Hard Numbers

Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:

Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.

Continue Reading

Another (Deep?) Pocket of Liquidity

Using DnB Nor’s Kristin Holth’s analogy, we discovered another pocket of liquidity with more than spare change. Seabury Group is one of the largest independent investment banks dedicated to the transportation industry with offices in the U.S., Europe and the Far East. Initially, focused on the airline business, Seabury has expanded its footprint to include marine, trucking and logistics.

Continue Reading

A Bargain?

The following sales of dry bulk vessels were reported last week in Cleaves Shipbroking’s S&P Market Report:

“ARETHOUSA DWT 171,779, BLT 9/1999 AT HYUNDAI HEAVY ULSAN, SOUTH KOREA, M/E B&W HYUNDAI HEAVY SOLD FOR USD 90 MILL (AFTER BEING RENEGOTIATED FROM USD 133 MILL).

PILION DWT 48,218, BLT 9/1994 AT SHENAVEH, DENMARK, 4 X 25T CRANES, M/E B&W MITSUI TAMANO, B&W SOLD FOR USD 33 MILL (AFTER BEING RENEGOTIATED FROM USD 51.5 MILL).

OCEAN GLOBE DWT 43,246, BLT 8/1995 AT HYUNDAI HEAVY ULSAN, SOUTH KOREA, 4 X 25T CRANES, M/E B&W HYUNDAI HEAVY SOLD FOR USD37 MILL (AFTER BEING RENEGOTIATED FROM USD 53 MILL).”
Continue Reading

Going Out On a Limb

We have been reading the recent research reports by the sector’s analysts all of which are, as usual, excellent. There is insightful commentary about how we got here and prognoses on the future. Nevertheless, the multiple headwinds of a banking crisis, a commodity collapse, a recession, the collapse in demand from China and the newbuilding orderbook have combined to tank shipping shares. And, although almost all the analysts have put the proverbial “holds” on these shares, the general consensus is that the shares were oversold and therefore they now have higher price targets attached to them. This of course presumes that any investor interest remains in these shares. Or, as a friend recalled at our N.Y. conference, there is the possibility that investors have moved on never to be seen again as was the case in the aftermath of the dot com bubble. If this is true it would, on one hand, be a loss but in fact it would result in a reversion to the norm when ships were in private hands and banks provided all the capital that was necessary.
Continue Reading

Waiver And Fourth Amendment to Third Amended and Restated Credit Agreement Otherwise Known as the End of the Line

Reading the press release from U.S. Shipping Partners (“USS”) announcing an amendment to the credit agreement, we came away with the impression of a simple waiver and amendment to get the company through the next year, although it does contain a caveat that the summary “does not purport to be complete and is subject to and qualified in its entirety by reference to the waiver and fourth amendment filed herewith,” which you are urged to read in its entirety. We did and were surprised.
Continue Reading

A Perfect Storm

As the BDI dropped below 1,000 for the first time in 6 years on Tuesday, the shares of Britannia Bulk also collapsed with the news of both operational and financial difficulties. Caught in the unexpected downdraft of a market collapse at warp speed, Britannia’s flexible chartering-in strategy could not be unwound in time creating huge losses. As of June 30th, the number of chartered-in vessels was 59 and, according to the news release, the company increased its chartered-in capacity during the 3rd quarter. It was during this same period that demand for dry bulk capacity decreased significantly with a commensurate decline in charter rates. Consequently, the rates achieved during the quarter were far less than those paid to secure the vessels, creating a negative spread. As worrisome as the chartered-in position is, this was a non-controllable event.
Continue Reading

Persistent Devil – Liberty Maritime Keeps the Heat On

We have previously marveled at Liberty Maritime’s aggressive move to acquire International Shipholdings Corporation (“ISH”) particularly in light of ISH’s lack of disclosure, management’s entrenched ownership position (~23% as of the March Proxy Statement) and finally their laissez faire approach to the entire matter. Together the situation must be incredibly frustrating to a man of action. But, if anything, Mr. Shapiro is persistent as evidenced by his continued share purchases. Even with his most recent purchases in the $15 to $19 range, his offer, which remains unchanged at $25.75, is at a 31% premium to Wednesday’s closing price of $19.69 per share. Since his disclosure on September 17th that he had acquired 5.2% of the outstanding shares, Mr. Shapiro’s subsequent purchases have increased his holdings to 9.1% of the outstanding amount as of October 27th. Thus far, the total investment is $12.7 million. And what makes us marvel even more is that he is seemingly buying into a void knowing officially no more about the company than the miserly disclosures in its publicly filed financials. In fact, in our view the SEC is complicit in this standoff by allowing filings that lack full disclosure, omitting such basic information as a list of vessels operated no less the ownership and chartering position of the fleet.
Continue Reading

What if….

Back in the 1980s, there was yet another conspiracy theory. This one presumed the Japanese, acting through the likes of Sanko Steamship, placed huge orders for new vessels creating an oversupply situation in order to lower freight rates because of their total dependence on imports.

Operating under the presumption that no one really knows what is going on in China. Could China also be acting in its own self-interest? No one seems to question China’s insatiable need for commodities to build-up its infrastructure. Surely, it did not stop with the Olympics. There are the earthquake ravaged areas as well as the requirements generated by the population shift to the cities. Given the magnitude of the requirement and the cost of raw materials at the commodity peak, they certainly are the prime beneficiaries of the collapse in commodity prices as well as freight rates.

There is no reason to believe this hypothesis has any more validity than the first. Nevertheless, there is no question that when China resumes work on its infrastructure it will cost a lot less.

We Have Seen the Future And It May Look Like This

Although not directly related to shipping, Norwegian Energy Company (“NORECO”) is an independent E&P company, which issued high yield bonds in the Norwegian market. NORECO recently agreed to the early redemption of 20% of the outstanding bonds at par value in exchange for the removal of the market adjusted equity ratio in the loan agreement.

The company’s liquidity position was strong with nearly NOK 1 billion in cash at the end of the 2nd quarter. However, as the Market Adjusted Equity Ratio covenant in the loan agreement has been negatively affected by the significant fall of the company’s share price, Noreco could have been forced to issue new equity, despite a strong liquidity position, in order to reach covenant compliance. The buyback was a very tidy solution for both parties.

Dividends Anyone?

With the recent collapse of both commodity prices and the BDI, share prices, particularly on the dry side, quickly followed suit. A decline in share price is never good news, but for the high paying dividend companies it was a double-edged sword. As yield and share price track inversely, the nominal dividends on these shares now equate to extraordinary yields. The whispered question on the street is whether the high dividend paying companies, given the poor market and lack of liquidity, will cut their dividends. Thus far two companies have answered this week with a resounding no. OceanFreight declared its 3rd quarter dividend at the current level. And demonstrating even greater confidence, Navios Maritime Partners increased its 3rd quarter dividend by 10% and announced that the 4th quarter dividend would also be increased by a further 4%.
Continue Reading