George be Nimble

by Matt McCleery

The moral of the story of Alpha’s restructuring is that a majority bondholder which has a cost basis in the neighborhood of scrap can afford to be generous. In a document longer than War and Peace and heavier than Bunker C, Alpha’s unsecured notes magically become secured, many of its aging ships become marketable commodities and the elimination of trade debt becomes part of the job description of CSFB’s most enthusiastic, incentivized and competent partner, George Economou.

We note up front that this deal has not yet been signed and that there will be an amendment filed shortly with the SEC which modifies the deal, though we do not know to what extent. *

As we see it, CSFB probably told George that it wanted to get 37 cents back on its bonds as quickly as possible, and that he was free to use any upside to help him finance in the bank market. The structure of choice is detailed in the chart on the following pages. The executive summary is that the fleet has been divided into two “parts” based on their perceived appeal to George. The idea is that George cannot exceed a certain ratio of one group to the other in an effort to prevent him from cherry picking. By incentivising George to buy back the fleet at a deep discount to current values, CSFB will not only get their price, they will get it as quickly as possible. And time is money.
Continue Reading

THE STATE OF THE INDUSTRY: A Dry Bulk Owner’s Perspective

by Esref Cerrahoglu

It is a great privilege to be in Monaco addressing this conference, especially as this coincides with the golden jubilee of His Serene Highness Prince Rainier. I am very pleased to be sharing the platform with such a distinguished panel of speakers and to be addressing such a knowledgeable audience.

We have been given a very wide topic on which to present our thoughts bearing in mind that world seaborne trade exceeds 5 billion tonnes per annum and is carried by a world fleet of over 700 million DWT. Therefore, I intend to restrict myself to the areas which I know best being the dry bulk market, and more generally shipping in the Black Sea and Aegean regions.

When I was first approached at the end of last year to speak at this conference, I agreed with some concern as our industry is experiencing its worst depression since the mid eighties. This depression has spread to all the major sectors – Dry Cargo, Tankers, Reefers and Liners – with only the Cruise sector still enjoying a relatively good market. I was worried that I would have to stand here and spread more gloom and doom to an already depressed audience.
Continue Reading

Debt in Drag

by Nicolai Heidenreich

Finally, we thought, shipping and capital markets would once again be joined through the holy matrimony of a new issue and not through the second marriage of a high yield restructuring. It would be a white wedding, we thought, involving the public equity of a reputable industrial container feeder operator as the bride. The structure was solid and creative, and we were very happy to hear festive jargon like “roadshow” and “underwriting fees” once again muttered under the breaths of shipping financiers everywhere.

Like every relationship, there were a few bumps along the road. Back in February, we heard the deal was a $200 million IPO structured around 12 vessels and a 10-year management structure. Then, we understood that the deal had been reduced significantly. Next, that the roadshow had been extended, and we got worried. In early May the announcement came: the groom had left the bride at the altar.
Continue Reading

THE BULLETIN BOARD: An alternative source for public equity

by Geoff Uttmark

In an industry as asset intensive and volatile as shipping, equity plays an important role. It can be a currency for acquisitions, but above all, it is a component of the capital structure that will not strangle a shipowner when the market turns sour.

Yet, public equity, especially from the US capital markets, has played a limited role in ship finance. The majority of vessels are financed with private debt and the equity component of such loans is usually provided by private investment by borrowers or, private equity investment funds and providers of mezzanine debt.

There are two reason for this. First, most shipping companies are too small to attract the attention (or be able to afford the fees) of underwriters. Second, the bulk shipping industry has not provided a return on equity that compares favorably with other offerings. There may be a middle ground for raising public equity in the US capital markets, though you won’t hear it from your investment banker – the now infamous “Bulletin Board.”
Continue Reading

High Yield – April 1999

High Yield – April 1999 Continue Reading

Bilaterals – April 1999

Bilaterals – April 1999 Continue Reading

Bilaterals – April 1999

Bilaterals – April 1999 Continue Reading

The Worst is Over (at least for the bankers)

by Matt McCleery

If there was ever any liquidity crisis in the commercial ship finance market, it seems to have blown over. Even banks that are nursing badly wounded portfolios are getting more and more deals done, giving us the impression that lenders are comfortable distinguishing between what will work and what might not. Despite the optimism, second tier names will continue to find it difficult to find financing until values strengthen or banks run out of “good” deals, but need to keep originating new loans.

Today, the mood amongst shipping bankers is both philosophical and positive. In the present market, they can pick and choose carefully the kinds of deals they do and then have superior leverage when negotiating terms and conditions. While there is no shortage of capital available “for the right project,” lenders have divided into two groups: those who view themselves as “corporate lenders” to organizations with diverse revenue streams and those banks who are taking a contra-cyclical approach to serving shipowners on an asset basis.
Continue Reading

Equity Analysts

Equity Analysts – Sorted by Company Continue Reading

WHEN TO BUY A SHIP: A 5-Step Process

by Geoff. Uttmark

Part One of a Two Part Series

Despite depressed freight rates, second hand values have been rising in the dry bulk sector. The best recent example is the sale of the Japanese handysize bulk carrier Hanei Pearl, 38,000dwt built in 1984, for $5.85 million, substantially more than the $4.9 million that George Economou of Alpha Shipping paid for her sistership, Sanko South, in November. In a broader context, Shipping Intelligence reports that bulk carrier values are up 10.5% in the last six months, while charter rates are down 3.2% during the same period.

In light of what some view as “irrational exuberance” in the sale and purchase market, we thought it appropriate to go back to the classroom to learn how to calculate the financial return on a shipping project. While stronger values have already emerged on the dry side, in celebration of Teekay’s “amalga-merger” with Bona, our analysis will use the much heralded (and frequently ordered) aframax tanker. The aframax tanker involved in our analysis is not an actor. She is a real vessel, playing the role of herself. For our analysis, we use real numbers, plausible assumptions (we think) and proper techniques. In the end, we will leave bankers and owners to decide just how to quantify a hunch.
Continue Reading