Making the Switch: Why Choose One P&I Club Over Another?

Thinking of switching your P&I Club? You’d be in good company. Chevron recently moved part of its fleet from Britannia to the UK Club; and Lasco Shipping left Britannia, splitting its fleet between the Standard and North of England Clubs. Foresight moved some of its vessels from Steamship Mutual to the Swedish Club; and Soconav moved from BMM to Standard.  Regency Cruises departed Steamship Mutual for Newcastle; but Newcastle lost the Polembros fleet to Skuld, Liverpool and London and Ocean Marine Mutual.  If you’re debating whether to join the ranks of shipowners who have moved from Club to Club (or if you are purchasing new or used tonnage and are looking to join a Club), there are a few items you should consider.

Rates
Of course what is foremost in every owner’s mind is rates – how much and how often.  Up until a few short years ago, P&I Insurance premiums formed a small percentage of an owner’s insurance budget.  With incidents such as the Exxon Valdez, the Estonia and the Braer  disasters, there has been an explosion in rates, although increases do seem to be leveling off.  Continue Reading

Double Up and Beat the Dealer?

There are a lot of adages in the world of gambling: only increase your bet when you are winning or playing with house money; double up or double down and beat the dealer; don’t bet over your head; etc. It is hard to know which adage a company is following when, after more than three years of significant losses and even more significant negative cash flows, the company sort of goes for broke.

Argonaut AB of Sweden has had cumulative losses before taxes over the last three and a half years of over SKr465 million, and cumulative negative cash flow after investments and changes in USD exchange rate of SKr2,709 million over the past five and a half years. Its debt to equity ratio has grown from .6 times to 2.7 times since 1990, and its working capital has been barely positive over the last few years. Furthermore, Argonaut’s return on capital or on stockholders’ equity has been negative, or dismal at best – a fairly bleak financial picture for a company which has had operating revenues of over SKr700 million the past couple of years.  With this background, Argonaut went for the bomb in October 1994 with a maximum SKr395 million offering to subscribe with preferential rights for Series A and Series B shares. Continue Reading

Chevron Continues to Pursue Old Offering for Suezmax Refinancing

Chevron’s yet-to-be completed deal to sell and charter back four Suezmax oil tankers resembles Shell’s sale and leaseback for product carriers with First International Group of Companies completed a little over a year ago. Both deals include two tranches of debt finance tied to bareboat charters. But Chevron’s arrangement includes a few refinements, as well as peculiarities in favor of the oil major.

The investment bank of both deals is Donaldson, Lufkin & Jenrette (DLJ) of New York. But the Chevron deal has a slightly new dynamic, in what DLJ touted as perfecting its structure with the Securities and Exchange Commission (SEC). Chevron will keep the vessels on balance sheet through a financing lease which includes a $1 option to purchase the vessels at the end of the initial charters. This is unlike Shell’s arrangement, in which the vessels were off balance sheet and First International retained residual value of the vessels, banking on the product carrier supply situation for future success (see Marine Money Vol. 10, No. 3).

Chevron built termination payments into the charter which will provide liquidity for the debt issues. Shell, on the other hand, made its charters subsequent to having permanent finance in place, wanted the vessels off balance sheet, and made the issues when interest rates were lower. Continue Reading

Chevron Continues to Pursue Old Offering for Suezmax Refinancing

Chevron’s yet-to-be completed deal to sell and charter back four Suezmax oil tankers resembles Shell’s sale and leaseback for product carriers with First International Group of Companies completed a little over a year ago. Both deals include two tranches of debt finance tied to bareboat charters. But Chevron’s arrangement includes a few refinements, as well as peculiarities in favor of the oil major.

The investment bank of both deals is Donaldson, Lufkin & Jenrette (DLJ) of New York. But the Chevron deal has a slightly new dynamic, in what DLJ touted as perfecting its structure with the Securities and Exchange Commission (SEC). Chevron will keep the vessels on balance sheet through a financing lease which includes a $1 option to purchase the vessels at the end of the initial charters. This is unlike Shell’s arrangement, in which the vessels were off balance sheet and First International retained residual value of the vessels, banking on the product carrier supply situation for future success (see Marine Money Vol. 10, No. 3). Continue Reading

Carnival Corp.

Carnival Corp. is the indisputable leader of the cruise industry, holding approximately 25% of the cruise market. It is comprised of Carnival Cruise Lines, the world’s largest cruise line, Holland America Line, Windstar Cruises and Seabourn Cruise Line (25% owned), which combined operate 22 cruiseships in the Caribbean, Alaska and other worldwide destinations.  It also holds a 49% interest in Epirotiki Cruise Lines which is based in Athens, Greece and operates eight cruiseships in the Aegean and Mediterranean. Currently, Carnival Corp. has seven cruiseships on order with a total value of approximately $2.5 billion. These newbuildings are believed to foster Carnival’s earnings as they come into service. Continue Reading

Asia’s Marine Stocks Demonstrate Small is Beautiful

by K.K. Chadha and Marine Money Staff

The share price of Orient Overseas International Ltd. (OOIL), parent company of Orient Overseas Containers Lines, gained 68.33% last year, making it Hong Kong’s best performing stock on the exchange.

