to life through hefty infrastructure investment and tax cuts. Echoing the words of President Obama, there is no perfect plan, but a failure to act decisively will only deepen this crisis. Continue Reading

Half a Cookie

On Monday, Excel Maritime Carriers announced that two charterers with long-term charters on three vessels have unilaterally started to pay approximately 50% of the agreed charter rate. Should the company continue to receive the reduced hire, the loss of hire throughout the terms of the charters is estimated to be $107 million, of which $32 million would impact 2009 cash flows and another $35 million would affect 2010 cash flows. In addition, the company has been approached by other charterers seeking to renegotiate charter rates. At the present time, the company is evaluating its alternatives with respect to these defaults.
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Hellenic Norwegian Confab

For the fifteenth year, the Hellenic-American and Norwegian-American Chambers of Commerce presented their Annual Joint Shipping Conference posing the question of  “How Will Shipping Survive the Perfect Storm?” Whether the question was answered or not, attendees were able to garner lots of insights into what happened and what may happen in the future. Once again, the following will highlight what we found of particular interest.

Arlie Sterling of Marsoft provided insights into “what happened” and “what might happen.” The industry did well based upon an explosion in trade and demand and yard capacity limits. The chart below lays out the extraordinary growth.
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Waivers And More Waivers

Not unsurprisingly, the difficulties in the marketplace are becoming more evident as the number of waivers of covenants increases in the public sphere. However, we understand that it is on the private, or dark side if you will, where the heavy lifting, at least in terms of restructuring, is taking place. The appropriate analogy might be the bare-knuckle storm below the calm sea of the public genteel discussions. Nevertheless, these exercises may be nothing more than band-aids should the market not improve. We certainly understand the cautious approach taken with respect to the public companies given the ramifications. The question remains as to what impact the private discussions might have on the public. We watch and wait as the parties stake out their positions.
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Prescient Pricing

For years, while working at GE Capital, we were burdened by pricing parameters that required spreads of 300 to 400 bps over LIBOR. This reflected our view of the perceived risk as well as our costs based upon markedly lower leverage than the banks. We now understand that the banks have now caught up and spreads are approaching these levels. Of course the sad part is that GE has thrown in the towel on the transportation business ending an involvement that began over 30 years ago.

Goldenport Freebie

This week Goldenport announced that it had reached an agreement with COSCO (Zhousan) Shipyard to re-schedule the delivery dates of four newbuild 57,000 DWT bulkcarriers at no additional cost.

The new delivery dates for these four vessels will now take place between four and eighteen months after their originally agreed dates in late 2009. Financing remains in place as does the existing charters that will commence upon delivery.

This was a great deal for both the owner and charterer. Goldenport gets to optimize its cash flow during this deferral period and the charterer takes delivery later when hopefully charter conditions have improved. Cooperation works wonders.

One Down, Many to Go

DryShips announced on Tuesday that it had entered into an agreement in principle with Piraeus Bank to restructure its two loan facilities in the original aggregate amount of $220.0 million with a current outstanding of $164.9 million.

Attributing the restructure to the failure of certain buyers to conclude the agreed purchase of three vessels, the bank and the company agreed to a waiver of financial covenants, including LTV, through January 1, 2011. The terms have also been modified to provide for an increased margin, a re-scheduling of amortization that will reduce principal payments by approximately 47% and 21% respectively in 2009 and 2010, the benefit of which will be offset by a shorter tenor.

The agreement is subject to approval by the Piraeus Bank’s credit committee and definitive documentation, which will provide for a substantial reduction of the loan, should the three vessels be sold.

Poor Uncle Needs Cash. What’s a Good Nephew to Do?

Our thanks to Oppenheimer’s Scott Burk for highlighting OceanFreight’s plan to issue up to $147.9 million of common shares as part of an Standby Equity Purchase Agreement with YA Global Master SPV (“YA Global”) arranged by DVB Capital Markets.

The transaction would be extremely dilutive to shareholders. If all $147.9 million of shares were sold at $3.83, the last reported price prior to the announcement, the company would have approximately 57.2 million shares outstanding which represents an increase of 208% in issued and outstanding shares.
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