At Last!

On Monday, Danaos Corporation announced the restructuring of the company having reached agreement with the banks for the restructuring of its existing debt, the provision of new debt facilities and, lastly, the sale of $200 million of new equity. This gargantuan and time-consuming effort will put the company on sure footing going forward.

First and foremost, under the agreed terms all 14 of the company’s lenders have agreed to provide $426 million of new debt financing to partially fund its existing orderbook. The existing loan facilities of approximately $3 billion have effectively been re-written with amortization and maturities rescheduled, interest margins reduced, and financial covenants, events of default, and guarantee and security packages revised.
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Maintaining Tradition

We were disappointed to learn yesterday that Randee Day’s temporary stewardship of DHT Holdings was coming to an end, although she will retain her position as non-executive director. The new management team will consist of Svein Moxnes Harfjeld, as President and CEO and Trygve P. Munthe as COO. Women will jocularly note that it took two men to replace a woman.

During her short five-month tenure, Ms. Day played key roles in positioning the company for flexible growth through the creation of the existing holding company structure, while coming to terms with dissident shareholders, MMI. The new management team can focus simply on strategically growing the company. Both gentlemen are highly experienced and qualified to awaken what until now has been a quiet cash flow generator. Mr. Harfjeld has held senior positions within the BW Group, including Group Executive Director and CEO of BW Offshore. Munthe most recently served as director with Arne Blystad and prior to that as CEO of Western Bulk, President of Skaugen Petrotrans and CFO of I.M. Skaugen. We expect that the new team is up to the challenge and wish them the best of luck.
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The Banker’s Tale

While small issues remain, the credit intensive problems are under control according to a banker we spoke with. Yet there still are only 6 or 7 banks open for business, but open does not mean wide open. There is no pressure from senior management to do deals or fill the pipeline; the lessons of the past have been learned. The priority is to avoid mistakes and do profitable deals opportunistically whether with existing clients or new clients if the deal is exceptional. Banks are allocating their limited capital to attractive well-priced deals with good risk. Doing nothing is a viable strategy these days.
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A Random Talk on Wall Street

This week we spoke with a few shipping investment bankers to get an assessment of what is happening on Wall Street during these hot summer days and what might be waiting in the wings when September arrives. While there are some differing opinions, mainly with respect to the banks, activity in the capital markets remains strong, in general, with strong undercurrents of potential activity in shipping. Some even suggest that we might not have to wait for September, as is typical. In the pipeline are IPOs, follow-ons and even M&A transactions. What follows is a compendium of views on the various opportunities as well as some thoughtful commentary.

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Paying the Bill

Ms. Angeliki Frangou and her team will search everywhere for funding, leaving no opportunity unturned. And certainly no one is more creative. To pay for Navios Maritime Acquisition Corporation’s recent purchase of VLCCs, the company announced, last week, that it would give the holders of the 25.3 million outstanding warrants issued in the initial public offering (“Public Warrants”) a limited opportunity to acquire shares at a reduced price. The offer is coupled with a consent solicitation accelerating Navios Maritime Holdings ability to exercise certain warrants on identical terms.
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Apropos of DryShips

Last week Vantage Drilling Company successfully completed a bond and equity offering which will allow it to acquire the 55% interest in Mandarin Drilling Company it does not own from F3 Capital, a company controlled by the main shareholder of Vantage. Mandarin owns the construction contract for a drillship, the Platinum Explorer that is to be delivered this November. The drillship, which is being constructed at DSME Shipyard (Daewoo) in South Korea, can operate in water depths of 10,000 feet with a maximum drilling depth of 40,000 feet. The shipyard construction price is $630 million, which price increases to $740 million including owner furnished equipment. The drillship is contracted to ONGC, India’s national oil company, for five years at a rate of $590,500/day. In addition to the acquisition, the company intends to use the proceeds to refinance its existing debt, including its credit facility and the 13.5% notes issued by its subsidiary, P2021 Rig Co., and for general corporate purposes.
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German Shipping Crisis

By Aymeric Pahl – Marine Money Intern

The economic crisis has resulted in extremely choppy seas for the German maritime industry. According to a study of 101 German shipping companies, surveyed by PricewaterouseCoopers, 84 percent had to adjust their funding models last year. Three out of four companies were forced to improve their liquidity position by raising fresh equity or by selling real estate investments. Every second company had to lay up ships or postpone planned newbuildings.

Looking at Figure 1, it is obvious that the situation is worse today than in 2008/09. Reports of postponed and cancelled shipbuilding contracts in the past twelve months, as well as staff layoffs and reduced working hour arrangements, seem to be more frequent this year than they were in the previous one.
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The Economic Impact of piracy on Ship Financiers

By Martin Brown, Ince & Co., Singapore

It is an unfortunate, but inevitable fact that piracy has always been an inherent risk in shipping and over the last couple of years an increasingly commonplace event in certain waterways, such as the Gulf of Aden.  This escalation has resulted in a number of recent developments in terms of the control that owners and charterers of vessels have regarding the location to which vessels may be ordered to go, and the implications on charterhire payable – these developments have an inevitable impact on mortgagees.  This article seeks to examine this impact, on the assumption there are no issues with the legality (or otherwise) of making ransom payments.

Due to the number of increased attacks on vessels, BIMCO amended the standard piracy wording for a number of its charters and contracts of carriage in 2009.  The following is an extract of the standard wording for time charters (with the critical words underlined):
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Bunkering a la Carte

By Robert Kunkel, AMTECH

Sitting in my automobile at a major truck stop, I pressed up against the passenger window watching my wife fill the tank at the gas station. She opened the cap, connected the bunker hose, wrestled with it to determine why it didn’t fit properly in the spout – then scratched her head and realized we were parked in front of a diesel pump. The result was not a swift movement to the next pump delivering “regular or super”, it was a concerned discussion with her technical manager.

“Can we use diesel?” she asked.
“No” her technical manager replied.
“You’re sure?” she asked again.
“Positive – disastrous results, trust me.”
“I have to move to another pump?” was the next question.
“Without a doubt we have to move.”  I answered.
“What a pain in the ass” was her comment.
“Consider yourself lucky the correct fuel is available within a short distance, otherwise we’re walking.” The engineer responded.
“Consider yourself lucky I don’t hitch a ride with one of the truckers that CAN use diesel – and let YOU walk” was her final reply.
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Ships to Razor Blades – The Costs Associated With a Green Passport

By Moira Maresky, Holland & Knight LLP

Introduction
Increasing calls for the responsible disposition of vessels have, inter alia, resulted in the adoption of the Hong Kong International Convention for the Safe and Environmentally Sound Recycling of Ships, in May 2009 (the “Hong Kong Convention”). This article will highlight some recent developments relating to ship recycling, including the Hong Kong Convention, and the impact of such developments in assessing the residual value of vessels.
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