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Honor the Shareholder – Saga Tankers Unwinds
One of the last IPOs to get done, Saga Tankers ASA wrote its own obituary announcing in its 3rd quarter report its decision to submit a proposal to shareholders to dissolve the company and payout the residual shareholder value as a dividend. The company has sold all four of its vessels, two of which have been delivered to new owners with the third to be delivered this month. The last, M/T Saga Agnes, will deliver in July/August 2012, upon completion of the current time charter, subject to shareholder approval of the sale. Reflecting these sales all necessary impairment charges have been taken and the lenders repaid accordingly. Total outstanding debt, after delivery of the three vessels will be $21 million attributable to the Agnes, which loan will amortize by $1.2 million quarterly.
Norwegian Bond Market Reopens with a Rush
Mark the date – November 4th – on your calendar. After a hiatus, the oil service companies returned to the Norwegian bond market en masse or so it seemed. On Friday, Petroleum Geo-Services ASA announced a $300 million offering of 7-year notes. This was quickly followed by a $150 million offering of 5-year 2nd lien callable bonds by Chloe Marine Corporation. We then awoke on Monday to the announcement that Songa Offshore was in the market with a 5-year senior unsecured bond issue in the range of NOK 1,150 to 1,400 million. For this week’s issue, we will provide in-depth look at the project bond issued by Chloe Marine.
Deep Star Metro Ltd, a joint venture of Metro Exploration Holding Corp. (controlled by Theodore Angelopoulos’ Metrostar Group) and Odfjell Offshore Ltd. (a subsidiary of Odfjell Drilling) came to market this week to finance its second drillship, the Deepsea Metro II (“DSM II”), a Gusto P10000 6th generation UDW drillship owned by Chloe Marine and under construction at Hyundai with delivery scheduled for November 30th. The vessel has been chartered to Petrobras (rated A3/BBB-) for 3-years at a rate of approximately $438,000/day plus a bonus of up to 10% of day rate based upon efficiency. Metro Exploration was established by Metrostar to expand into the offshore energy sector through the building of two UDW drillships. Given Mr. Angelopoulos superb timing and track record we expect the assets will be sold to the larger operators contributing to Mr. Angelopoulos’ wealth.
CSI Vancouver – Dissecting the Seaspan and MSC Bareboat Charter
We do not believe that the recently announced five year bareboat charter by Seaspan Corporation of two of the former Maersk 4,800 TEU vessels to MSC Mediterranean Shipping Company (“MSC”) received the attention it warrants for the lessons it offers. On the surface, this financial transaction solves a number of key concerns associated with these non-core vessels by effectively removing them from Seaspan’s fleet by transferring both operating and residual risk to MSC. There was a price, as a loss was incurred ($8.9 million on the first two vessels), and to understand what went wrong and if this latest transaction salvages the overall experience, we will attempt a difficult post-mortem.
But in all things context is important. Bear in mind that this analysis focuses on four out of 69 on the water vessels or $160 million out of total assets of $63 billion. In short, this transaction must be considered in the context of Seaspan’s entire “investment” portfolio which requires careful management and a focus on overall results rather than piecemeal transactions.
Seaspan Has Been Busy – Fine Tuning the Balance Sheet
Seaspan Corporation’s third quarter report shows they have been busy on the financial front, having entered into a new loan facility, a lease, and bareboat charters on the oldest vessels in its fleet. The last is discussed in the following article. All three transactions de-lever its balance sheet through non-recourse transactions.
Back in September, a subsidiary of Seaspan entered into a non-recourse loan facility in an amount of up to $150 million with leading Chinese and Japanese banks to finance one of the 13,100 TEU newbuildings. Proceeds of the loan will re-finance $75 million in borrowings under one of the company’s revolving credit facilities, removing it as security under that loan. Upon delivery of the vessel and through an inter-company operating charter with the subsidiary, Seaspan will charter the vessel to COSCON under a 12-year fixed rate time charter.
Another Perspective on European Credit markets
We spoke with a banker on the subject of the credit markets who decried the world’s focus on French banks, in particular, and capital ratios generally. The market has been indiscriminate painting all the banks in Europe as part of the problem, failing to distinguish those with little sovereign debt exposure.
Why We Like the Container Leasing Business
We recently spoke with Helane Becker, a Director of Equity Research at Dahlman Rose & Co., who covers the airline industry and recently took on the coverage of the container lessors. As she is new to containers, her views and insights are fresh, but she has in-depth understanding and a perspective of the leasing model from her coverage of the aircraft lessors.
