Links
So If It Isn’t a Hedge and You Can’t Gamble with It…
In the Markit Sovereign Report October 2011, Gavan Nolan, Director – Credit Research at Markit in the UK, takes a look at CDS liquidity noting that:
“Volumes in the sovereign CDS market have been buffeted of late by the uncertainty in the Eurozone. Question marks over the efficacy of sovereign CDS as a hedge and a ban on naked sovereign CDS positions may also have contributed to drop in trading.”
In commenting on the report, Otis Casey, his counterpart in the U.S., emphasizes that the lack of liquidity will mean that fewer people will be willing to use the hedge. Its value as a hedge is being diminished as the solution to the Greek debt problem involves a workaround to avoid triggering its CDS with the negative headlines that will result.
What We’re Reading
Our interests are varied and we are fortunate to receive many different and distinct publications covering sectors other than shipping and offshore. There are often bits and pieces in them which we find interesting or informative. Often we find a connection to our coverage or an interesting parallel. The following comes under the category of: “we are not alone.” We hope you find the following and future selections as interesting as we do.
Helane Becker of Dahlman Rose made the following comments in her weekly research, “Takeoffs & Landings: Reviewing the Regional Airlines” (November 7, 2011)
Selected excerpts appear below:
The Regional Model is Broken and the Companies are Suffering
In this week’s Random Thoughts section we discuss our view of the regional airline industry. There are three publicly traded companies and a host of privately held airlines; the Regional Airline Association lists 61 members!
Comment: The regional airlines are barely eking out profits; it wasn’t always this way, and it cannot continue this way. Right now, the capital markets are still open to these companies, but unless the returns improve, this won’t be the case for long.
Faces & Places
We received word this week, that leading German law firm, Ehlermann Rindfleisch Gadow, has expanded its practice, opening a new office in London to be led by former Watson, Farley & Williams partner, Richard Henderson. With the addition of Mr. Henderson, the firm will be better able to advise its clients on all aspects of English law relating to commercial shipping, shipping finance and restructuring. While the intention is to grow the new office, Stefan Rindfleisch, the firm’s managing partner, has no intention of losing the boutique nature of the firm, which has served its clients so well.
The Pool’s the Thing
While everyone touts the commercial advantages of pooling in terms of market presence, it does also provide unexpected benefits, in these difficult times, in terms of credit, liquidity and working capital. In a pool arrangement, owners charter their vessels to the pool and the pool, as disponent owner, assumes commercial management and charters the vessels out in the market. The immediate benefit of this arrangement is that ships upon entering into a pool are paid for the bunkers on board, with the pool then assuming responsibility for bunkering the member’s vessel. But perhaps more importantly, the pool utilizes its cash flow and credit lines, secured by voyage receivables, to provide working capital to the participants thereby smoothing out the irregular earnings of each member vessel, which are typically paid upon voyage completion.
Private Equity and Commercial Banking – a Powerful Partnership for Shipping
There has been a lot of discussion at Marine Money Forums in recent years about the role of private equity in the international shipping industry. While some believe that private equity has been “waiting” to make investments in the shipping industry, and others say private equity may not be an appropriate source of capital for the shipping industry, the facts prove otherwise.
In an effort to illustrate the significant impact that private equity is having on the shipping industry, we took the opportunity to create the table below, based solely on publicly available information. As you can see, we estimate that private equity funds have committed more than $10 billion of equity capital to the industry. We also think it is significant, and intelligent, that many of the larger funds have chosen industry “experts” to guide them in making their investments. To put the scale of this activity in perspective, private equity investments are greater than the total amount of equity raised during the IPO boom years from 2005-2008, combined.
A Friendly Banker – Navios Amends Note
Earlier this week Navios Maritime Acquisition Corporation and its parent, Navios Maritime Holdings Inc. (“Navios”) entered into a letter agreement amending the $40 million credit facility provided by Navios. Under the terms of the agreement, Navios agreed to extend the maturity date of the loan from April 1, 2012 to December 31, 2014 with consideration being a fee of $400,000.
