A Committee of One

As a young member of the venerable White Hall Club in downtown Manhattan, where shipowners, brokers and charterers passed the afternoons sipping martinis by the pailful, with a bucket on the side, reminiscing about the days of yore completing deals around the bar, I started a committee to increase luncheon traffic.

It was 1985 and luncheon traffic was off, way off. The markets were down and had been save for a few shining moments since 1973. It had become hard to complete a deal when the same twenty five owners, brokers and charterers came each day primarily to lament the passing of the good old days.
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Buy or Be Bought? Achieving Killer Whale Status in Shark Infested Waters

by Nicolai Heidenreich

There are two different reasons for a ship owner to enter the merger and acquisitions market, either to buy or to sell. A company may be looking for a target for any of the reasons set forth in the previous article, or it may be in the market to divest all or part of its operations for many of the same reasons. This article deals with the process of buying or selling a ship owning company which is distinct from buying or selling individual vessels, a process I presume owners are familiar with.

In the following pages, the methods used for valuing a company are explained. These methods are what investment banks do when hired as merger and acquisition (M&A) advisors. We first look at an acquisition, providing an explanation of the valuation methods used, accounting considerations and other important issues a ship owner should consider before initiating contact with an advisor. The second part of the article views an M&A deal from a seller’s perspective. The valuation methods for either process are the same and are therefore covered in the “buyer” section of the article. Both sections of the article will examine the process of buying or selling up to and including negotiations and execution of the deal.
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Alpha’s Modest Proposal

Despite the growing number of failed consent solicitations from shipping issuers, Alpha may be the one to reverse the trend. It is our understanding that the  company and its underwriter, Citicorp Securities, have approached larger bondholders to get a sense of how they would react if asked to unlock funds from vessels that he has sold so that principal George Economou can bring three capesize bulk carriers into the Alpha fleet which he has recently acquired through Drytank S.A. Under the terms of Alpha’s indenture, the funds are supposed to be used toward the acquisition of “unencumbered assets”, which the capes are not.
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Potential Effects of an Economically Constrained Japan on Shipping Finance

by Peter Swain, First National Bank of Maryland

The following was excerpted from a speech delivered to the Marine Money/IIR ship finance conference at the Mandarin-Oriental Hotel in London on September 30th and October 1st. We have excerpted only the fourth section of Mr. Swain’s remarks, which deals with the potential effect of an economically constrained Japan on shipping and shipping finance in the future. The original title of the speech was “Assessing Banks as a Financing Source: Today & Tomorrow”.
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Movers & Shakers

BERIT HENRIKSEN, executive vice president of DEN NORSKE BANK ASA New York, told attendees at the recent WISTA (Women’s International Shipping & Trading Association) conference that, when financing ships, “the unexpected can and will happen, and when it does, it moves fast, so keep your options open.”

MARINUS MINDERHOUD stepped down as chairman of ING Barings and accepted responsibility for its poor performance.  ING Group N.V. recently cut 1,200 jobs at its ING Barings unit. The new chairman will be David Robbins, 48, chief executive of ING Barings.
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MC SHIPPING, Inc.

What is managed like a sector fund, yields like a municipal bond and is priced like an at-the-money call option? If you chose the equity of MC Shipping (symbol MCX) you would not be far off course. Like the mutual fund, MCX diversifies its holdings over many shipping sectors. Like the muni, the stock’s yield is about seven percent. And like the neutral call, the price is modest and downside risk limited.

MC Shipping’s common stock is actually none of these, of course. For starters, diversification across sectors in an industry high in covariance has not shielded the equity from market risk. As the company approaches its tenth anniversary in a depressed shipping climate, its stock is trading at USD1.25-USD1.50, a mere tenth of the initial offering price of USD 15 per share in May 1989. Nor is the current dividend of ten cents per share anywhere near as secure as a bond coupon. Last year the dividend was sixteen cents, but in two of the past five years the pay out was omitted entirely. Perhaps comparison of the equity to a call option is the closest fit, at least at current price levels. Continue Reading

The Far Away Bank

by Matt McCleery

“I really do think you’re crazy,” Joe McAleer said matter-of-factly to your humble correspondent as our ancient nine-seat Cessna aircraft plunged 2,000 feet on its way to a dramatic crash into Nantucket Harbor.

I suppose it’s a broker’s business to be calm under pressure, but Mr. McAleer’s ability to dissect a Marine Money article on Marine Transport Lines as our airplane, piloted by a 16 year old girl wearing sweatpants and a Patagonia jacket, flew sideways from Providence, Rhode Island to Nantucket was truly remarkable. For my part, I am not sure what made me more nervous – the red lights flashing on the instrument panel, the fact that our pilot was wearing sunglasses on a very stormy day or that, in Mr. McAleer’s opinion, Jones Acts rates will never go above $22,000 per day.
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Facing Up To The East – One Year Down The Line: Addressing the Global Impact of the Asian Crisis On Ship Owners, Managers and Financiers

Presented by Mr. Rajaish Bajpaee, President and Group Managing Director, The Eurasia Group of Companies, Hong Kong, to a Marine Money/IIR ship finance conference in London on September 30th.

Chairman McCleery, delegates and fellow speakers, good morning.

The dramatic downturn in the Asian economy has created a great deal of concern within both the Asian and international shipping communities. The international trade in goods and services has reduced as Asian countries are facing rapidly increasing costs for imports as a result of the dramatic fall in the value of their currencies. This has led to a reduction in demand for tonnage with subsequent pressure on freight rates.

In my remarks this morning I will be examining from a macro perspective the global impact of the on going Asian economic problems in relation to the shipping community, and in particular, how this crisis has affected regional ship owners, managers and financiers. To best cover this broad topic I have divided my presentation in to several specific areas.
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Credit News

THE HOLT GROUP INC.’S corporate credit rating was affirmed at a double -’B'-minus and a single-’B'-plus senior unsecured debt rating by Standard and Poor’s. The ratings were removed from CreditWatch, where they were placed June 24, 1998. The outlook is now negative. The rating follows the announcement that Holt is no longer in active discussions to purchase Gothenburg, Sweden-based Atlantic Container Line. No offer by Holt had been made. Holt owns about 17% of Atlantic Container Line, plus options to acquire an additional 12% of the company. This transaction was expected to cost at least $130 million and most likely be debt financed. Atlantic Container Line is a medium sized operator of car carriers, RoRo (roll-on/roll-off) and container vessels on the North Atlantic trades which has reported solid performance. For the second quarter of 1998, Atlantic Container Line’s operating income increased slightly to Swedish krona (SKr) 213 million from SKr 208 million and nonoperating lease-adjusted debt to capital is under 40%. However, Atlantic Container Line remains exposed to fluctuations of rates on the North Atlantic trades.
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The Credit Crunch Paradox

We exist in a moment of paradox.

The most promising shipowner of today owns no ships. The soundest shipping banker has no loans in his portfolio. The sharpest buyer of shipping high yield bonds hasn’t yet bought any and the slickest trader of shipping equities has 100% in cash. In short, a mythic buying opportunity is developing concurrent with a global tightening of credit and a heightened regulatory environment. This will amount to an extreme reshuffling of shipping assets and a changing roster of players in the industry.

In our opinion, depressed rates and tightened credit will create a significant barrier to entry and will accelerate consolidation. Further, it will be only those shipowners with the strongest balance sheets, or newcomers to the industry with fresh money, that will emerge as the winners by purchasing modern tonnage at distressed prices. As for the bankers, we think that those lenders who are in the position to build new portfolios, rather than play nurse to wounded ones, will be in a position to develop meaningful relationships with quality companies.
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