First Buy

Diana Containerships Inc, a majority-owned subsidiary of Diana Shipping, entered into agreements to acquire, from a third party seller, two 3,400 TEU newbuilding containerships constructed at TKMS Blohm + Voss Nordseewerke GmbH for EUR 37.3 million which equates to approximately $45.5 million. The first vessel is scheduled to be delivered on June 25th and will enter into a 9 to 12 month charter with A.P. Moller – Maersk at a gross rate of $16,000/day. The second vessel is scheduled to be delivered in the first half of July with no employment arranged as of yet.
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Volatility and Uncertainty? Where?

Any concerns the market or we had with respect to volatility and uncertainty in the markets were put to rest last Thursday when General Maritime priced its follow-on offering.  While being an established company was key, we also noted the positive trend in the share price as both the vessel acquisition and follow-on offering were announced. The result was in our estimation remarkable. Described as a blowout, the deal was over 2 times oversubscribed with all the shares purchased by institutional buyers Due to demand, the deal was upsized by 20% and yet no one received their full allocation.  Moreover, from a pricing perspective, the shares were discounted by the typical 4.5% from the day’s closing price. While the transaction was accretive and positive in the long run, the results were a strong vote of confidence in Peter G. and his entire team.

Like the earlier high yield offering, it had to be done and the whole world knew it (the downside of transparency), not a favorable position for any seller. Yet Genmar’s team of bankers together with management clearly overcame that problem raising net proceeds of $195.6 million (exclusive of the green shoe), which when combined with the proceeds of the credit facility provided available financing totaling $567.6 million and therefore a funding gap of $52.4 million based upon the agreed purchase price of $620 million. However given the demand for the shares it is a near certainty that the green shoe will be exercised generating further gross proceeds of ~$31million making the gap easily manageable.
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Sale!

Don’t miss the opportunity! According to Vogt and Maguire Shipbroking’s weekly report, “newbuilding activity continues to be relatively brisk. It is said that 480 (mainly dry) vessels have been ordered so far in 2010.” One might wonder that if owners today cannot find finance for the current deliveries how will these new orders be financed? Of course, having been done at lower prices and in line with current values, the banks might find them less risky. Then there are the old-line conservative market timers. U-Ming Transport is reported to have placed orders at Shanghai Waiqaoqiao Shipyard for two option two 206,000 DWT Capesize bulkcarriers for $60.4 million each as well as two option two 82,000 DWT Post-Panamax bulkcarriers for $35.2 million each. Having recently reviewed the company’s financials for our rankings issue we know they can pay cash for them if necessary. Liquidity is a wonderful thing these days.

Private, Public and Strategic Equity – All are important!

The subject of outside equity, by which we mean equity that belongs to someone other than the party that controls the vessel, has become a central one in ship financing. A combination of scale required to be competitive in shipping, the high dollar price of modern assets, lending constraints and the fact that both public and private equity sources are interested in shipping has made this component of the capital structure relevant for almost every shipowner.

Raising outside equity allows operators to grow beyond their owns means, divest without losing control, use their skills to make opportunistic investments they might not otherwise make, share risk for themselves and their heirs — and in many cases create entities that have a good chance of existing in perpetuity.
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Tough Sell – The 144A Equity Market

Touted for speed and ease of execution, the 144A equity market, when it works, is a wonderful tool. It is particularly suited for smaller deals, which are less attractive to the investment banks and are not large enough to do an IPO while still allowing the sellers to retain a 50% interest.
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Price Issue Resolved

OceanFreight announced this week that the previously announced reverse stock split was approved by shareholders last week and became effective as of the start of trading today. The 1-for-3 reverse split will automatically convert three current shares of the company’s common stock into one new share of common stock. The split will reduce the number of outstanding shares from approximately 238.1 million to 77.3 million shares with a commensurate increase in the share price.

Pure Play or Mixed Fleet?

Is it time to diversify to diminish risk? Mr. Fredriksen clearly thinks so or perhaps sees more opportunities with his companies being more closely aligned. Previously, Knightsbridge Tankers ordered two newbuilding Capesize bulkcarriers. This week they added a third acquiring the M/V Golden Future, delivered from Zhoushan Jinhaiwan Shipyard in February 2010, from the Golden Ocean Group, a related company, for a purchase price $72 million. The vessel is employed a 3-year time charter at a gross rate of $31,500 per day. The transaction is subject to the approval of Knightsbridge’s lenders.

This was an opportunity for Golden Ocean to diversify, which it did by taking partial payment in shares of Knightsbridge. Knightsbridge will pay $25 million of the purchase price by issuing to Golden Ocean 1,464,515 restricted common shares and will finance the balance through a senior secured credit facility, although it will evaluate other alternatives. The shares were priced at $17.07/share a 4.2% discount to the prior day’s closing price.
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Dismantling?

It is a sad moment, when a company is forced by circumstances to sell pieces of itself, particularly when that company has been involved in shipping for 127 years. In that vein, Camillo Eitzen & Co. (“CECO”) announced Tuesday the sale of its majority shareholding (74.43%) in dry bulk operator, Eitzen Bulk Shipping to Navieras Ultragas Ltda, a Chilean shipping company, for $92.9 million or $5.07 per share. Navieras will be required to submit a mandatory public offering for the remainder of the shares meaning Eitzen may hold the record for the shortest life as a public company having begun trading on the Copenhagen Exchange only last December.

DnB’s Glen Lodden found some good news amidst the bad suggesting that CECO received a good price for their shares. The shares had opened at DKK 25.10 with the offer made at DKK 31.00 per share. Based upon the sale, Mr. Lodden’s calculation of NAV increased from NOK 3.66 to NOK 6.51. He maintains his buy recommendation but will revise the target price downward due to the weakness in Eitzen Chemical’s shares.
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No Pressure Just a Must Deal

General Maritime pulled out all the stops retaining a litany of Wall Street’s bankers to assist in the sale of its common stock needed to complete the financing of five VLCCS and two newbuilding Suezmax tankers from Metrostar. Debt financing is in the process of being arranged, with Nordea and DnB NOR, in the amount of $372 million, representing 60% of the purchase price. The facility is conditioned upon a successful equity offering to make up the remaining balance of $248 million plus any working capital needed. In this period of volatility in the markets, this is no simple deal. Adding further complications was S&P’s recent downgrade of the company’s debt to a B rating. This rating however needs to be put in the context of S&P’s overall view of shipping, which considers Teekay and OSG as BB and BB- rated respectively a few notches above Genmar’s.
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Posidonia: Business as Usual

By Kevin Oates

Crisis in Greece.  Defaulting on debt? Riots! Those visiting Posidonia would never know we are living in such a turbulent time.

As we all know Posidonia takes place every two years.  The prior one in June 2008 was before the financial and shipping crisis hit hard. The parties were big, the exhibition impressive, the mood buoyant.  In June 2009, many were thankful it was not a Posidonia year.

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