Win, Win, Win – OSG, OSP and Shareholders

That’s what can happen when one mixes up smart companies, independent Boards and informed shareholders, and it is what will finally happen in this close-knit deal.

Earlier this summer OSG indicated it would tender for OSG America LP (OSP) at $8. Then on August 27 they announced they expect to initiate that previous tender in September 2009.

That announcement follows OSP’s Conflicts Committee’s review of the $8 offer and its recommendation to OSG that it not proceed at the current level, but that if it did the Committee could only recommend to Unit holders that they reject the offer.

There is a great deal to watch as the process goes forward. In a situation this close praise is due to OSP’s Conflicts Committee, fiduciaries for the public shareholders, which reviewed the possible tender offer and responded with several qualitative and quantitative arguments for a higher bid. They pushed back, not surprisingly, but in a way that clearly keeps the dialogue going.

Continue Reading

And Now For Something Completely Different – A Word From a Banker

Although you might not notice, it’s not just earnings season for the customers; the banks also have to report to their shareholders. In most cases, bank earnings, as a consequence of size and multiple business segments are impenetrable and therefore hold little interest for us. But when DVB reports, we listen. As a transportation specialist, DVB’s report is of particular interest, as it provides an up close and personal look at a ship lender, in terms and numbers we can understand.

During these times of crisis, DVB, in certain respects, can be likened to an orphan. It is not owned by a German state and its simple sustenance is derived from highly cyclical transportation businesses. Without the benefits of other “siblings” or businesses, the bank’s success is closely tied to how they manage risks, both credit and funding.

The results for the first half-year according to management were satisfactory in light of the current market environment. Net profit before taxes was down 28% to EUR 61.3 million. However, DVB correctly notes that the severity of the financial crisis did not appear until the second half of 2008 and consequently first half results were not burdened by the effects of the crisis. Moreover, the shipping markets were performing relatively well last year compared to the first half of this year. In short, the year over year comparison is somewhat disingenuous.

Continue Reading

Food for Thought – Mkt Cap/Capex

Rates are down, operating costs can’t go any lower, current capital obligations are being tweaked every way possible and cash is being counted like a stressed out heart beat. Adding to the pressure, a tidal wave of capital expenditures looms on the near horizon.

We have taken a close look at a slice of the publicly traded dry bulk community and examined the future reported Capital Expenditure position of individual companies, their market caps and the relationship between those market caps and Capex obligations. Perhaps the story is familiar, but the detail is most interesting.
Continue Reading

Finding Liquidity

Wilh. Wilhelmsen this week announced the sale and leaseback of its headquarters in Lysaker, Norway. Noting that its core business is within the maritime industry, and the difficult financial markets, this transaction represents a favorable long term financing. The property was valued at NOK 522.3 million.

Get it whenever and wherever you can.

Tightening the Screws

Last week, Global Ship Lease (“GSL”) announced that they had come to terms with their bankers, Fortis, Citi, HSH Nordbank, DnB NOR and SMBC, with respect to an amendment of their $800 million credit facility. The amendment incorporates the following main terms:

• The LTV covenant is maintained at 75% but is waived through November 30, 2010, meaning the first test will take place on April 30, 2011. Ongoing testing is conditioned upon the availability of valuations.
• Amounts borrowed under the facility will bear interest at LIBOR plus 3.50% through November 2010 and thereafter pricing will be on a grid of 2.50% to 3.50% depending on the LTV.
• The $82 million purchase of the CGM Berlioz will be funded by a $42 million drawdown on the facility, no less than $20 million from cash on hand with the balance of no more than $20 million funded from an over advance loan (“OAP Loan”) under the facility.
• The OAP Loan has repayments scheduled for November 2009 and January 2010 based upon free cash flow in excess of $20 million. In any event, the loan must be repaid in full by June 30, 2010.
• Concurrently, with the Berlioz funding, all undrawn commitments, approximately $200 million, will be cancelled and the facility will convert to a term loan.
• CMA CGM has agreed to defer redemption of its $48 million in preferred shares until after the final maturity of the credit facility in August 2016. Dividends on these shares will be permitted. In addition, CMA CGM will not reduce its holdings of common shares below the current level of 24.4 million until the conclusion of the waiver period, November 2010.
Continue Reading

Navios, Yet Again

Last week Navios Maritime Holdings announced that it had acquired two additional Capesize vessels, currently under construction at the same South Korean shipyard for delivery in the 2nd half of 2010. As it has in the past, the company purchased the vessels for a combination of bank debt, cash and mandatorily convertible preferred stock. As Ms. Frangou noted in discussing the transaction, “Using mandatorily convertible preferred stock continues to be a competitive advantage as we are able to issue equity significantly above the current market price of our common stock while engaging in transactions that are accretive to our existing shareholders. To date we have employed this financing technique to acquire six new building Capesize vessels and refinance three existing Capesize vessels.”
Continue Reading

Engaged!

This week Sokana Chartering Inc. and Navig8 announced that they had formed a joint venture company, Navig8 Chemicals. The two companies were well acquainted but operated in different sectors of the tanker market. Sokana commercially manages 30 chemcial tankers ranging in size from 8,600 DWT to 29,000 DWT. Focusing on the larger sizes, Navig8 manages 70 product carriers in 3 pools representing the handysize, MR and Aframax segments. Clearly not competitors, the companies saw their businesses as complementary and are now in a position to offer a full range of services to their clients. In addition to expanding their offerings, the companies have increased their coverage worldwide through four offices, Westport, London, Shanghai and Singapore and will benefit from a combined back office and systems. Finally, the partners believe the new venture is well positioned for future growth and hope that the new expanded platform will attract new tonnage.

If the engagement goes well, marriage is likely in the offing.

It Did Serve a Purpose

Ship Finance did, in fact, use their ATM program during the 2nd quarter when they issued 1.4 million shares of the original 7 million registered at a weighted average price of $12.24 per share. The net proceeds, of approximately $16.5 million, together with bank loans of $90 million were used to partially finance the repurchase of $148 million in face value of its senior notes due 2013. The notes were purchased for 84.5% of face value, or approximately $125.4 million. The company recognized, as a result, a non-recurring gain of $41.7 million.

Too Much of a Good Thing?

What was Ole Hjertaker thinking we wondered when we read that Ship Finance had terminated its ATM program? Having put the program in place as the company’s CFO, he was now dismantling it as its new CEO. The bank market is barely warming up and, in our mind, you can never have enough capital these days. Moreover, the Fredriksen empire has always been built around optionality.

The product, too, was competitive and efficient. Up front fees were low as was the market impact. By dribbling in the equity, the drop in share price from the day before the filling to the announcement was insignificant compared to larger overnight offerings. So, why let it go?
Continue Reading

The Arbitration Route

d’Amico International Shipping also announced last week an increase in the number of arbitrations involving its joint venture with ST Shipping and Transport, Glenda International Transport, and SLS Shipbuilding of Korea. Most recently the company commenced arbitration with respect to the contracts for the construction of two 51,000 DWT product/chemical carriers (hull nos. S512 and S513).

These actions are subsequent to the recent commencement of proceedings under the contract for hull number S511.

Continue Reading