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Yes, There Was Equity Too
China’s inflation and Ireland’s banking crisis triggered this week’s market volatility. Nevertheless, Scorpio Tankers Inc. and Navios Maritime Acquisition Corporation (“NMA”) moved ahead with equity follow-on offerings. Scorpio’s registration was for a one-off transaction, whereas Navios’ was a supplement to its recently filed broad shelf registration.
“The Market Is Hot” – The Theme of Yield Continues
While the action in bonds this week continued in Norway, New York joined the fray with Ship Finance’s latest offering. The beauty of Norway’s market is its speed and simplicity but Wall Street is the place for longer tenor dollar denominated deals such as Ship Finance’s ten year senior unsecured offering.
Consolidation
Last week, BLT combined the commercial management of its four disparate chemical tanker business units, PT Berlian Laju Tanker, PT Banyu Laju Shipping, Gold Bridge Shipping and Chembulk Tankers, into a new entity, BLT Chembulk Group. The main purpose of this consolidation is to provide its customers with the highest level of service through a unified commercial management across the entire chemical tanker fleet. The Group will be responsible for the commercial activities of more than 60 on the water chemical tankers. While the Group is a consolidated commercial management organization responsible for the marketing of a unified fleet, the ownership structure and technical management aspects of the respective chemical tanker fleets will not be incorporated into the new organization, but instead will remain intact as separate individual entities.
Indices – Confessions of an Index Junkie
By Robert Kunkel, AMTECH
We considered stealing David Letterman’s famed Top Ten List when sitting down to write this article. The analogy fits as the list of indices or indexes (take your choice, I learned both were correct) grows exponentially in shipping, as it does everywhere else. Once bookmarked on your internet search page they become an addiction. You can literally index anything. And shipping has. Everything!
The Rich Get Richer – Liquidity Abounds for Some
The following transactions highlight the oft spoken phrase that the banks have money for their core clients, which tend naturally to be large transparent highly capitalized corporates. While we cannot quibble with the rush to safety in an effort to minimize risk, this trend is transforming the nature of the business, which was built on risk taking entrepreneurs, who not only knew ships, but understood and played the markets. By allocating capital accordingly the banks are changing the fundamental nature of the business from entrepreneurial to corporate. We are not sure if this is good or bad; time will tell.
Navios Acquisition Expands
The focus of Navios’ management attention these days appears to be on newcomer, Navios Maritime Acquisition Corporation. This likely reflects the depressed tanker market and hence the more meaningful opportunity when compared to the dry sector which chugs along profitably. But it is not so easy to find opportunities in the tanker sector as asset values remain high in comparison to earnings. The trick is to find a good asset at a reasonable price and utilize just the right amount of debt to be comfortable while achieving breakeven rates that work at today’s heavily discounted revenue levels. Or, if you are Navios, you might create an even more structured transaction, which actually shifts a portion of the risk to the seller.
For Ms. Frangou and her team this involved a return trip to a South Korea shipyard. There they found and agreed to acquire two 75,000 DWT LR1 product carrier newbuildings scheduled for delivery in Q4 2011. The purchase price of the vessels is $87 million en bloc, which will be financed with the issuance of $5.4 million of mandatorily convertible preferred stock, a new credit facility of $52.2 million (60% LTV) and $29.4 million from cash on hand. The effective acquisition price for the two vessels is $82.8 million or $41.4 million each after giving effect to the preferred stock.
The preferred stock pays a quarterly dividend 0f 2% per annum and will mandatorily convert into shares of common stock as follows: 30% of the outstanding amount will convert on June 30, 2015 and the remaining outstanding amounts will convert on June 30, 2020 at a price per share of common stock of not less than $25.00. The holder of the preferred stock shall have the right to convert the shares into common stock prior to the scheduled maturity dates at a price of $35.00 per share of common stock. The preferred stock does not have any voting rights. In terms of dilutive effect, the number of shares of common stock that may be issued upon conversion ranges from 154,286, if all preferred shares are converted at $35.00 per share of common stock, to 216,000, if all are converted at $25.00. Navios Acquisition’s shares closed yesterday at $5.80 per share.
