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Yang Ming, FSL, Maersk & HCI in Half Billion of Lease Deals
The I.M. Skaugen deal was interesting, but not the only recent sale leaseback deal. First Ship Lease last week announced that it had purchased three 4250 TEU containership newbuildings from Yang Ming for $210 million en bloc with a 12 year bareboat back at a fixed rate market reports pin at $18,500 per day. The lease agreements contain purchase options for Yang Ming at undisclosed values at upon expiration of the leases.
I.M. Skaugen & Teekay LNG Partner in $90 million Lease Deal
The market moves, liquidity returns, but things have changed. Forty two percent of bankers who responded to our annual survey last month believe that a reasonable advance rate for a charterfree newbuilding is under 60%. Another 46% believe the rate should be under 70%. This leaves most owners without an attractive and high quality charter left to come up with 30-50% of newbuilding costs in equity. Taking into account how high ship values have gotten, that means even strong owners with significant newbuilding programs need to think creatively about how best to raise the equity they need if they don’t wish to resell their newbuilding contracts.
The Week in Review
The week has been relatively quiet from a transaction standpoint, but sentiment by and large is upbeat. The shipping markets as a whole continue to perform above expectations, and the credit and equity markets functioning smoothly, if not lavishly.
For example, Caterpillar Financial Services this week entered into an agreement to increase Aker Philadelphia Shipyard’s credit line by $150 million. Under the agreement, Caterpillar will fund up to $80 million in construction costs for seven consecutive product tankers, valuing the full agreement at $560 million. Interest payments will be required only during the construction period, and Aker may apply the funding to up to three ships simultaneously. The deal takes care of financing for the remainder of the 12 Jones Act tankers under construction at the yard, which are to be sold to Aker American Shipping for bareboat charter to OSG America. Four these tankers have been delivered, three are currently under construction, and the remainder are to be completed by 2011. Continue Reading
Surveying the Credit Markets
Marine Money has concluded the collection of data for its 2008 shipping banker survey and would like to sincerely thank all who have participated. We are currently concluding work on our annual shipping portfolio league table and would like to thank the following banks for their cooperation and contribution to the development of a transparent and well-informed ship finance industry: Bank of Ireland, Bank of Scotland, Bremer Landesbank, Calyon, Commerzbank, Danish Ship Finance, Danske Bank, Deutsche Bank, Deutsche Schiffsbank, DnB NOR, Dresdner Bank, DVB, Helaba, HSH Nordbank, HVB, JP Morgan, KfW, Lloyds TSB, Natixis, Nordea and RBS. If you don’t see your bank’s name on the list, think it belongs there, and haven’t been in touch with us this weekend, please send an email to nhuvane@marinemoney.com ASAP to ensure you are included. Both survey and portfolio data will be released in the upcoming May issue of Marine Money.
BUY! BUY! BUY! Results to Please Just About Anyone
It’s been earnings season the past two weeks and if there were ever a question about whether shipping could avoid a hit due to the sub- prime crisis, well, this should answer it.
For fun, here are a few analyst comments on recent returns… From Dahlman Rose:
Dahlman/Eagle Bulk Shipping – 1Q Operating Results Stronger Than Expected; In Solid Position to Re-Charter Vessels as Rates Continue Pushing Higher
We believe Eagle’s aggressive approach to re-chartering its vessels will payoff as the market has exceeded our expectations. During the past few weeks we have seen several long-term time fixtures as charterers look to secure vessels in the face of a rising market. We maintain our Buy rating and $33/share target, based on a 10% 2009 CF yield, ahead of the earnings call this morning.
Eagle’s share price jumped more than 10% following their conference call!
Clearing the Air
An astute independent observer of the Jones Act took us to task for our implication that the plaintiffs may have intentionally waited to adjudicate the case in order to cause economic harm.
In fact, the Coast Guard’s preliminary rebuild determinations are by their nature preliminary and cannot be relied on as final determinations. Competitors cannot challenge those determinations until the work is completed in the foreign yard. Therefore, the parties would not have been free to challenge the Seabulk rebuildings in 2005 when the preliminary rebuild determinations were made, but were required to wait until after May 2007 when the work was completed on the vessel and the Coast Guard actually issued its new certificate of documentation to compete in the U.S. coastwise trades. Seabulk therefore assumed the risk that the Coast Guard decision could be changed or overturned.
We apologize and stand corrected. Nevertheless we remain consistent in our view that the process, as it exists today, is flawed.
Whose LIBOR?
Two weeks ago, the Wall Street Journal published an article entitled “LIBOR Hits U.S. Borrowers” by Carrick Mollenkamp and Mark Whitehouse. In the article the authors identified the problem that “…payments on trillions of dollars in U.S. corporate and mortgage loans are set according to dollar LIBOR, but only 3 of the 16 banks that contribute their borrowing costs to calculate the rate are based in the U.S. That means the financial difficulties of European banks are having an outsized effect on U.S. borrowing costs, and could complicate the Federal Reserve’s efforts to bring those borrowing costs down.”
Marine Money Conferences Span the Globe
One of our central beliefs is that every nation has a maritime industry, some are larger than others, but the fact is the movement of goods by water either internationally or coastwise is fundamental to economic growth. The other central belief is that ships, like any big- ticket wasting asset, will always need competitive capital sources. So we take enormous pride in bringing these two powerful forces, capital and shipping, together, around the world.
Onward and Upward
There has been a great deal of consolidation and some unit closure and lay-offs among shipping friends in the past year, so it’s encouraging to know that there is new hiring and promoting going on as well. Moreover, two thirds of the bankers who took our annual survey anticipate hiring new employees in the coming year.
BW Gas Votes on Taxes
Last week, BW Gas responded to the tax authority. First, the company removed a major burden by refinancing the existing $1.5 billion credit facility with a new five year unsecured revolving credit facility from BW Group Limited, the holding company of its main shareholder. The immediate effect of the refinancing will be the removal of the waivers granted on the equity covenants in the existing loan agreement, which had been granted by external lenders following the reduction in the company’s equity as a consequence of the Norwegian government’s decision to retroactively tax shipping companies. The company starts off fresh with a friendly lender with terms and conditions that are competitive with those offered by third party lenders. Continue Reading
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