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Going Direct – Eagle Bulk Establishes Trading Capability
With a fleet of 38 nearly homogeneous vessels on the water and another 17 under construction (8 are options but already named), Eagle Bulk Shipping has scale and is therefore well positioned to establish a freight trading platform. To implement this strategy, they have made an excellent decision in choosing Keith Denholm, who has more than 25 years of experience in dry bulk trading lately at Pacific Carriers Limited (Singapore), to lead this new venture, which will be known as Eagle Bulk Pte Limited with offices in Singapore. The formation of this venture will take Eagle beyond simply time chartering to operators and end users. The company can now take positions in the spot market, charter in/out and, most importantly, take on COAs to provide a solid cargo base. The strategy chosen will depend on market conditions but will allow them to manage risk in these volatile markets while pocketing the spread. Adding Keith’s expertise and relationships to Eagle’s already well-established relationships is a difficult combination to beat. Good luck Keith!
Lots of Moving Parts, But a Pure Play at the End – BW Offshore to Merge and Divest
The on-going saga of the merger between BW Offshore (“BWO”) and Prosafe Production may have reached its denouement. Back in July, BWO made a voluntary exchange offer for all the shares of Prosafe it did not own. The offer was conditioned on the outcome of the sale of Prosafe’s turret and swivel business to National Oilwell Varco (“NOV”) for $165 million. If the business were unsold the BWO would offer 1.2 shares in BWO plus NOK 2 in cash for each share of Prosafe. However if the business were sold, the cash portion of the consideration increased to NOK 5.25. Prosafe’s management was unexcited by the offer and stated, using the term of art, that it was evaluating strategic and financial alternatives, as the offer did not reflect the fair value of the company. As a consequence of being in play, the sale of Prosafe’s turret business was put on hold pending the outcome of the BW offer and its disposition remains uncertain today.
Letting Off Steam
We will digress at this point and get up on our soapbox and suggest that the SEC, lawyers and compliance officers are all doing investors a disservice by restricting the press’s access at events like the Jefferies conference. If you argue for transparency, precluding or restricting the press is an oxymoron. It has gotten well beyond being seen and not heard, although we are grateful to at least be seen.
Our latest frustration was engendered by our disappointment that Jefferies, for the first time, was making the speakers available for breakout sessions from which we were precluded. This is all about fear created by excessive restriction. Every presentation is accompanied by a safe harbor statement, which should be understood to cover every word they say. But more to the point every company spokesman we have met both privately and publicly is careful, thoughtful and well trained by the lawyers. It is extremely unlikely that they will slip-up and say something that they shouldn’t. And even if they did, it is, as they say, yesterday’s news.
Live with CNBC at the Jefferies Conference
As usual these year’s Jefferies 7th Global Shipping Conference was a huge success. Not only was it well attended by investors, CNBC set up shop and interviewed many of the participants during the morning session. When asked about the mood of the conference we were somewhat stumped. Jefferies economic gurus, Art Hogan and Ward McCarthy, described their economic view, as subdued optimism and this view, when we thought about it, seemed to permeate the view of the presenters. Investors, on the other hand, had their game faces on. Surely, they were interested after all they made the trek uptown to the beautiful Mandarin Oriental, but would they invest, given recent market volatility, is a whole other question we are unable to answer. But one investor may have got it right suggesting that if the Dow were back at 11,000 investors would be all over the shares.
Getting Closer – Ridgebury Fine Tunes
Last week, the principals of Ridgebury Tankers filed the 2nd amendment to their equity offering. In the latest revision, the amount of the offering was increased to a maximum of $340.8 million up from $325 million in the prior filing. More importantly however was the indication of increased momentum as UBS and Wells Fargo joined Jefferies as joint lead bookrunners. We highlight the preliminary terms in the Guts of the Deal below.
