Playing with Debt & Equity – 01/04/2007

OOIL’s $480 million Sale Leaseback with HSH

Anyone who has ever taken classical economics has seen the downward sloping line that is intended to represent the relationship between pricing and demand (i.e. as price goes up, demand falls). A business could from there extrapolate where to fix a price so as to maximize profit. A really successful business, however, could fix the price at each consumer’s willingness to pay so that the business could receive the highest price possible in each sale while each and every consumer in the market willing to pay at least cost could afford as much of the product as he desired.

This is all a very convoluted way of saying that in an ideal market all players could buy or sell as much as a given commodity as they desire at precisely their willingness to pay. The $480 million transaction that HSH Nordbank has structured for Orient Overseas (International) Limited (OOIL) is a transaction that does just that for risk, ownership and optionality. Not all details have yet been disclosed though we understand it was priced and structured in such a way as to be attractive to all parties involved.

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