Another Way to Make a Buck – Profiting from a Buyback

Navios Maritime Holdings continues to find new ways to make profits. In its latest iteration, the company agreed to purchase $131.3 million of its 2% mandatorily convertible preferred stock issued in connection with the acquisition of certain capsize vessels. The company has agreed to pay $49.2 million in cash for the $131.2 million of preferred stock, representing a 62.5% discount to the face amount. Or, from the equity perspective, the company purchased its equity back at effectively $3.75/share, a discount of approximately 27% to the then market price.  Not only was a discount obtained, Navios also avoided the payment of the dividend of $2.6 million that was due, as well as, obviated the possibility of issuing an additional 13.132 million shares at maturity. Navios was able to achieve these favorable terms as a consequence of the seller’s liquidity needs. Not a bad trade at all.

Ultrapetrol’s Stealth Convertible

Just before the Christmas break, Ultrapetrol (Bahamas) Limited announced the offering of $60 million of its 5-year convertible senior notes, with a green shoe of $10 million. The private placement priced the next day at a coupon of 7.25% and, due to investor interest, was upsized to $70 million. With the over-allotment option exercised, total gross proceeds equaled $80 million. The initial conversion rate will be 133.1691 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of $7.51 per share, representing a 22.5% conversion premium over the closing pricing just prior to the announcement. Proceeds will be used to expand its PSV operations in Brazil, support the development of its river container trade, accelerate the construction of additional river barges in its Argentine shipyard and for general corporate purposes.  For more details, see the Guts of the Deal below.
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The Personal Account

By Matt McCleery

The Fairchild Saga continues in the following three installments (Parts 4 through 6)

Robert Fairchild stared down at the chess board for a five full minutes before moving his knight two squares forward and one to the left, clearing out the stalwart bishop that had been dutifully guarding his opponent’s king throughout the entire sixty minute game.

“Checkmate,” the American hedge fund manager announced to the weather beaten Russian sea captain without making eye contact. Before looking down at the checkered board, the Captain took a final suck on his Java cigarette and then crushed it aggressively into an overfull white ashtray bearing the seven point blue star logo of AP Moeller. Seven owners and 35 years had passed since the venerable Danish shipping company had taken delivery of the French built vessel on which the two strangers played chess – and the bone china was among its only original furnishings.
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The Net Effect…

By our calculations over that lifetime, she generated economic benefits totaling:

$1,308,762,865

In his novel “Dark Star”, Alan Furst describes a vessel that had spent the first part of its life as a coastal steamer:

“-thirty years of blistering summers and drizzling winters, trading and smuggling in equal proportion, occasionally enriching, more typically ruining, a succession of owner syndicates as she herself was slowly ruined by salt, rust and a long line of engineers whose enthusiasm far exceeded their skill.”

Making a Fortune in Shipping – Marsoft’s Contribution

By Arlie. G. Sterling

Introduction
In Cycle Management in Shipping (Marine Money August/September 2010), Lorange and Sterling described the process of Cycle Management in shipping – using leading indicators and scenario building to develop a risk-controlled investment and chartering strategy.  They noted that a forward-looking approach based on a view of likely market developments was essential in commodity shipping:
-     It is not possible to make money “on average” in the markets – getting the timing right for exit and entry, short vs. long-term chartering and contracting – is an essential part of making a risk-adjusted profit in shipping.
-     Forecasts are not very accurate (some would be less charitable).  It is necessary to build a complete picture of potential developments by looking in detail at market drivers and conventional wisdom; by creating multiple market scenarios.
-     Analysis paralysis is not an option for an owner – moving fast and decisively is necessary in our business.  Simplifying the process using leading indicators – and working closely with leading practitioners to make the analysis relevant makes the process practical.
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End of Life

By Jamie Dalzell, Global Marketing Systems, Inc.

Once a vessel approaches 25 years and older – and as the market and broader economic conditions falter as they have in recent times – there is still one industry in the shipping world that is thriving under the weight of available and eligible tonnage.