Clean-up Then to Market – DryShips Cuts ATM Deal with Deutsche Bank
Back from the summer break, if in fact they had one, the team at DryShips announced on Tuesday that it was in compliance with all of its loan facilities, had entered into new management agreements with Cardiff and Mr. George Economou’s financial advisory firm, and, finally entered into an equity sales agreement with Deutsche Bank.
While some borrowers choose to have relationships with a few lenders, others prefer a larger number particularly when borrowing on an asset basis. With a multiplicity of lenders, a borrower’s dealings with its bankers are at best difficult, as one has to deal with each one and their different needs separately. Mr. Economou has a large stable of lenders and has devoted substantial time to negotiating waivers with a number of them. However, at long last, Dryships was able to report it was now in full compliance with all of its loan agreements having signed a waiver agreement with DVB with respect to $230 million of loan facilities through December 1, 2010.
Transparency Reigns – All Leases to Be Capitalized
We are extremely indebted to Thor Andre Lunder and Kay Lim of DnB NOR for their excellent analysis of the new leasing proposals from which we have borrowed heavily for the factual information contained below. The opinions, unless stated otherwise, are ours.
Let the negotiations begin. The IASB and FASB have begun the process of establishing a new accounting model for leases by circulating an exposure draft for comment by all interested parties. In essence, the favorable off balance sheet treatment of leases, like other hidden gems, will not be tolerated in this age of transparency. Leasing joins other off balance sheet structures, such as SPVs, that have fallen victim to the credit crisis. But that may very well be a good thing.
Clarification
Last week we reported on Ship Finance’s acquisition of three Supramax bulk carriers and need to clarify two points. First, the vessels were acquired charter-free with employment arranged separately. It is therefore likely that they are worth more today encumbered with the long-term charters. Also, we erred in our assumption that the vessels will be debt free at the end of the average nine-year charters. Clearly, they remain favored borrowers of the banks.
Life Preserver – K-Sea Receives Equity Investment and Restructures Debt
Yesterday, K-Sea Transportation Partners L.P. announced that KA First Reserve, LLC (“KA First Reserve”), a partnership between First Reserve and Kayne Anderson Capital Advisors, agreed to invest up to $100 million in exchange for approximately 18.4 million convertible preferred units (the “Preferred Units”). All of the sales proceeds will be used to repay outstanding debt and pay fees and expenses related to the transaction.
The Preferred Units will have a coupon of 13.5%, with payment-in-kind distributions through the quarter ended June 30, 2012 or, earlier, should the Company resume cash distributions on its common units. Applying simple interest, the investment could increase to roughly $130 million over the PIK period. The Preferred Units convert on a unit-for-unit basis into common units at KA First Reserve’s option. The Preferred Units were priced at $5.43 per unit, which represents a 10% premium to the 5-day volume weighted average price of K-Sea’s common units as of August 26, 2010, but a 22% premium to the closing price the day prior to the announcement. The Company will have an option to force conversion after three years if the price of K-Sea’s common units is 150% of the conversion price on average for 20 consecutive days on a volume-weighted basis. In connection with the Preferred Unit investment, KA First Reserve will appoint three directors to the board of K-Sea’s general partner and will be granted the right to acquire a 35% interest in the entity that owns the Company’s Incentive Distribution Rights, or IDRs.
Taking Control – Seanergy Buys Out the “Minorities”
Last week, Seanergy Maritime Holdings announced that it had entered into letters of intent for the acquisition of the remaining ownership interests in Bulk Energy Transport (50%) and Maritime Capital Shipping (51%) that it does not own. Following the acquisitions, the Company will wholly own a fleet of 20 dry bulk vessels with a combined cargo-carrying capacity of approximately 1.3 million dwt and an average fleet age of 12.8 years. In terms of vessels, the diversified fleet will consist of four Capesize, three Panamax, two Supramax, one Handymax and ten Handysize dry bulk carriers. The sellers are related companies due to the common shareholder, the Restis family.
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