In addition, the company entered into a loan agreement with EFG Eurobank Ergasias S.A. to borrow up to $52.2 million in two tranches in order to partially finance the acquisition cost of the new vessels. Each tranche of the facility is repayable in 32 equal quarterly installments of $0.35 million each with a final balloon payment of $15.1 million, which equates to an amortization profile of approximately 19 years. The loan bears interest at LIBOR + 2.50% prior to the delivery date, with the spread increasing to 2.75% thereafter. Among the normal and customary financial covenants is the requirement that Navios Maritime Holdings Inc., Angeliki Frangou and their respective affiliates, in the aggregate, control at least 20% of the then outstanding shares of common stock. With that group currently controlling approximately 62.4%, there is sufficient room for the company to sell down its position.
The More the Merrier – Ship Finance Adds Two Supramaxes
Ship Finance International announced this week that it had agreed to acquire two additional 57,000 DWT Supramax vessels, which are sisters to the three purchased in China earlier this year, for an en bloc price of approximately $61 million, which is in line with the earlier purchase. Delivery is expected to occur in the 2nd and 3rd quarters of 2011. The vessels will be time chartered to the same Asian-based logistics company for a term of 10 years at a daily net charter rate of approximately $16,000 per vessel, lower than the $17,000 done in the earlier transaction.
While detail on the financing is scarce, the company says it has received indications from the banks for 80% financing. Based upon the recently concluded financing for two of the earlier vessels, it appears likely that the company will be able to achieve eight year financing with limited recourse to the company.
These appear to be aggressive terms for limited recourse asset-based bilateral loan. The signature matters.
The Secret Sauce
Last week, one company found the Wall Street magic. The secret may be quite simply that it’s all about yield. Investors found NCL Corporation’s private offering of $200 million senior unsecured notes due in 2018 so attractive the company upsized the offering to $250 million. And, while initial price talk was around 9.75% on the coupon, the company’s recent strong financial performance allowed the bankers to drive down the price to 9.5% for the bonds, which were sold at par. Achieving this coupon on a bond rated Caa1 by Moody’s is a testament to the company and its bankers who packaged an attractive deal to yield hungry investors. The eight year notes are non-callable for four years.
The Big Squeeze – Dealing with Prosafe’s Recalcitrant Shareholders
BW Offshore (“BWO”) last week received approval from the Cyprus Securities and Exchange Commission to acquire all the shares in the issued share capital of Prosafe Production.
(“Prosafe”) not already owned, directly or indirectly, by BWO in a process called a squeeze-out. In the squeeze-out, which is described in a document similar to a prospectus, the shareholders of Prosafe will be given the opportunity to choose either the already offered consideration of (i) 1.2 shares in BWO plus NOK 3 in cash or (ii) NOK 15.11 in cash, for each share held. All shareholders in Prosafe not having chosen to receive the consideration in form of alternative (i) within the specified time frame are deemed to have chosen the all cash alternative.
Outliers But Noteworthy
Last week, two companies of interest, but outside our normal purview, went to Wall Street to access what appears to us to be an infinite amount of capital, provided you have the right pedigree, a good story and risk-adjusted pricing.
Is New Better? – Costamare Prices
Last night, the shares of Costamare Inc. were priced at $12, or 25% below the midpoint of the expected range of $15 to $17. The company sold 13.3 million shares, the number expected, raising $159.6 million in proceeds, instead of the $260 million that was planned.
But before we take a closer look at this particular offering, a broader look at the IPO market provides an interesting perspective. From Jefferies Maritime Group’s Market Update dated November 1st, we gleaned the following facts about the current state of the equity market:
Combining Strengths – A Leasing Partnership
This week, Deutsche Bank, ICBC Leasing and V. Ships Capital announced that they were joining forces, in a yet to be name partnership, to build an independent ship leasing entity. The three companies hope to develop opportunities across the spectrum of shipping asset classes, deploying debt and equity with a view to creating a pipeline of assets which will be placed in leasing structures.
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