Semper Paratus: Or, Some Thoughts if You’re Not!

(Editor ‘s note: Preparedness is crucial when dealing with distress situations.With that in mind, Marine Money spoke with several of the world’s leading ship managers. Some of their thoughts follow.)

Lately it has been fashionable to decry the enormous spreads that shipping companies pay for their high yield debt as compared to similarly rated businesses in other sectors. However, considering that dry bulk rates are almost as low as the depression era mid ’80 and container rates are only slightly better, taken together with a Far East economic situation that threatens to spill further abroad, maybe the capital market are just seeking value for money.

How fast will PanOceanic burn through the extra funds it is currently seeking? Will Millennium will ever pay off its debt? These are legitimate questions given in today’s market.
Continue Reading

Movers & Shakers

Robert Dibble has left Wilde Sapte to join the London office of LeBoeuf, Lamb, Greene & MacRae where he is heading up the shipping and aircraft finance practice.

George P. Malanga has been appointed Senior Vice President and head of the shipping finance department at Den norske Bank, New York Branch. He replaces Ted Jadick, who has been appointed head of DnB’s Representative Office in Piraeus. Malanga comes to DnB after 11 years with the Bank of New York, where he was Vice President and Deputy Division Manager of the Marine Transportation Division. He has been involved in the shipping industry at Bank of New York and Irving Trust Company since 1987, most recently as a senior relationship manager for a number of Bank of New York’s Greek and U.S. Shipping customers.
Continue Reading

Millenium Seacarriers: Along for the Ride

by Matt McCleery

In a breathtaking example of a lofty initial yield, bond swapping and some last minute window dressing triumphing over simple arithmetic, Millenium Seacarriers was priced to yield 12-3/4% with an equity kicker of 5% thrown in for good measure. With an overvalued fleet, a plethora of fees, significant forward chartering risk, a dozen break-even charters and an oddball fleet that is moving awkwardly from advanced middle age into retirement, it’s time for investors to strap on their seat belts and get ready for the ride. We just wish we could invest in the management company.
Continue Reading

MID-TERM PERSPECTIVE FROM A HIGH YIELD ISSUER

by Vassilis E. Kertsikoff, Chief Financial Officer, ELETSON CORPORATION
Delivered to the Ship Finance Forum at The Palace Hotel in New York City on June 23rd.

What brings me here today is very simple: Eletson was only second after Teekay (a company I will also refer back to later) to tap the high yield market in the fall of 1993. November 1998 exactly marks the mid term point of this financing, a fact which gives us a unique perspective and makes us bona fide qualified to talk about our experience. That’s indeed what I’m here to share with you today – the past, what has happened in the interim and some glimpses of the future intertwined with some words of caution.

As of late shipping seems to have found in high yield the goose with the golden egg. To those professing that high yield is not as important in the grand scheme of things, I would suggest visiting Piraeus for a few days. I can tell you high yield today occupies center stage in every owner’s and financier’s thinking not only in Piraeus, but Oslo and Singapore as well, for slightly different reasons I’m sure. So, we only need to make sure then that the goose stays alive and prospers in the next five years as well.
Continue Reading

Lease Finance in the Shipping Industry

by James R. Lawrence, A presentation made to the Equipment Leasing Association’s Big Ticket Conference in La Quinta, California

I noted with interest that shipping has been placed last on a very full Equipment Leasing Association agenda. At Marine Money’s Ship Finance Conferences, it is interesting to note that we usually place structured finance, also known as leasing, last also. The reason is simple. There has always been leasing in shipping but, for a variety of reasons, a most common refrain is “we’ve looked at lots of deals, but get few done.”

But that is changing.

World trade is growing at a rate 2.5 times world GDP. The general stature of the industry provides inexorable proof that business will be different in the next century. 95% of world trade goes wholly or partly by sea or waterway. The world’s vital industrial and agricultural raw materials and products can only be transported by ship. 60% of the world’s crude oil travels by sea. Asia, including Japan, imports some 55% of world dry bulk cargoes and, put together, Asia and Europe account for 93% of total world dry bulk imports.
Continue Reading

UNITED STATES TAX-BASED CROSS-BORDER LEASING

by Philip H. Spector, partner, Watson Farley & Williams

The U.S. tax-based leasing industry is active in the financing of ships and other big-ticket assets. Until recently, ships have not been a favored asset due to the long tax depreciation period for vessels and the “Pickle” rule, which stretches the tax depreciation period even longer when foreign lessees are involved. However, those limitations apply to sale-leaseback structures. Over the last two years, new structures have emerged that are not subject to these limitations. Many vessel owners have exploited the U.S. leasing market.

Basic U.S. Cross-Border Leasing Models
U.S. tax-based leasing involves two basic models. In the “asset model”, the U.S. equity investor purchases the asset from and leases the asset back to the foreign owner. The depreciation tax benefits available to U.S. owners of assets leased to foreign lessees were reduced in 1984 with the so-called “Pickle” rules. The deductions are limited to straight-line over the longer of (i) the asset’s “class life” (18 years in the case of a vessel) or (ii) 125% of the lease term. These rules made leasing of ships uneconomic. A Clinton Administration budget proposal would change the rule to straight-line over 150% of the class life, but this would not help matters much.
Continue Reading

THE WEDDING IS OFF

by Ffoeg S. Kramttu

Discount cash flows, discount asset values, but never discount the regulators. Within days of our going to press last month, the European Commission’s Merger Task Force raised the ante for the proposed union between Royal Pakhoed and Royal Van Ommeren to the point where Pakhoed bolted.

Providing yet another proof of the truth in Murphy’s Law, the proposal to merge Van Ommeren and Pakhoed into a new company to be named VOPAK failed to clear the first hurdle cited last month in MM. As we cautioned, the EC Task Force took exception to the high market share the new company would command in independent oil tank storage capacity. As we said a month ago:
Continue Reading

Ship Finance: Legal Year-in-Review

by Ashli E. Mulholland

A Mountain of Growth, Views on High Yield Deals
Law firms we spoke with indicated several areas of growth in the past year. Industry consolidation, and the financial restructuring which comes with joint venturing and mergers, created a mountain of ship finance work for maritime law firms the world over. High yield bond work and complex commercial litigation were peaks unto themselves while every firm we surveyed in the U.K. stressed an increase in structured finance. Finance leases and capital markets work were plentiful round the globe.
Continue Reading

Owners to New York: Show us the Execution

by Matt McCleery

The title of last year’s 8th Annual Ship Finance Forum wrap-up article was “Owners to New York: Show us the Money”. As we gathered at the New York Palace Hotel in late June for Marine Money’s 9th Annual event, not a solitary delegate could argue that the Big Apple had not come through with the cash. This year, Marine Money also hosted the 1st Annual Ship Finance Tutorial, which provided an introduction to the art of ship finance. This experiment was so well attended that the morning it was to begin, organizers had to move the event to larger conference and dining rooms. The fact that John Fredricksen was one floor below the tutorial, pitching his Sea Transport High Yield deal was indeed encouraging for those who have decided to embark on a career in ship finance.
Continue Reading

Movers & Shakers

Bona Shipholding has announced that Rudolph I.J. Agnew has resigned as Chairman of Bona Shipholding and that he will be replaced by Leif O. Höegh effective June 24th, 1998. Mr. Agnew stated that his resignation signifies the end of a challenging five years as Chairman of the Board of Bona Shipholding Ltd., which as included the establishment of Bona as an independent company, a successful Initial Public Offering and the expansion of the Company to the position of a leading independent operator of medium sized tankers in the Atlantic basin.
Continue Reading