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Shaking It Up
By George Weltman
This year’s group of participants in our annual shipping rankings was shaken not stirred. Through both action and inaction, our grouping was radically reduced this year from 100 participants last year to 88 this year. Accounting for most of the decline was a delay in filling year-end financials. While we delayed running the rankings model to the last possible moment, we still ended up missing Euroseas, Gulf Navigation, MISC, PT Berlian Laju Tanker, Sinotrans, Omega Navigation, Stealth Gas and NewLead Holdings. Absence does make the heart grow fonder and we hope to see their return next year.
In other changes, Platinum Equity took American Commercial Lines private and re-named it Commercial Barge Lines. As a consequence, it fell off our list and we replaced it with Seanergy Maritime Holdings. For some unforgivable reason that company, which had its roots as a blank check company, fell below our radar and should have been part of the rankings since 2009, its first full year of operations. We apologize to Mr. Ploughman and Ms. Anagnostara for the omission and hope its inclusion this year and going forward makes up for it.
Citi and CICC for SITC in Hong Kong – IPO Award East
By Rodricks Wong
In the aftermath of the financial crisis in America, there was the formation of something of an “America Inc.” as firms from AIG to General Motors were bailed out by the government. The was highly controversial among Americans, as it was across the Atlantic in Europe. For much of the world, though, the concept of a business economy that is closely integrated with the state is more widely accepted and extends even to notoriously roguish shipping lines. China Inc. may include COSCO and CSCL, Japan Inc. the likes of NYK and MOL, the list goes on.
As such these companies are quite a lot less roguish than many of their counterparts, and also benefit from implicit state guarantees. This make their access to capital in the domestic market extremely competitive. This can be seen as virtues or vices depending on your perspective. While it encourages a certain higher level of responsibility, at the same time it tends to discourage more competition in the market as older players are universally preferred to and favored over new players. This has the unintended consequence of stifling competition and allowing established players to become less competitive as they enjoy unparalleled access to finance and new business.
The Story that Does Not Stop
In yesterday’s Markit North America Intraday Alert – Snapshot, Otis Casey reminded us that a new year does not always bring changes:
“Additionally on the banking side, concerns about liquidity and the need for recapitalization in the European financial system weighed on sentiment. News that the ECB’s overnight lending facility was tapped for EUR 15 bln along with record amounts in the deposit facility sparked concerns over liquidity. Reports that UniCredit floated an equity issue that would yield a discount of 43% less than yesterday’s closing price, excluding the value of rights, prompted speculation that many European banks would need to raise equity and provide similar discounts.”
A dysfunctional interbank market and unresolved capital issues are not a welcome start to the year.
Welcome to Brazil, Mr. Fredriksen
Given the growing opportunities in Brazil, it is not surprising that Seadrill Limited would seek the advantages of a local presence in country. Back in early December, Seadrill announced that its wholly owned indirect subsidiary, Seabras Servicos de Petroleo S.A. made an initial filing of a Reference Form with the Brazilian Securities and Exchange Commission in connection with a potential initial public offering of its shares on the Nova Mercado segment of the Sao Paulo Stock Exchange. Naturally any offering would be subject to market conditions and the approval and the registration of the shares by the Brazilian authorities.
SeaCube’s Shelf
Also, just before the holidays, SeaCube Container Leasing Ltd announced the filing of a universal shelf registration to sell up to $75 million of securities, which could include common or preferred shares, debt securities, warrants, subscription rights, purchase contracts, purchase units or any combination thereof. In addition, the company registered up to 8.525 million shares owned by an affiliate of Fortress for sale in a secondary offering to take place sometime in the future. Proceeds of the primary offering will be used for working capital and general corporate purposes which might include the re-payment or refinancing of outstanding indebtedness and the financing of future acquisitions. The filing was effective as of December 30th.