Trailer Bridge – 11 also in its Future
On Wednesday, Trailer Bridge, Inc., unable to resolve its creditor issues, voluntarily filed for Chapter 11 in the Bankruptcy Court for the Middle District of Florida. The filing came one day after it’s $89.5 million of 9.25% Senior Secured Notes came due, likely triggering cross defaults in the Wells Fargo term loan of $4.4 million, the revolver also with Wells Fargo of approximately $5.9 million, the $5.1 million of 7.07% MARAD Bonds due in 2022 and $8.6 million of 6.52% MARAD bonds due in 2023. The company believes this action was the quickest and most efficient way to restructure its balance sheet and ensure the long-term strength of its operations.
Aligning our capital structure with the realities of today’s markets and economy – Genmar’s Plan
General Maritime Corporation announced today that it has reached agreements with its key senior lenders , including its bank group, led by Nordea Bank Finland plc, as well as affiliates of Oaktree Capital Management, L.P., on the terms of a financial restructuring that will strengthen the Company’s balance sheet and enhance its financial flexibility.
Under the terms of the restructuring agreement, Oaktree will provide a $175 million of new equity, of which $75 million would be used to pay down the senior secured facilities, and convert its pre-petition secured debt to equity. The Senior Lenders’ would agree to amend their credit facilities to provide an amortization “holiday” until June 2014, deferring cash payments of approximately $140 million for approximately two and a half years.
De Facto Dropdown – Teekay Offshore to Acquire Sevan Piranema
As part of the larger global agreement to acquire three FPSOs from Sevan Marine ASA, Teekay Corporation and Teekay Offshore GP LLC have agreed that Teekay Offshore Partners L.P. will acquire the Sevan Piranema, directly from Sevan, for approximately $165 million, subject to working capital adjustments. With a firm seven years remaining on its charter to Petrobras, it is one of two rigs in the package that has a minimum of three years employment necessary to meet Teekay Offshore’s parameters for purchase.
Songa Bond – Offshore Services Has the Ticket to Norwegian Bond Market
Last week, Songa Offshore SE successfully concluded a five year senior unsecured bond issue of NOK 1,400 million, at the high end of the proposed range. Led by First Securities, Nordea Markets and Pareto Securities, the offering was priced at par with a floating rate of six month NIBOR + 10%. With the impetus from a commitment in excess of the minimum amount underwritten by a consortium of investors, the deal was oversubscribed and sold mainly to institutional investors. Although the deal saw demand from the US and UK, the deal was largely placed in the Nordic market, which demand has proved vital in most sizeable deals in the Norwegian market this year. Proceeds of the offering will be used for general corporate purposes, including the initial installment of $113 million on the 2nd Cat-D rig. The company used a credit facility to finance the initial payment on the first rig. See the Guts of the Deal below for more details on the terms of the financing.
Established in 2005, Songa operates an aging fleet of 5 mid-water semi-submersibles to which they have recently added the Songa Eclipse, a new UDW semi-submersible delivered in August and on contract to Total for 18 months. While the average age of the on the water fleet is 25 years, this does not take into account the multiple upgrades to the rigs the company has undertaken, most of which occurred in the last seven years. And while the rigs may be perceived as old they have performed ably with an average quarterly fleet utilization of 93% since 2007. The majority of the rigs are contracted long-term with a total contract backlog of $4.45 billion. According to Nordea’s estimates, annual contract revenue for the balance of 2011 is 100%, 87% in 2012 and 65% in 2013. Counterparty risk is low as the rigs are contracted to major oil companies. Lastly, reflecting the capital intensive nature of the business, the company’s financial risk profile is somewhat aggressive, according to Nadia Bendriss of Nordea who points to net debt/EBITDA of 2.4x, FFO/debt of 26% and EBITDA/interest coverage of 6.4x. On the other hand, the company has improved its debt maturities and liquidity with the addition of the new 8.5 year $420 million facility as well as the $100 million facility.
The Official Guide To Marine Finance Providers
Shipping Index
