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Returns and More – A graphic look at First Quarter Results You Wanted to be in Containers! Where Next?
First quarter results are in and it will not surprise anyone to see the general trends in both EBITDA and share price. That Container plays like Danaos with their house in better order and the sector performing well and delivering positive results is a simple example. But a look at either the tanker sector or the dry sector and they also sadly lived up to expectations. Barge and offshore performed well.
Horizon Lines, Trailerbridge, TBS are really no surprises given each company’s specific circumstances. In fact while there are individual management stories in each result, the simple fact is there is nothing like a better freight environment to put a smile on everyone’s face.
Equity Overdone?
Regularly, we hear that the markets are open for well-known serial issuers of equity and debt securities. This week one regular issuer, Seaspan, quickly and successfully accessed the preferred market, issuing more of its Series C preferred. There were also two filings for equity follow-ons from a recent transplant from London and one of the original public companies. It will be interesting to gauge investor appetite in the case of the latter given the overall weak market conditions.
Lessons Gleaned – Seaspan Investor Conference
Tagging along with 130 capital markets people, we had the pleasure of attending Seaspan Corporation’s Investor Day in New York City on Tuesday. Gerry Wang and Sai Chu remain on message. Management will be focused on growing the business in a balanced and controlled manner while enhancing its financial strength and flexibility. The model remains unchanged – built-in controlled and balanced growth with minimal risk. New modern vessels will be acquired with long-term employment with strong credits attached. Shareholders will be rewarded with a progressive dividend policy and growing long-term shareholder value, as shareholders and customers interests remain at the forefront. As usual we will let the analyst do their job and limit our discussion to some interesting takeaways in no specific order:
Jasper Explorer Secured Bond
Through a complex corporate structure, Jasper Offshore (Cyprus) Ltd (“JOL” or “Parent”) is raising, through a private placement, $165 million in secured bonds through its wholly owned subsidiary Jasper Explorer Ltd (“JEL” or Issuer). Proceeds of the offering will be used to repay a bank loan and redeem the 2nd lien notes currently secured by the drillship, Jasper Explorer as well as to fund working capital, the initial amount of Available Free Cash required and an amount standing to the credit of the retention account. Any excess will be utilized for general corporate purposes. The drillship is owned by Jasper Explorer Pte Ltd. (“JEP” or Owner”) and is bareboat chartered to Jasper Drilling Pte Ltd. (“JDP” or Charterer”) both of whom will guarantee the notes along with the Parent. The corporate structure is shown below:
Regent Seven Seas 2nd Lien Notes
Last week, Seven Seas Cruises S. DE R.L., the indirect owner of Regent Seven Seas’ three luxury cruise vessels successfully issued $225 million of 9 1/8% senior secured notes due in 2019. Due to strong demand the offering, sold at par, was upsized from $200 million to $225 million and priced at the tight end of price talk. The notes were rated B- and B3 respectively by Moody’s and S&P. The issuer is owned by Prestige Cruise Holdings Inc., a holding company which also owns Oceania Cruises and is itself ultimately controlled by Apollo Management.
Also Taking a View, but Mitigating the Risk with Optionality – DHT Charters-In a VLCC
On Monday, DHT Holdings Inc. announced that it had chartered-in a 2003 built VLCC for a period of 16 to 18 months at $27,000/day. The charter provides for continuous purchase options during the charter period beginning at $65 million for the first six months, increasing to $66 million for the second six months and rising to $67 million for the last six months.
Scorpio on a Roll – Enters into a New Credit Facility, Files Shelf, Orders Ships and Executes Follow-on
Earlier this month, we reported on Scorpio Tankers Inc.’s new $150 million credit facility and filing of a shelf registration to issue up to $500 million of securities. Last week, they put these to good use. With sole bookrunner Morgan Stanley and co-managers, Dahlman Rose, Evercore and Fearnley Fonds, the company sold 6 million shares in a successful follow-on offering, which was upsized from the originally intended 5.5 million shares due to strong demand. The shares were priced at $10.50, a discount of 6.67% from the closing price prior to the announcement. The shares closed the next day at $10.75 with 1.065 million shares traded versus average volume of 88.8 thousand shares. Subsequently, the underwriters exercised their over-allotment option to purchase an additional 900 thousand shares, bringing total net proceeds to approximately $68.4 million. Details of the offering are shown below in the Guts of the Deal.
Navios Prices New Issue
With Moody’s maintaining its B2 rating on these add-on senior secured notes, Navios Maritime Acquisition Corporation last week priced this latest issue, totaling $105 million, of its 8 5/8% first priority ship mortgage notes due in 2017. Trading earlier in the week at 104% to yield approximately 7.3%, the notes were priced at 102.25% to yield approximately 8.44% in line with price talk at 102%. Proceeds of the notes will be used to finance the acquisition of the VLCC due in June.
BofA Merrill Lynch and J.P. Morgan who led the original offering also receive credit for this one.
Heresy
Despite the extent and improving quality of data coming out of China, we have never been true believers to the core. While the quality and extent of the data emanating from China has much improved, much of what is known is anecdotal, logical and belief driven. In fact, our whole industry is making a bet on China’s becoming the pre-eminent manufacturer and consumer of commodities as it grows to meet the needs of its people and the world. And, while the data supports this view, we should not forget that this is a managed economy and the ultimate guiding principals are unknown to us but assuredly driven by self-interest.
Leveling the Playing Field
In the world of shipping, the Jones Act, like Rodney Dangerfield, gets no respect. It is only of interest to the parties involved, not many, and like most protected trades it is at best a political minefield. In political speak, participants in the trade are compensated for the higher costs of construction and labor in the U.S. in order to maintain a fleet of merchant vessels for our defense. The political reality however is that it is in fact a jobs program. And there is nothing wrong with that, except for the burden the inefficiencies put on the taxpayer. As a self-contained system it works. But what of the player, who operates both in the Jones Act and internationally.
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