Fifteen years ago, the business was predominantly a “spot” business, based largely on service leases, which provide the lessees, the liner companies, the flexibility of returning the containers at any time during the lease term. During the last 10 years, the container leasing business shifted to a contract business utilizing the long-term lease of about five years as a new standard after which the company has a “build-down period”, or about six months to a year to return the equipment or to renew it. The lessors carefully manage expectations by not adjusting the price of the first lease until the liner decides whether or not to renew the lease. Whatever the outcome, the lessors were fairly safe having gotten back approximately 55% of the value from the first lease.
Nice Work If You Can Get It – Marco Polo Finds an Advisor
“Something old, something new, something borrowed, something blue” is a traditional saying that has become a good luck wedding custom for a bride. Its relevance will soon become apparent. Read carefully.
Last week in another filing, Marco Polo Seatrade B.V. (“MPS”) applied to the U.S. Bankruptcy court for permission to employ Blue Financial Services B.V. with its principal, Barry Cerneus to assume the role of Financial Manager and Chief Restructuring Officer for the Debtors. Mr. Cerneus has a history with the company. Beginning in 2005, Mr. Cerneus was the financial manager of MPS, who together with certain other employees fulfilled duties similar to those typically provided by a CFO. Subsequently in 2010, he went off on his own and formed Blue Financial, under which umbrella he continues to offer similar financial services to MPS as he provided earlier on his own. In effect, the company has outsourced the management of their financial affairs to an outsider with the purported benefit that by serving multiple enterprises, Mr. Cerneus achieves “…operational synergies and allows for the utilization of cross-institutional experience.”
A Million Dollars’ Worth? – RBS and Credit Agricole vs. Marco Polo Seatrade
“In our druthers, we wouldn’t be here, we never would have been here, but unfortunately, we wound up here.” “Here” is the United States Bankruptcy Court of the Southern District of New York and the “We” are the lenders, The Royal Bank of Scotland (“Creditor”)and Credit Agricole who failed to convince Judge James Peck that the case against debtors Marco Polo Seatrade et. al. should be dismissed. Reading the transcript of the proceedings the outcome, while not a foregone conclusion, is not surprising. In the bankruptcy arena, the Judge has a great deal of discretion in making his decisions and the court tends to give the benefit of the doubt to the debtors. This is clearly evident in the following exchange between Creditor’s counsel and the Judge, with no one disputing the basic premise of the lender’s argument:
“There’s no prospect for this company to be reorganized absent an improvement in the shipping industry. And that falls within the cases of the debtor speculating with the secured creditor’s money. They don’t have any skin in the game, they’re not putting their money in, their equity investment is lost. If they – - if the shipping industry recovers, they have an option; they get the option value of the upside…”
Teekay LNG Taps Equity Market
In the first shipping follow-on since last July, Teekay LNG Partners L.P., utilizing its $750 million shelf registration, announced, priced and successfully sold 5.5 million shares yesterday in an overnight offering raising $183.7 million. The offering, which went primarily into retail hands, was priced at $33.40/share, a discount of 3.47% from yesterday’s closing price of $34.60. According to data compiled by Jefferies, the price discount was tighter than the year to date average of 7.5% and last month’s 5% suggesting strong demand. Sales proceeds will be used to pre-fund the company’s portion of the equity purchase price of the Maersk LNG acquisition, or $146 million, with the remaining funds used for the repayment of outstanding debt under one of its credit facilities, maturing in August 2018, which bears interest at LIBOR + 0.55%. In addition to a green shoe of 825 thousand shares, the offering is not contingent on the closing of the Maersk transaction nor is the Maersk transaction contingent on the closing of this offering. More details are provided in our Guts of the Deal below.
“Just the Facts, Ma’am” – RBS and Credit Agricole vs. Marco Polo Seatrade B.V. et. al.
We are unlicensed, permitted to argue only at the neighborhood bar and have no standing in any venue but perhaps in the court of common sense. Nevertheless, having gained access to the court filings in the Chapter 11 case of The Royal Bank of Scotland and Credit Agricole vs. Marco Polo Seatrade B.V. (“MPS”), we looked at the arguments advanced by the debtors and the lenders in their pleadings with respect to the eligibility of the debtor for Chapter 11 protection and whether MPS had initiated its case in bad faith and present them below for you to judge. To color your judgment, we should perhaps put them in the context that the court ruled in favor of the debtors, rejecting all the debtors’ arguments. We look forward to presenting the Judge’s decision next week.
RBS and Credit Agricole requested the suspension of the Chapter 11 proceedings, or the lifting of the stay and the dismissal of these proceedings questioning first whether there is a sufficient nexus or connection to the United States. The lenders attorney, Cadwalader, Wickersham & Taft {“Cadwalader”) argued logically:
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