A Cautionary Note

While we applaud and are fervent supporters of high yield, our memories are not short. We remember the late ‘90s when bonds were the flavor of the period.  Are today’s buyers of this paper any different from their predecessors? They were, after all, both QIBs. Are the buyers deluding themselves that risk is covered by yield? Are the rating agencies doing their job? And, more importantly, how strong are the credit skills and industry knowledge of the buyers? We do recall a discussion long ago with an analyst from a major life insurance company that, in fact, underwrote our life insurance. His analysis was based an overall portfolio approach. By building a portfolio of relatively small amounts of high yielding paper, the overall risk was offset by the total portfolio return.
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The World Tilts East

Dealogic issued the full year league tables for 2009 this week and there were few surprises. Volumes were down as one would have expected and there was a certain Asian flavor to the leaders.

Perennial leaders DnB NOR and Nordea were supplanted by Mitsubishi UFJ Financial Group, which took the number one spot in both the Bookrunner and Mandated Lead Arranger tables. This strong showing was based upon their strong relationship with NYK Lines, for whom they were the sole arranger on two deals totaling $2.5 billion and their lead position on the largest deal of the year, AP Moller-Maersk’s $6.5 billion transaction. Don’t cry for the Norwegians. DnB NOR held its own, finishing in 2nd place in both league tables. Their finish was largely determined by transaction size as the number of transactions were comparable. Nordea slipped to 5th in the bookrunner table but finished third behind DnB in the all-important MLA table.
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Don’t Forget Follow-ons

We hear word that Maxim Group is the lead underwriter for a $30 million secondary offering for Seanergy Maritime Holdings. Victor Restis is expected to put in $5 million. The deal goes to market the week of the 24th.

Swap to Extend

On Tuesday, Teekay Corporation announced a cash tender offer for all of its outstanding 8.875% Senior Notes due 2011. As of December 31, 2009, $176.6 million aggregate principal amount of these notes were outstanding. The total consideration for the tender offer will be $1,078 per $1,000 principal amount, consisting of a tender offer premium of $60 and a consent payment of $18 for early tenders. The offer, managed by J.P. Morgan, is scheduled to expire February 9th.
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Helping Out the Banks

In his recent sector report, John Parker of Jefferies highlighted a trend that began last year and continues today. Borrowers continue to replace bank debt with a combination of bank debt and high yield bonds. With these transactions, the banks benefit from reduced exposure, higher pricing and fees, while borrowers meet their liquidity needs albeit at a cost. High yield, as we have preached, is now becoming a staple of the balance sheet.

In the latest iteration, Marquette Transportation Company offered $250 million of senior secured notes due in 2017. Rated B3/B-, the notes which bear a coupon of 10.875% are priced at 98.81% to yield 11.125% (equating to a spread of T + 795 bps) slightly under the price talk of 11.25%. The pricing was superior to that offered to American Commercial Lines (B2/B+) in a similar deal done this summer. Those notes were priced to with a YTW of 13.5% (T + 1,013 bps), although they are currently trading at 104% with a YTW of 11.5% (STW 869 bps).  The notes will be secured by a 2nd lien on all of the issuers’ and guarantors’ assets that will secure a new credit facility described below. Details of the transaction are provided in the Guts of the Deal.
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Tianjin Inaugurates Shipping Fund

A group of investors celebrated the inauguration of Tianjin Ship Investment fund and has set sights on growing the fund to RMB 20 billion (USD 2.93 million) over the next few years. This is Tianjin city’s second major fund, approved by State Council and the National Development and Reform Commission of China. Continue Reading

A Great Catch

It is official! Hugh Baker, formerly of HSH-Nordbank and ING, will join Evercore Partners as a Managing Director reporting to Mark Friedman. According to Mr. Friedman, “ We feel very fortunate to bring Hugh to Evercore.  He is an extraordinarily talented banker with deep industry knowledge and strong relationships globally.   His skills and relationships make him a perfect fit for Evercore’s shipping restructuring and advisory practice.” Welcome aboard.

Catch-22

It’s not only about new money. Keeping your existing credit facilities may soon become a concern. In his recent report on Omega Navigation, Omar Nokta, of Dahlman Rose raised the issue in his discussion of Omega’s credit facility with HSH Nordbank, which is scheduled to expire in April 2011.

While not a pressing problem for most, it certainly is something to be aware of generally, particularly in the case of weaker credits. Shedding assets is a sure way of improving banks’ capital ratios, which is the means to increased lending. Of course, the bigger question is how does one go about refinancing the facility your banker does not want?

Transparency Rules

CMA CGM announced last month that it had come to terms with its banks, which have provided, as an intermediate step, a credit line of $500 million. This will allow the company to continue its restructuring efforts, which involves the restructuring of its debts, raising new equity and the cancellation or postponement of newbuildings currently on order in Korean shipyards.
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DFDS Aquires Norfolkline

In a structured transaction, DFDS Group acquired 100% of the shares in ferry and logistics company, Norfolkline, from A.P. Moller – Maersk A/S (“APM”). DFDS will pay a total consideration of approximately EUR 346 million on a debt and cash free basis. APM will subscribe to a directed issue shares of 28.2% of the share capital of DFDS, equivalent to EUR 172 million, and will receive treasury shares accounting for 0.6% of the share capital. Finally, the company will further acquire 333,241 shares from Lauritzen Fonden, bringing its aggregate shareholding in DFDS to approximately 31%. The parties have agreed to a 24-month lock-up from closing.
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