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Kevin O’Hara has rejoined AMA after seven years in the banking sector with BNP Paribas, Fortis and DNB Bank. Kevin will bring to AMA a wealth of experience in the shipping and offshore banking sector and will focus on those relationships in his return to AMA. Kevin started his career in shipping finance in 1997 at The First National Bank of Maryland, where two of the AMA partners CEO Paul Leand and Jim Dolphin also started their careers.
Heading Uptown to the Safe Bulkers Investor Day
How could we forego the opportunity to hear one of the premier bulk ship owners who came to town to talk about the market? On Tuesday, Safe Bulkers held an investor and analyst day in New York for a sizeable and very interested audience. Polys Hajioannou spoke about the company, its strengths and strategy as well as their view of the market.
While the market is at historic lows, the company takes comfort in the slippage of newbuilding deliveries, currently around 35%, a lack of bank finance, the age profile of the fleet, with nearly 25% over 20 years of age and expected record-breaking levels of scrapping. The only good thing about the poor market in their view is that it, together with scrap prices of $480-500/ldt, will encourage more scrapping. In fact, the company suggested that the industry might scrap 40 million DWT, or nearly twice the record scrap level of last year.
Outtakes from Hellenic/Norwegian 18th Annual Joint Shipping Conference
From our too short stopover at the Hellenic Norwegian conference, we extracted the following thoughtful bits as being of interest to us. First, we thought Commodore Research’s Jeffrey Landsberg’s decision to look at supply and demand in terms of numbers of ships rather than millions of DWT made the data more accessible and to us meaningful.
AMA’s Paul Leand’s highlighted the following principles of restructuring:
- Hope is not a strategy
- Take control or lose it
- Understanding and creating options is critical
- Get good advice
The End Becomes a New Beginning Again – TBS Files
Last week TBS International, with the support of its lenders, filed a pre-packaged Chapter 11 plan of reorganization and has obtained most importantly DIP financing of $42.8 million from its existing lenders, Bank of America, DVB Bank, Toronto Dominion Bank and Credit Suisse. Under the plan the company will restructure its secured debt and pay in full the allowed claims of unsecured creditors. The plan is expected to be approved within 60 days. Under the terms of the agreement, all of the company’s operating subsidiaries will be transferred to a new entity that will be principally owned by the lenders, effectively wiping out the existing equity.
What Do They Know? – Teekay Tankers Follow-on
Back in the US, Teekay Tankers on Tuesday announced the sale of 15 million shares in a follow-on offering including a green shoe of 2.25 million shares. The timing was curious. The shipping markets are appalling although the dry market has overtaken the wet side on the downside. Also just prior to that announcement the company announced its Q4 2011 dividend of $0.11/share. Michael Webber of Wells Fargo noted that this was “… below our estimate of $0.12/share and Consensus of $0.17/share… We believe actual street expectations were closer to our estimate (in roughly the $0.12-$0.13/share range), with sentiment around the dividend miss likely more muted than otherwise implied by the Consensus number.” As the level of dividend TNK pays is variable and is based on the rates achieved by its vessels in the quarter, the amount was foreshadowed by TNK’s Q4 dividend guidance for spot rates of $10,000/day each for Suezmaxes and Aframaxes. So while the latter should not be considered a surprise, it nonetheless was not good news heading into a sale.
Norwegian Car Carriers Piggybacks on Prior Issue
Buried in the flood of Norwegian bonds issuance last week, we missed Norwegian Car Carriers utilization of the tap feature in its 5-year NOK 200 million 10.5% senior unsecured open bond issue concluded in September 2010. A tap issue allows borrowers to sell bonds, generally smaller amounts, from past issues. Issued at their original face value, maturity and coupon rate, the bonds are sold at the current market price. This allows the issuer to bypass many of the initial formalities of a bond issuance while avoiding certain transaction and legal costs. In this instance, the company issued NOK 25 million increasing the bond issue to NOK 225 million. The bonds were sold at 95.00% to yield 11.05% in line with the recent indicative price of 95.50%. Proceeds will be used to increase the cash position of the company. RS Platou Markets acted as the manager for the issue.
SinOceanic on the Road
At the beginning of last week, SinOceanic Shipping ASA began marketing its new senior secured bond offering. The bonds were to be issued by Sin Oceanic II AS and SinOceanic III AS, the single purpose ship owners and guaranteed by parent SinOceanic Shipping in order to provide a ring-fenced structure. The company intended to sell $200 to $220 million of 3-year 10% bonds at par. Proceeds, split 50-50, will be used to finance pre- and post-delivery payments owed to the shipyard for the construction of the MSC Altair and MSC Regulus, two newbuild 13,100 TEU containerships scheduled for delivery in February and April. The total amount represents an advance rate of 65-70% of the vessels’ acquisition price of ~$154 million. Equity of approximately $50-$60 million consists largely of subordinated loans from HNA Group Co. Ltd, the parent company, while they wait for the equity markets to reopen. These 2nd mortgage loans have a tenor of three years and are interest only. The interest rate steps-up increasing from LIBOR + 8% in year one to LIBOR + 10% thereafter. To date, HNA has invested $120 million into the business and has a 33% interest.
Ahead of the Curve – 1=2
Mr. John Fredriksen always seems to be a step ahead. Today, Seadrill Limited announced that Mr. Esa Ikaheimonen, its CFO, will be leaving the company to pursue other opportunities. While we wish him good luck, Mr. Ikaheimonen should take comfort in the fact that two people are now needed to replace him. We believe Mr. Fredriksen is making the right decision to formally separate the finance role into two positions – a CFO and CAO (Chief Accounting Officer). While this split likely exists informally in many organizations, the recognition of the role of CAO is long overdue in this era of Sarbanes Oxley. The split also recognizes that the investor relations role has become all-consuming these days.
Genmar – Prenegotiated Deal Filed, Prospects for Quick In and Out of Court Hoped
If you have to restructure and use Chapter XI, take a page from Genmar, where a pre-negotiated restructuring proposal has been filed. The effort would seem to have been put together with maximum chance for all parties from banks, to trade creditors and the bondholders to approve the deal and the company to go into and then come out of the court with speed giving it a better than fighting chance to be a successful commercial company – assuming a modest recovery in the tanker markets – again. The deal which had to be filed by January 31 in order to meet the unsecured creditors’ committee deadline does not mean the unsecured Bond Holders agree 100%. But, there are some small considerations worth keeping in mind: they have a strong sponsor in Oaktree, one that knows this restructuring and Chapter XI business better than most. The management has worked diligently to keep the trust of the banks and commercial creditors, and we mean they have worked long and hard, and the banks and creditors have responded with clarity and patience. The advisors and attorneys are professionals, which have kept expensive posturing on the back burner and execution up front. And finally a word again about management, the team has been a value creator for many and for many years and it is important to remember that not everyone is a job creator. Is this the final form? Even if it is not, if Fredrickson’s restructuring is the model for speed and efficiency, this is not far behind.
Costamare Files Shelf
On Monday, Costamare Inc. filed a shelf registration on Form F-3, which covers only new issuances by the company and not secondary issues by the principals who have no current intention to sell. When effective, the company will be able to offer up to $300 million of its securities including common stock, preferred stock, debt securities, warrants, rights and units. Proceeds of any offerings will be used for general corporate purposes which may include among other things: future vessel acquisitions, additions to working capital and the repayment of indebtedness. As they say, “dry powder.”
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