Mutually Assured Success

“Getting close to your customer” are words of advice whose value can never be understated. This week SCF Sovcomflot (“Sovcomflot”) announced that it had formed a strategic partnership with Russia’s major coal exporter, Siberian Coal Energy Company (“SUEK”). The inaugural step was the finalization of a long-term time charter for the ice-class Panamax bulk carrier SCF SUEK, which will service the new coal export terminal in the Bay of Muchke. As Sovcomflot states, it is all about providing customers with safe and reliable transportation.

OSG Tenders for its US Flag Offspring

Offering OSG America LP Unit Holders $8.00 in cash per unit, Overseas Shipholding Group, Inc. (OSG) announced that it intended to initiate a tender offer for all the outstanding publicly held common units. OSG, through current aggregated holdings, already controls 77.1% of the outstanding equity of OSG America.

“Evercore Partners and BofA Merrill Lynch are acting as financial advisors to OSG. Evercore Vice President Mark Whatley was with Merrill Lynch when OSG America L.P. went public. Whatley is part of the Evercore team, including Senior MD Robert Pacha and Elizabeth Cheever advising OSG now. Although temporarily sidelined on garden leave, we understand that Mark Friedman, who will be back in action next week when he starts as the co-head of transportation and the global head of shipping at Evercore Partners, was also very involved. Simpson, Thacher & Bartlett is acting as legal counsel to OSG.”

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Teekay TOO

On Wednesday after the market closed, Teekay Offshore Partners (“TOO”) announced plans to offer 6,500,000 common units, representing limited partnership interests in another follow-on offering. The agreement with the underwriters also includes a green shoe of 975,000 shares.

Today, the units were priced at $14.32, a discount of 6.77% to yesterday’s closing price of $15.36.

The net proceeds of the offering, approximately $100 million, will be used to repay amounts outstanding under one of their credit facilities, which bears interest at LIBOR plus 0.625% and matures in October 2014. Currently, TOO has in total 7 revolvers which provide borrowings of up to $1.45 billion of which $147.7 million is undrawn. With the availability reducing by a further $122.4 million over the reminder of 2009, this repayment will allow the partnership to be able to redraw on this credit facility in the future to fund acquisitions and for general partnership purposes.
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Size Makes No Difference

On Tuesday, FreeSeas Inc. announced that it had closed on its secondary offering of 10,041,151 shares, including the green shoe of 1,309,715 shares. Net proceeds to the company were approximately $16.7 million after deducting underwriting fees and estimated offering expenses.

The offering was priced last Wednesday at $1.80 per share or a 16.3% discount from the closing price, $2.15, the preceding day.

Proceeds from the offering are will be used to acquire an additional dry bulk vessel, as well as the repayment of debt and general working capital purposes.

Dahlman Rose was the sole book-running manager and Rodman & Renshaw served as co-manager.

Replicate, Replicate

A measure of a successful product is the fact that it is replicated. One-off deals do not amortize the cost of developing the product but once the template is created, there is little effort in doing the next one. As one of the main proponents of the Standby Equity Distribution Agreement (“SEDA”), Yorkville Advisors LLC (“Yorkville”) has been busy.

Having concluded its first SEDA with Yorkville in May, OceanFreight Inc. (“OceanFreight”) has come back for another, just a couple of weeks after Top Ships also entered into a similar agreement.

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Equity Overflowing

In the absence of the bank market, the equity markets have become the go to source of capital for companies of all sizes. Although dilutive, getting the cash with the added benefit of deleveraging the balance sheet is a great combination in these times.

The equity markets have been busy with a multitude of follow-on offerings announced this week. While we welcome this replacement capital, we wonder whether it has become too accessible and indiscriminant. In our awards issue last year, we likened the follow-on to a credit card. But that isn’t exactly true. There is no credit application. In this case all you need is a registration statement and the SEC grants the issuer a license to effectively print money. Under the guise of ATMs, SEDAs or overnight offerings, investment bankers simply place the shares in the market at a discount generating equity capital for the issuer. Is there somewhere here an analogy to cheap credit with soft terms? Arguably it does not. Since in this instance, it does not have to be paid back. Nonetheless, it remains troubling at least to us. Easy capital is an oxymoron. On the other hand, can there be too much of a good thing?
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Liberia’s Mortgage Action: Financial Crisis Breeds Thoughtful Response

Today it is not just shipowners who have cause to be concerned about their financial health, as we all know many of the world’s banks are shaky and have been rescued by government support. Liberia’s initiative in adopting the “Insolvency of Foreign Mortgagees Act” will enhance the security and protection of preferred ship mortgagees by emphasizing the rule of law in the event a Bank (holding a Liberian mortgage) fails.

The matter was particularly important within the German shipping market where the financial sanctity of the Pfandbrief (covered) bonds must remain absolute. That market has a total volume of about 805 billion Euro and approximately 7 billion Euro issued in Ship Pfandbriefen.

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Who Got the Better Deal?

Last week, the settlement agreement, between entities controlled by U.S. Shipping L.P. (“USS”) and Blackstone/Cerberus, with respect to the joint venture to finance, construct, own and manage U.S. flag product carriers, was made public in court filings. We would venture to say that it is impossible to determine whether either company got fair value for its investment, other than to say the settlement was negotiated in good faith with the intervention of a mediator. It is worth noting that the debtor, USS, had little leverage, given its minority interest and bankruptcy status. Moreover, it is currently hard pressed to finalize its reorganization and pre-packaged exit from Chapter XI. The Blackstone/Cerberus parties, on the other hand, have the controlling interest and deep pockets and ended up assuming USS’s interest in the partnership, as we will detail later on.

In the case of Blackstone/Cerberus, the admonition of being careful for what you wish for comes to mind. Substantial dollars have already been invested and lent into the now 100% controlled joint venture which now requires increasing amounts of capital to complete the remaining three ships. Two ships, delivered this year, are currently operating in perhaps one of the worst markets for the Jones Act sector in recent memory and the prospects do not look promising. The third delivers in December and will be followed by the last two in 2010. This could be a veritable money pit.
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New Finance Associate for Watson, Farley & Williams

Watson, Farley & Williams LLP (“WFW”), a leading international law firm, is pleased to announce the appointment of Stephanie Kwara to the Singapore office as an associate in its International Finance Group.  Prior to joining WFW, Stephanie was with Shook Lin & Bok LLP’s banking team.

Look Beyond Current Gloom in Shipping, Banks Told

Amid challenges rise opportunities, and ship financing institutions ought to see beyond the current gloom in the sector to appreciate its long-term potential, participants at a ship financing seminar were told. 

Nazery Khalid, Senior Fellow at MIMA said that despite the devastating economic crisis, consumers and businesses need to use goods and materials, and nations need to continue to trade. 

“Shipping will always be at the forefront of trade transportation by carrying much of the world’s global trade”, he said.  “As such, the sector will be the first to benefit from the global economic turnaround, and financial institutions which continue to support the sector during these lean times will stand to capitalize on the sector’s recovery”, Nazery predicted. Continue Reading