Build, Borrow and Extend – Scorpio Covers the Bases
Surely, Scorpio Tankers Inc. waited until all the pieces were in place before announcing a multitude of transactions just prior to the holidays. To begin, the company announced that it had contracted with Hyundai Mipo Dockyard to construct the sixth of a series of 52,000 DWT MR product tankers, with new propulsion technology, for a price of $36.4 million with delivery in January 2013. This follows the order for five sister vessels placed at Hyundai back in June for approximately $37.4 million with delivery scheduled between July and October 2012. This latest contract also contains options for a further three vessels of the same specification. Declarable in mid-January the first option is exercisable at the same price. Should the company exercise the first option, it has a second option, which must be declared in mid-March 2012 for the construction of a further two vessels at a slightly higher price of $37.2 million each.
NewLead Sheds Assets
Less fortunate was NewLead Holdings Ltd with its mixed fleet of tankers and dry bulkers. While a sound strategy, its levered balance sheet and lack of liquidity could not withstand the abysmal tanker market. With limited options, the company and the bank syndicate led by the Bank of Scotland agreed to sell its four LR1 product tankers with the banks agreeing to accept the net sales proceeds in full satisfaction of all amounts owed under the loan agreement. The sale of two of the vessels occurred on December 22nd with the sale of the other two expected to take place this month. As a result, NewLead’s indebtedness will be reduced by $147.9 million to $437.5 million, which will encumber a remaining fleet of 14 dry bulk vessels, including one handysize under construction and two handymax product tankers. This was a huge step in a process that continues.
Genco Amends its Agreements
Just before the holiday break, Genco Shipping & Trading Limited announced it had separately amended its $1.4 billion revolver, its $253 million senior secured term loan facility and its $100 million term loan facility led respectively by DnB NOR, Deutsche Bank and Credit Agricole. The parties have agreed to waive both the maximum leverage and interest coverage ratio covenants through the quarter ending March 31, 2013. During that interim period, a new covenant which limits interest bearing consolidated debt to 62.5% of the aggregate of interest bearing debt plus consolidated net worth will be tested. In this instance the quid pro quo was the prepayment of the loans to the tune of $62.5 million of which $52.5 million was allocated to the $1.4 billion facility, $7 million to the $253 million facility and $3 million allocated to the $100 million facility. The banks also took their pound of flesh charging an upfront fee of 25 bps on the amount of the outstanding loans and applying the proceeds in inverse maturity. In addition, the $1.4 billion revolver is subject to a 200 bps facility fee payable quarterly on average daily outstanding loans, which reduces to 100 bps upon completion of an equity offering of a minimum of $50 million. Albeit expensive, this is yet another example of a company, having the wherewithal, taking the lead and managing the process to achieve a level of certainty despite the difficult markets.
Risk Off? – Frontline Closes within its Self-Imposed Deadline
While not a joyous conclusion to the year, the announcement of the successful completion of the restructuring of Frontline does at the very least bring a sigh of relief to all the parties involved. While we have covered the details of the transaction in prior issues, we would highlight the following key elements.
The newly formed “risk” tanker company, Frontline 2012 acquired five VLCC newbuilding contracts, six modern VLCCs, including one time charter and four modern Suezmax tankers from Frontline for $1.121 billion based upon fair market values. In addition, the new company assumed $666 million in debt associated with the vessels and newbuilding contracts as well as $325.5 million in remaining newbuilding commitments. Based upon a year-end book value of $1.428 billion, Frontline will incur a book loss of $307 million.
Triage in the Trough – Advantaged Alternatives in International Marine Insolvencies
By Jovi Tenev, Holland & Knight LLP
–The author gratefully acknowledges the assistance of his partners
Nancy Hengen, Brad Berman, Jim Hohenstein, and John Monaghan.
For an industry characterized by as much financial volatility and extreme cyclicality as international shipping, it seems rather remarkable that, historically, relatively few international shipping companies have sought bankruptcy protection in the United States. The increasing recent US bankruptcy filings by international shipping companies may signal a maturing of how this industry treats financial distress, perhaps now finally following an approach to insolvencies, quite common in other businesses, that is more orderly, holistic and can maximize value.
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