We know that General Maritime’s dynamic duo, Messrs Georgiopoulos and Pribor are on the road marketing their $300 million senior unsecured notes offering due in 2017 and so, while they are busy selling we thought we would take a read of the high yield market.
Earlier this week, Navios Maritime Holdings closed its successful $400 million private offering of first priority ship mortgage notes due in 2017. Rated BB-/Ba3, the coupon on the notes was 8.875% and was priced to yield 9.125%. The company escrowed $105 million of the proceeds to provide additional financing to complete the purchase of two new vessels with the balance used to repay existing credit facilities.
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Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:
Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.
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In Korea today the subprime crisis is all about the shipping industry. The historic close relationship between shipowners, yards and Korea’s largely government sponsored banks is raw in a way all sides wish it were not.
Owners looking for funds are finding banks constrained by liquidity and a rising cost of capital, while small and medium size yards suffer under a thin refund guarantee market and concerns that banks will not fund the next round of deliveries. Banks, on their part, bemoan their inability to step up for owners and worry that an influx of foreign banks such as SocGen, Garanti, DVB, and DnB will alter the future landscape by developing relationships with owners today. The reality, though, is that it is much more likely banks like KDB will create new solutions, providing both themselves the returns they seek and their clients the funding that they need. Meanwhile for the moment orders must be financed and Korea’s growing community of owners is looking for funds.
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Written by:
marinemoney | Categories:
Freshly Minted,
Market Commentary | September 11th, 2008 |
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According to various sources, Nordea and DnB, having escaped the subprime debacle, continue to build market share. Other European banks remain somewhat constrained lacking the support of their central banks. In Germany, we understand HSH Nordbank is very active and now taking a look at the offshore business.
Written by:
marinemoney | Categories:
Freshly Minted,
Market Commentary | September 11th, 2008 |
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It was great news for the equity markets this week when Safe Bulkers got out its Merrill Lynch and Credit Suisse- led IPO. While the deal did price $1.00 below its $20-$22 target range, it’s been so long since we’ve seen any shipping IPOs that the very fact of a new deal getting done is a good sign. But the real interest this week was in the oil market, and Marine Money could not have asked for a better time to host its 10th annual Norway Ship & Offshore Finance Forum. The gathering was full of those hearty souls that will shape the next generation of oil production and discovery, financing and building machines to pull oil out of 12,000 feet of water, through thousands of miles of crusted salt, and anywhere else it can be found. The gathering formed the epicenter of the activity that is the focus of the better part of the world’s citizens.
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Jumbo loans have officially returned with the announcement by BW Group that it has executed a 5-year $3 billion facility with a consortium of 11 banks, which committed a total sum of $5 billion against BW Group’s $3 billion requirement. Nordea, DnB and ING acted as bookrunners of the facility, and they were joined as mandated lead arrangers and underwriters by Svenska Handelsbanken, Swedbank, HSH Nordbank, Danske Bank, Fortis Singapore, OCBC, Deutsche Bank and HSBC.
Is Hawaii the Next Puerto Rico?
As we have seen in the Puerto Rico market since the demise and withdrawal of Navieras, a little bit of extra capacity in a captive market can really pollute rates and destroy capital. Competition in the Hawaii market will be further exacerbated by the coming arrival a new Pasha-owned ro/ro working on the trade lane between Los Angeles and Hawaii. If there is a bright spot here, it is that the Hawaiian economy has been strengthening and might even be able to handle the added capacity.
Using Equity to Finance a Debt Deal
The debt financing of these vessels will be another interesting facet of the OceanBlue deal. We highly doubt that Caterpillar will be involved in ships that will compete against those in which they have already taken a considerable amount of risk. Moreover, with the vessels essentially operating in a “start up” business and with book values that make them totally uncompetitive in the international market should the startup not work, we think bank debt will be low. Therefore we would expect to see this deal financing with at least 50% equity and quite possibly more. This would give the lenders the ability to get out whole should they need to remarket the vessels on the international market.
Ocean Blue and the Need to Beef Up
One challenge associated with raising equity for OceanBlue will be the fact that the exit strategy is unclear unless DnB and Jefferies are able to make investors comfortable with the idea that OceanBlue will be able to beef up its business through newbuildings or acquisitions and then go public at a multiple of its book value. But where will they look to expand? With the supply demand balance of Jones Act markets extraordinarily tight, it will be both difficult and expensive to find good assets. If they are able to sell this story, though, then the IPO of Horizon Lines will come at a very good time by creating a comparable valuation that will get potential OceanBlue investors excited. The challenge therefore, is that OceanBlue is really a debt deal that needs equity – but at the end of the day, we have little doubt that the new Kvaerner ships will end up being consolidated into Matson or Horizon. There have been rumors that Alexander and Baldwin has been thinking of selling off Matson Navigation, though Horizon is the more logical choice in light of the age of their fleet and the fact that they are raising fresh equity. After all, Horizon Lines will need the ships at some point, and the economics of these ships is actually pretty reasonable. Moreover, Kvaerner might well shut down after the obligation to deliver these final vessels is fulfilled, which would make it very difficult for Horizon to find large ships at a comparable price.
As we have seen in the Puerto Rico market since the demise and withdrawal of Navieras, a little bit of extra capacity in a captive market can really pollute rates and destroy capital. Competition in the Hawaii market will be further exacerbated by the coming arrival a new Pasha-owned ro/ro working on the trade lane between Los Angeles and Hawaii. If there is a bright spot here, it is that the Hawaiian economy has been strengthening and might even be able to handle the added capacity.
Using Equity to Finance a Debt Deal
The debt financing of these vessels will be another interesting facet of the OceanBlue deal. We highly doubt that Caterpillar will be involved in ships that will compete against those in which they have already taken a considerable amount of risk. Moreover, with the vessels essentially operating in a “start up” business and with book values that make them totally uncompetitive in the international market should the startup not work, we think bank debt will be low. Therefore we would expect to see this deal financing with at least 50% equity and quite possibly more. This would give the lenders the ability to get out whole should they need to remarket the vessels on the international market.
Ocean Blue and the Need to Beef Up
One challenge associated with raising equity for OceanBlue will be the fact that the exit strategy is unclear unless DnB and Jefferies are able to make investors comfortable with the idea that OceanBlue will be able to beef up its business through newbuildings or acquisitions and then go public at a multiple of its book value. But where will they look to expand? With the supply demand balance of Jones Act markets extraordinarily tight, it will be both difficult and expensive to find good assets. If they are able to sell this story, though, then the IPO of Horizon Lines will come at a very good time by creating a comparable valuation that will get potential OceanBlue investors excited. The challenge therefore, is that OceanBlue is really a debt deal that needs equity – but at the end of the day, we have little doubt that the new Kvaerner ships will end up being consolidated into Matson or Horizon. There have been rumors that Alexander and Baldwin has been thinking of selling off Matson Navigation, though Horizon is the more logical choice in light of the age of their fleet and the fact that they are raising fresh equity. After all, Horizon Lines will need the ships at some point, and the economics of these ships is actually pretty reasonable. Moreover, Kvaerner might well shut down after the obligation to deliver these final vessels is fulfilled, which would make it very difficult for Horizon to find large ships at a comparable price.
Written by:
marinemoney | Categories:
Equity,
Freshly Minted | February 10th, 2005 |
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