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It’s the Old “Squeeze Play”
By Robert Kunkel
In baseball a well-placed bunt with a runner on third creates what is called a “squeeze play”. To be successful, it must be planned and executed with the bunt laid down at the right moment and runners timing their rush to home plate perfectly. Played poorly, the “squeeze” ends up with the runner trapped between the catcher and third basemen with nowhere to run.
The dry bulk sector seems to be picking up the game of baseball. No one is hitting home runs at this point, but the first half of 2010 showed some improvement on the back of China’s continued demand. In the second half of 2010, the news was a bit more guarded. The start of 2011 does not look rosy with the Baltic Dry Index (BDI) falling to a new two-year low, Capesize rates are moving downward and the smaller size ships are drifitng away from the Far East, looking for activity in the Atlantic. At this point, it’s not fair to lump the dry sector into a single market analysis, as the BDI does. With Capesize dropping, Panamax moving sideways, Supramax falling steadily and Handys holding their own, a single BDI measurement does not address the actual complexity of the market. Dry bulk needs a new game plan.
And the Winner is….the Syndication Market
Last quarter, we went out on a limb, a pretty sturdy one we must confess, and called a turn in the downward trend in the syndication market, based upon a 9.8% increase in volume. Thankfully, we were correct, but the result was unexpected. According to Dealogic, for the twelve months ending in 2010, total syndicated shipping volume was $50.06 billion, an increase of 53.2% over 2009. The ancillary data provided by Dealogic strongly supports this revival, as well as an improving credit environment. As shown below, new money raised nearly doubled from the prior year but what is more significant is that it represented ~76% of new volume whereas in the prior year it was only 59%. The dollar amount of club deals was virtually unchanged, which had the effect of reducing the percentage of club deals as a portion of total volume from 42% in 2009 to approximately 30% in 2010. These trends can be seen in the enclosed graphs.
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
It’s the Old “Squeeze Play”
By Robert Kunkel
In baseball a well-placed bunt with a runner on third creates what is called a “squeeze play”. To be successful, it must be planned and executed with the bunt laid down at the right moment and runners timing their rush to home plate perfectly. Played poorly, the “squeeze” ends up with the runner trapped between the catcher and third basemen with nowhere to run.
The dry bulk sector seems to be picking up the game of baseball. No one is hitting home runs at this point, but the first half of 2010 showed some improvement on the back of China’s continued demand. In the second half of 2010, the news was a bit more guarded. The start of 2011 does not look rosy with the Baltic Dry Index (BDI) falling to a new two-year low, Capesize rates are moving downward and the smaller size ships are drifitng away from the Far East, looking for activity in the Atlantic. At this point, it’s not fair to lump the dry sector into a single market analysis, as the BDI does. With Capesize dropping, Panamax moving sideways, Supramax falling steadily and Handys holding their own, a single BDI measurement does not address the actual complexity of the market. Dry bulk needs a new game plan.
And the Winner is….the Syndication Market
Last quarter, we went out on a limb, a pretty sturdy one we must confess, and called a turn in the downward trend in the syndication market, based upon a 9.8% increase in volume. Thankfully, we were correct, but the result was unexpected. According to Dealogic, for the twelve months ending in 2010, total syndicated shipping volume was $50.06 billion, an increase of 53.2% over 2009. The ancillary data provided by Dealogic strongly supports this revival, as well as an improving credit environment. As shown below, new money raised nearly doubled from the prior year but what is more significant is that it represented ~76% of new volume whereas in the prior year it was only 59%. The dollar amount of club deals was virtually unchanged, which had the effect of reducing the percentage of club deals as a portion of total volume from 42% in 2009 to approximately 30% in 2010. These trends can be seen in the enclosed graphs.
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
NewLead Files
Filing a Form F-1 just before the close of the New Year, NewLead Holdings Ltd. announced its plans to raise up to $115 million in its first follow-on offering under new management. Proceeds of the offering will be used for funding existing newbuilding commitments, the acquisition of new vessels and general corporate purposes. As part of the offering, the company intends, provided a minimum equity hurdle is exceeded, to exchange the entire current outstanding principal amount of the $125 million of 7% senior unsecured convertible notes due in 2015 for shares based upon the offering price.
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Distress Suits Seadrill
Earlier this week, Seadrill Limited announced that it had agreed to acquire two ultra-deepwater semi-submersible drilling rigs, the Seadragon I and Seadragon II, which are currently under construction at Singapore’s Jurong shipyard. The total project price is expected to be $1.2 billion inclusive of all pre-delivery costs, with delivery in 1Q and 4Q 2011.
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Cash for Dividend
At the start of the New Year, Frontline Ltd. announced that it had entered into a sale-leaseback transaction, selling the 2006 built VLCC Front Shanghai for $91.24 million, while agreeing to time charter it back for two years at a rate of $35,000 per day.
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Diana Gifts its Shareholders
Also, just prior to Christmas, Diana Shipping announced its intention to partially spin-off its majority owned containership subsidiary, Diana Containership Inc., to its shareholders through a special dividend. Currently, Diana owns approximately 55% of the outstanding common shares and intends to distribute 80% of its interest or approximately 2.667 million shares. The shares will be distributed pro rata based upon the number of Diana Shipping’s shares outstanding. Based upon the share count outstanding at the time of the announcement, each shareholder would receive 0.0325 shares of Diana Containerships for each share of Diana Shipping owned. Following the distribution, Diana Shipping, its shareholders and the original third party investors will own respectively 11%, 44%, and 45% of Diana Containerships.
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