Frontline Ltd.: Pumping Up the Volume

We view the recent $9.5 million en bloc acquisition by Frontline Ltd. of Cambridge’s equity interests in three special purpose tanker owning companies as the most fascinating deal of the year to date. Because the high yield debt involved in these deals is investment grade, the “reds” were circulated to a different group of investors and analysts. Further, it is interesting to note that the ratings for these deals were issued not by the shipping analysts at Moody’s or S&P, but by corporate finance analysts. One result is that details of these deals have remained largely outside of the purview of the popular shipping press.

Other than marveling at their ability to weave gold out of straw, we have taken a consistently negative view of Cambridge’s activities in the capital markets. In our opinion, long term success in shipping is achieved with real equity and real commitment to ownership. Recycled fees and commissions do not meet our definition of at-risk equity. We are uninterested in Cambridge’s motivations for selling other than to suggest that it is connected to recent activity involving Cambridge’s other deal, Navigator Gas Transport.
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Ermis Maritime: Taking It On The Chin

by Alan Ginsberg

The toughest thing about seeing Ermis Maritime Holdings join the lower  tier of high yield shipping issuers is that it did not have be that way. The Alafouzos Family has established a reputation as a quality operator of newbuildings and secondhand tonnage, maintaining the ships to a high standard and then receiving better than average prices when it came time to sell the vessels on. While it is a sweeping generalization to state that Greek owners are reluctant to sell ships to one another, nevertheless, the Alafouzos Family has been able to do just that and get top dollar as well. In this article we will endeavor to explore why this issue was so poorly received in the capital markets. As we shall see, Merrill Lynch’s maiden voyage as lead (and, in this case, sole) underwriter of a high yield shipping deal was a rocky one.
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High Yield Valuations: Learning to Fly

We have previously expressed our opinion that the recent spate of shipping issues will soon allow the industry to achieve the critical mass necessary for it to take a permanent position in the high yield markets. In our opinion, the biggest threat to this happening is not equity-thin deals from questionable sponsors coming to market – we believe that the rating agencies and investors can smell them and punish accordingly. No, we are most concerned over a loss of investor and rating agency confidence in appraised vessel values and its impact on future deals.

High yield deals sink or swim on the basis of their cashflows, but recent superficial headlines have focused on the subject of valuations.
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Citicorp & Traveler’s Group: At the Altar

While the Citi never sleeps, on April 6th, it was particularly restless. It was, after all, on that Monday that Citicorp and Traveler’s Group Inc. announced their engagement to marry their operations. In a truly modern fashion, the newly formed group will use the equivalent of a hyphenated surname, Citigroup, and with $700 billion in assets, the union will form the biggest financial services company in the world. The new couple will reside under the familiar red umbrella that has been the long time family shelter of the Traveler’s Group. Continue Reading

NYK & Showa Announce Plans to Merge

Citicorp and Traveler’s Group aren’t the only ones to announcement plans for a merger this spring; NYK and Showa Line are also planning a stroll to the alter in October. The merger will result in the formation of the biggest shipping company in Japan, operating a fleet of 540 vessels.
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Newport News Exit from Commercial New Building a Serious Jolt to US Maritime Industry: Last Two Eletson Vessels Flipped to Hvide Van Ommeren

In a move long anticipated by Marine Money, Newport News has formally announced that it will exit from commercial shipbuilding. Further, the company has canceled the last three Double Eagle Tankers for Hvide Van Ommeren, for whom two others are well into steel cutting. The remaining two Eletson vessels under construction will be delivered to Hvide Van Ommeren as well. Newport News will remain in the commercial vessel repair business.

Newport News has lost a reported $310 million in pursuing commercial newbuilding. This includes a pre-tax charge of $150 million against 1997 results to cover the costs associated with contract cancellations, close out costs, and continued higher than expected costs associated with Double Eagle production.

The announcement ends an epic corporate effort to revitalize US commercial shipbuilding. While there will be plenty of blame to pass around, the commercial sales team, led by Ed Waryas, delivered orders in the face of significant worldwide skepticism.
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Mega-Container Ship Trends and Impacts on Terminal Infrastructure

by John Vickerman

Introduction
Ongoing changes in container ship design and deployment, directed by the economics of international shipping, will trigger fundamental and wide-ranging changes in the development of U.S. seaports and their road and rail connections. This paper discusses market/industry trends and projected impacts on waterside and landside infrastructure. It also addresses projected impacts on operations and national public policy issues which are closely linked with infrastructure development.

Information in this paper was developed under contract to USDOT, using West Coast ports as case studies. Comparable information on East Coast and Gulf ports is currently being developed.
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MC Shipping: Casualty of the High Yield Glut

by Alan Ginsberg

When MC Shipping successfully raised $100 million in ten-year Senior Notes last month, it marked another shipping milestone: it is the most recent of the late-80′s, publicly-traded shipping funds turned perpetual companies to tap into the high yield market. Like B+H and Global Ocean before it, these companies were pretty much given up for dead by investors and analysts. By and large, the operating performance of these closely-held, thinly-traded companies could easily lead one to believe that they had been kept alive for the steady stream of management fees and chartering/sales commissions which they generated for affiliates of their respective principal shareholders. It is worth pointing out that MC Shipping’s 1994 common stock rights offering was the only previous attempt by any these companies to grow out of their old fleets.
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Kicking the Keel with “Enhanced” Valuations

There is an expression in the American vernacular that the wisest buyers of secondhand cars are those who “kick the tires” to make sure the car doesn’t fall to pieces.

At a time when the average amount outstanding per shipping loan is climbing, margins are eroding and the Asian financial crisis is giving bankers butterflies, the need to “kick the keel” becomes that much more important. JE Hyde’s recently announced on-site “enhanced” vessel valuation product attempts to do just that. At presstime, Hyde’s is already working on an enhanced valuation for a client, so we thought we’d give a quick review of what they’re up to.
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Musical Chairs with Jones Act Product Tankers

For those of you who missed it, we begin with the Executive Summary. There will be a quiz:

Newport News decided to give commercial shipbuilding a go and Eletson ordered four Double Eagle product tankers in 1995. In 1996, General Partners Hvide Marine and Van Ommeren teamed up to form HVO and ordered 5 more Double Eagles from Newport News. Life was good at Newport News, until construction problems and delays caused Eletson to reject the the ship, Despotico, in Winter of 1997. Mobil took delivery of the ship, named her American Progress, and began trading her out of Mobil’s Beaumont, Texas refinery. Eletson has agreed to take delivery of the second ship, but has opted out of the third and fourth.
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