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The Right Product for the Right Time – Teekay Offshore Follow-on
Last week, the Wall Street Journal reported on the “Frenzy in Energy Partnerships”. “Lured by hefty yields, investors are pouring billions of dollars into a small corner of the stock market – energy focused master limited partnerships – which has seen a huge rally of 15% this year.” This has caused concern, as these gains are not the result of a meaningful change in fundamentals but simply the consequence of a rush of new money into the sector. This should come as no surprise as investors seek safe havens for their cash and, in this instance, are rewarded with yields, a portion of which may be tax free, well in excess of Treasuries.
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Faces and Places
We learned just this week that Ted Jadick of DnB NOR will be returning to New York, from his long “exile” in London and Athens, to assume the position of President and CEO of DnB NOR Markets Inc., the DnB’s investment banking unit in New York. DnB has successfully built a corporate finance presence over the last 8 years in New York and has closed 40 M&A, equity and debt capital markets transactions over the last 12 months. Welcome back!
Last week, we reported that Tom Kjeldsberg had left DHT Maritime. We learned subsequently that Tom has accepted a job with Fearnley Fonds beginning in October. He will be joining the corporate finance group focusing on shipping and offshore with a Norwegian capital markets bent.
Good luck to both of you.
Dahlman Rose Announces Strategic Investment by Lovell Minnick Partners
Dahlman Rose & Company announced Tuesday that it has, subject to regulatory approval, entered into a definitive agreement to receive a $40 million minority investment from Lovell Minnick Partners LLC, a private equity firm that specializes in the global financial services industry. Dahlman Rose plans to use the proceeds for further expansion of its investment banking, research and institutional sales and trading platforms.
Market Reality
Like it or not shipping shares have become trading vehicles and these are difficult shipping markets to navigate. The dry bulk story today is a particularly difficult one with investors gravitating to a largely negative view. Most are concerned about the supply overhang. But even those that you can convince that slippage will resolve that problem tend to be believers in a Chinese slowdown. Any way you look at it, it’s a tough sell these days.
Carpe Diem
We preach the capital markets. It is our raison d’etre and since the credit crisis began we have been proven correct, as public companies have tapped both bond and equity markets as opportunities arose. They have as the Latin title suggests, “seized the day.”
Banks too have faced the new reality, acknowledging that bank funding is no longer sufficient, predictable or consistent. However, those banks that have developed a capital markets adjunct stand to benefit as they have the capacity to provide both lending and access to capital markets products. This is a difficult combination to beat.
When a Good Reputation is an Impediment
The SPAC is an ideal tool for an acquisition. Investors express confidence in management granting a “hunting license” for a business within one or more industries in the form of IPO cash proceeds. Once the target is identified, the investors vote on whether to approve the combination, with a majority of shareholders required to approve the transaction and not more than 39% voting to cash out. Until the vote, the proceeds from the IPO are invested in U.S. Treasuries. In return for his money, the investor get a share of common equity and upside in the form of a warrant.
No one understands this structure better than Navios Maritime Holdings, which was acquired in 2005 by Ms. Angeliki Frangou through a SPAC. Navios Maritime Acquisition (“NNA”), a SPAC formed in June 2008, was an encore performance. In this instance, the company had two years to find an acquisition within the marine or marine logistics industries. The company was deliberate in their review of opportunities, given the uncertainty in the market and price discovery that was ongoing Ultimately, the company secured a distressed deal within the tanker sector whereby the Company committed to invest $457.7 million for eleven product tankers and two chemical tankers. The Company and Ms. Frangou evidenced their strong belief in and commitment to the deal by agreeing to buy, respectively, $45 million and $15 million of shares.
We Erred
Last week in discussing Navios Acquisition’s offer to reduce the exercise price of its warrants, we calculated the discount against the current share price, rather than the exercise price of $7. Using the exercise price, results in a discount of 19.3%.
We Don’t Need No Equity
In contrast, Nordic American Tankers, in its report for the 2nd quarter, announced that it has ample financial capacity to increase its fleet to 24 vessels (currently the company has 16 vessels on the water and 4 newbuildings to be delivered in 2010/2011), based upon today’s ship values, without tapping the equity markets.
Their strategy is simple and flawless, provided it is executed correctly. “We are in a good position to take advantage of strong shipping markets, which will mean increased dividend payouts. If markets are weak, we will be ideally positioned to grow our fleet accretively.”
Back Again
After successfully completing a follow-on offering in February, in which it sold 5.8 million units and raising $48.8 million, Capital Product Partners on Monday announced its intention to offer an additional 5.5 million units with a green shoe of 825 thousand units. Proceeds of the offering will be used to acquire the M/T Assos, an MR product tanker, for $43.5 million from its sponsor, Capital Maritime.
The M/T Assos is a 47,782 DWT chemical/product tanker built in Hyundai Mipo in South Korea in 2006. The vessel has been chartered through Arrendadora Ocean Mexicana to PEMEX under a time charter expected to expire in March 2014. The net base rate under the charter is $19,900 per day with operating expenses fixed through the charter period at $3,075 per day, exclusive of a management fee of $500/day payable to Capital Maritime.
Lowering the Bridge
Baltic Trading Limited filed this week a preliminary registration form to sell up to $126.5 million of common equity in a follow-on offering. As promised, the proceeds will be used to repay borrowings under the credit facility which were used to finance the three vessels acquired from Metrostar ($99.8 million), with the balance to be used for working capital and general corporate purposes. We will report next week on this transaction’s progress.
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