OOIL counter closed at HK$5.05 December 30, after registering a low of $2.775 and a high of $5.75 during 1994. The OOIL outperformed the Hang Seng Index, the main barometer of the Stock Exchange, by 145.04%. (During the year, the Index fell 32.23% to 8,191.04).

What was its secret to success? OOIL has completed an eight year restructuring program and produced better than expected results. It also ordered 4,959 TEU ships from Japanese and Korean yards. And the Company is rated at a discount to asset stock with a breakup value of no less than $9.00 per share, according to the January 1995 regional research report of Credit Lyonnais Securities. Continue Reading

Asia’s Marine Stocks Demonstrate Small is Beautiful

by K.K. Chadha and Marine Money Staff

The share price of Orient Overseas International Ltd. (OOIL), parent company of Orient Overseas Containers Lines, gained 68.33% last year, making it Hong Kong’s best performing stock on the exchange.

OOIL counter closed at HK$5.05 December 30, after registering a low of $2.775 and a high of $5.75 during 1994. The OOIL outperformed the Hang Seng Index, the main barometer of the Stock Exchange, by 145.04%. (During the year, the Index fell 32.23% to 8,191.04).

What was its secret to success? OOIL has completed an eight year restructuring program and produced better than expected results. It also ordered 4,959 TEU ships from Japanese and Korean yards. And the Company is rated at a discount to asset stock with a breakup value of no less than $9.00 per share, according to the January 1995 regional research report of Credit Lyonnais Securities. Continue Reading

Premiums, Subsidies and Tax Benefits Becoming Available to EU Members

by Dirk M. Dragt

The opening up of the ship registries of the Member States of the European Union to individuals and companies that are not original citizens or residents of the respective countries may result in new eligibility for premiums and subsidies by shipowners who are not original citizens or residents in the respective countries.

Further, various tax benefits may become available to shipowners who establish their activities in a European Member State. Tax benefits differ from country to country and are mainly found in accelerated depreciation, reservation of book profits on the sale of vessels for future investments, creation of reserves for investment in ships and similar types of tax grants.  Following is a survey of the various Member States’ premiums, subsidies and tax benefits schemes. Continue Reading

Pickle Leases May Be More Practical With the OECD Agreement to End Shipbuilding Subsidies

A longstanding problem in trying to use Pickle leases to finance vessel transactions has involved coordinating the lease with the multitude of national shipbuilding subsidy programs that exist around the world. This problem may be alleviated by the international Organization for Economic Cooperation and Development (OECD) Agreement to end shipbuilding subsidies which is going into effect next year. And, while some remain skeptical that the Agreement’s restrictions will stimulate use of Pickle leases, the truth remains that shipbuilding subsidies continue to be a deterrent despite structured finance and leasing companies’ claims that potential investors are plentiful. (Pickle leases still face the problem of being unattractive to asset players who don’t want long-term commitments to the vessels).

“The reason they [Pickle leases] are not getting done is not for lack of investors, or that there is something wrong with the structure, but primarily because of the difficulty of combining it with shipbuilding subsidies,” B. Harriss Cook of the Kleinwort Benson Group in London said. “There is also the trading issue; but, a possible solution to that is simply to bareboat sub-charter,” the structured finance expert said.   Continue Reading

Bond Fever Gives Way to Chills: The Heyday is Over, But Shipping’s Bond Market is Still Open

The situation in the high yield bond market – of which shipping bonds are a part – is, as one would expect, in the doldrums with no relief in sight before the end of the second quarter. Some improvement is expected in the last half of the year, and many predict a rally next year to reward new investors now venturing into the market. But, for most of 1995, trading will continue to be light in shipping, and the only people smiling are issuers who had the foresight in 1993 to lock in on capital at the lowest yield in decades.

Eletson Corp., the Greek tanker owner, is one of the savvy few now paying 91/4% for long-term capital that would cost 11% in today’s world. Still, these bonds are trading below par: for investors, as long-term interest rates rise, the value of bonds fall, and as long-term interest rates fall, the value of bonds rises. “Price drops due to overall shifts in interest rates discourage trading.  But Eletson is trading exactly where it should be as a strongly-rated, well-managed shipping company,” Jay Nawrocki of Citicorp Securities in New York said. “In Eletson’s case, the relative iliquidity of the entire market is hardly a problem given the fact that many of the current holders are buy and hold types who like the credit and are happy being in the paper,” he explained. Continue Reading