Assessing Alternatives To The Junk Bond For Shipowners

by Rhys Thomas, Chairman,Tufton Oceanic Limited

Shipowners, up-and-coming or already established, have one constant concern which is how to expand or renew their fleets; this concern is immediately followed by wondering how best to finance their ambitions.

Since mid 1997, a new phenomenon has appeared on the Ship Finance scene, the High Yield or Junk bond. Although not new to other industries ($125 billion issued in 1997, of which less than 1% was shipping), to the relative new boy, the shipowner, Wall Street altered its look and seemed more like Las Vegas. So why look at any alternatives to the Bonds? Why ask questions? After all, many wise men have extolled the advantage of ready cash. As the Yiddish saying goes

“With money in your pocket, you are wise, you are handsome, and you sing well too.”
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Company News

APL (American President Lines) kicked off its 150th anniversary and is now rapidly evolving into a complete provider of Global logistics services. The company’s merger last year with Neptune Orient Lines of Singapore has placed APL on six continents, and has provided the network of vessels, terminals, computer systems and highly skilled people to meet cargo customers’ expanding needs for logistics management combined with global transportation. One of the Company’s fastest growing business is logistics consulting and logistics management for customers who have worldwide manufacturing and distribution.
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Antitakeover Devices: Poison Pills and Shark Repellents for Ship Owners

by Gary J. Wolfe, Partner, Seward & Kissel

Ship owning has traditionally been a family business. While fleets remained within the family, ship owners did not have to worry about losing control of their fleets to anyone but back stabbing children. As generations change, however, ship owners are increasingly accessing the capital markets. The last two years have seen a number of ship owners make high yield note (junk bond) offerings. Several ship owners planned to go public before the present freeze in the corporate equity and debt markets.

When any entrepreneur takes his company public, he has to start thinking about the consequences. One of those consequences is that some outsider may come along and try to take over his company. When ship owners only control, as opposed to own, fleets, they have to start planning for unwanted approaches.
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Another Storm Brews in High Yield

While most of November brought a distinct calm in the high yield bond markets for shipping issues, it may have been an eerie lull on the leading edge of a another storm. Although for a while it appeared that initial anxiety about plunging prices seemed to have given way to the sentiment that we have hit the bottom and patience and curiosity had eclipsed raw frustration, at press time the bottom has fallen out from under Ermis and Alpha which are trading in the 20s.

On a more positive note, many issuers are communicating better with the investment community and bond buyers seem genuinely interested in understanding the credits either because they already own them or because they are looking for value at distressed levels. The fact is that for issuers and investors who have crawled into the same bed, the best hope of emerging victorious will come from working together. The feeling on the Street is more positive than it has been in months while bond market inflows last week were only $860 million, we think that has more to do with the time of year than it does with fundamentals. We see deals starting to line-up and the doors might open up again after the New Year. Continue Reading

Aframax Fever?

While the syndicated lending market continues to limp along with margins widening and originators cautious about closing deals until allocations are firmly committed, we are beginning to see stronger owners lining up capital in preparation for making strategic acquisitions.

The biggest, and we think most noteworthy, transaction presently in the market involves Bona Shipholding and highlights the importance of relationships, for shipowners, originators and debt providers. It is our understanding that Bona is close to closing on two tranches of ten-year revolving facilities totaling $500 million put together by Chase and Citibank. A look at Bona’s balance sheet reveals that the company has only $355.9 million in total debt, so even if the facility is used to refinance all its debt, it will leave Bona with approximately $144 million in cash for future acquisitions.
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Smarter is Better when Developing Ports

“Decisions to build and expand ports should be based on the economic and operating realities of their customers, and not on false economics of development incentives,” cautioned William Villalon, APL’s vice president and head of worldwide marketing, speaking before the World Economic Development Congress during its recent meetings in Washington.

Mr. Villalon also urged port officials to resist building “mega ports” except in those places where local conditions provide natural geographic advantages, access to large, nearby markets and other real-world benefits. In the absence of such advantages, he said, port builders should consider smaller, less costly “niche ports” that could serve a particular trade lane or commodity, or function as relay ports for larger, regional hubs. Some of Mr. Villalon’s other advice included: Continue Reading

Deconstructing PanOceanic

by Matt McCleery

If you think the call option in PanOceanic’s revised consent solicitation sounds too good to be true, we at Marine Money would tend to agree. While we applaud the attempt of the underwriter and the shareholders to make this deal work by recapitalizing the company and putting in more equity, we do not think that such a transaction is commercially viable based on the present value of the fleet and current charter rates. As always, the quality of show depends on where you are sitting so in the pages that follow we will provide a little background on the deal and review the key elements of the revised consent solicitation from the perspectives of the company, the bondholders and the underwriter.
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Movers & Shakers

On October 28, 1998 over 200 shipping and insurance executives, maritime arbitrators and attorneys met to discuss the conduct of maritime arbitration in New York and streamlining procedures and the use of discovery in such proceedings. The seminar was hosted by The Society of Maritime Arbitrators and The Maritime Law Association of the United States in conjunction with The Association of the Bar of the City of New York, The Association of Ship Brokers and Agents,The Connecticut Maritime Association and The Marine and Insurance Claims Association.

Featured speaker, HON. CHARLES S. HAIGHT, JR., U.S. District Court Judge for the Southern District of New York, stressed the importance of case management and the active, hands-on involvement of judges and magistrates in the court system to keep the docket under control. Other panel members, which included arbitrators, attorneys and industry “users” of New York arbitration, addressed the possible use of various case management techniques in arbitration. Other topics included the screening of witnesses proposed by one side or another for live testimony and the possible use of affidavits for direct testimony.
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The MAD Hatters of Maritime: Mergers, Acquisitions and Divestitures

by Geoff Uttmark

In the M&A business, one company’s diversification is another’s divestiture. It can be a spin doctor’s heaven, an accountant’s hell, a raider’s playground, a founder’s dungeon. Emotion-laden buzz words like proxy fight, poison pill, bear hug, predator, vulture, tomb stone and white knight are forms of investment banking shorthand to describe strategies and tactics. By the time the first press releases are issued, they may signal an amicable fait accompli or the opening volley in a dramatic, protracted contest for control. In the end, with dust settled, swords surrendered and dead buried, the spoils are measured in money; to be more precise, increased shareholder wealth which is the most prized outcome. If a deal does not produce immediate cash gratification, however, other end game strategies can compensate. Such can include a stream of cost savings from lower operating and capital expenses, enhanced revenues from improved equipment rationalization and organizational synergies, and a host of less measurable but nevertheless important benefits called intangibles, lumped together under the catchall “goodwill” to make accounts balance. In this respect, Benjamin Franklin had it only partly right. After leveraging his meager treasure to attend the University of Pennsylvania’s Wharton School of Business, Poor Richard’s advice today might read:
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CONSOLIDATION IN GREEK SHIP-MANAGEMENT?

Greek Shipmanagement has developed rapidly over the last 30 years.  Propelled by Greek Enterprise, an aptitude to shipping and the successful handling of shipping risk, Greek Shipping and Greek Shipmanagement have firmly occupied the top spot for over 2 decades.  Greek owned tonnage (directly or indirectly) accounted in 1998 for 130 million DWT or approximately 17% of the World fleet.

Whereas, however, most competitive shipping nations have tended to concentrate their shipping among fewer and larger ship entities, leading to the virtual disappearance of the small shipowner, Greek Shipping has tended to develop in a completely different mode.  Its development has been characterised by a plethora of small Greek companies managing but only a few ships.  In short, the Greek Shipmanagement industry has been highly fragmented.
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