As the ship nears the end of its life, a number of fundamentals fall into place, often in tandem, leaving the shipowner facing one final payday before the watery grave beckons. The vessel’s viable resting place can really be only one of five locations; the major ship recycling hubs of the world are in the Indian sub continent (India, Pakistan, Bangladesh – where beaching onto local plots is the standard form of delivery), China and Turkey (where alongside ‘docking’ is the usual process for delivery).
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Liquid Gold – Bunkers

By Ian Workman, Trans-Tec Services, Inc.

Built in Japan, the ship was supplied with 2400 mts of 380cst and 150 mts of mgo (although it could burn mdo) in its first supply after coming out of the dockyard.

It’s well respected owners had already fixed it out on a long-term timecharter. The suppliers were happy- the 380 cst price had just increased to usd 165 pmt and the mgo price up to 250 pmtd, the bunker brokers were happy as this was another vessel added to their owners fleet, and another commission to claim from the suppliers, the surveyors were happy as they were contracted to not only check the barge for the quantity supplied but also to test the quality for this supply and the future supplies as long as the vessel stayed under the same ownership.
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Environmental Policy Changes and Their Effect on Ship Owning

By Ole Chr. Schroder, General Manager, Environmental Compliance Management – SQE, TORM

New legislation has had a major influence on the cost of building and operating vessels, leading to a tremendous increase in capital investment, as well as employment resources far beyond what our forefathers would have ever considered for normal ship operation.  Most requirements today are a direct result of either a major shipping incident, where political fallout resulted in the implementation of new legislation, or the acquisition of new and improved technology focusing on the Global Environmental impact arising from global transportation needs. With intense public pressure on government forcing ship owners to be more environmentally friendly and transparent, leading to stricter regulation through IMO or individual state initiatives, this sharp increase in new legislation imposed over decades has become a serious financial consideration and obligation on the ship owning community, and will continue to be felt for the foreseeable future.
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Public Shipping: The Ultimate Multiplier

By Gary Wolfe, Partner, Seward & Kissel LLP

My task is to try to assess the multiplier effect that the initial public offering (IPO) of a company originally owning one vessel could produce.

There are so many different parties involved with an IPO.  Each of them, in turn, has its own multiplier effect.

Let us assume that our vessel is one of a number of vessels, say five vessels, that are owned by a vessel owning company (the IPO Company) that is going public in the United States.  Let us further assume that the IPO Company is incorporated in the Marshall Islands and operated from either Greece or Norway.  Those are the two most likely jurisdictions for the sponsors of shipping IPO’s and operators of vessels.
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Bank Financing of a 1985- Built Product Carrier

By Daniel C. Rodgers, Watson, Farley & Williams

For purposes of this exercise, let’s assume the following:

•    It is now 2002 and the ship is 17 years old.

•    The ship is currently owned by a special purpose corporation (the “SPC”) which is in turn 100% owned by a holding company (“HoldCo”) that also owns 19 other special purpose vessel owning entities, each of which owns a product tanker similar to the ship.

•    HoldCo seeks to refinance its entire fleet of 20 product tankers and is looking for an advance rate of between 60% and 80% of the fair market value of the fleet.

After approaching several well known banks in the shipping sector, HoldCo succeeds in obtaining a tentative commitment, subject to (among other things) completion of due diligence, from three banks (collectively, the “Lead Arrangers”) for the financing of up to 65% of the fair market value of the fleet, with interest at LIBOR plus a margin of 200 basis points (which HoldCo may hedge pursuant to an interest rate swap) and maturity in 2008.  HoldCo will be the borrower, and each of the SPC and the other vessel owning subsidiaries will act as guarantors of HoldCo’s obligations under the loan facility and in respect of any interest rate hedging instrument executed in connection with the loan facility by HoldCo.  The Lead Arrangers intend to syndicate the loan facility to other banks in the shipping sector.
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