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Valuation Mayhem: Impairments are Coming, Impairments are Coming
It has to be realized that the traditional method of using NAV to value shipping assets is dead. With banks increasingly asking for capital from owners whose loans may be in some form of technical default, the issue is of paramount importance from Hamburg to London and shipping centers everywhere.
This morning, Moore Stephens Technical Partner David Chopping says, “In recent months, many of the world’s listed shipping companies have released their financial statements. It has been challenging. Companies have, amongst other things, had to consider whether their assets are impaired.”
There is insufficient vessel sale liquidity to easily establish vessel value. Brokers have been cautious about providing public valuations for months now. Public and private companies and their lenders are worried. It is a real and increasingly looming problem. There are book value covenants sometimes but these are not standard. However the valuation process stresses covenants. Frankly a whole bunch of owners and their bankers are underwater.
Complications Unwound. How DRYS Got There.
Last week, DryShips announced that it had agreed to acquire, from George Economou and other third party interests, the remaining 25% minority interest in Primelead Shareholders, Inc., the holding company and operating platform for DryShips ultra deepwater drilling rig assets including two owned and operational ultra deepwater semisubmersibles and 4 newbuilding drillship contracts as well as the commercial operating company, Ocean Rig ASA.
The transaction was structured to minimize the cash outlay and leverage with the price being dilution. Consideration for the transaction included $50 million in cash and the issuance of $280 million in face value of mandatorily convertible preferred stock, based upon a price per share of $5.36, the weighted average seven day trailing price. At the offering price, this equates to 52.2 million shares. The shares are manditorily convertible in four equal installments at $6.83 per share (a 27.5% premium) upon delivery of each of the four newbuilding drillships.
Who’s Lending?
By: Mary Irene Alexandrakis and Jim Lawrence
Banks and financial institutions remain at the center of attention, when considering the state of ship finance. The pessimist might argue that this is the end of borrowing as we knew it, with the extinction of the experienced international ship finance banks right behind. On the other hand, the optimistic view suggests that this crisis provides opportunities for banks and financial entities to flourish and even a window of opportunity for traditional ship lenders to earn some good returns.
Two of the four largest registries worldwide have provided us with a statistical sampling of their mortgages, which were registered from July 08 through May 09, and which arguably supports the optimists.
We want to thank the registries for responding to our inquiries as the information provides an interesting snapshot on the business of ship lending today. The data, we hope will prove useful. Before going further we also want to assure our readers that no proprietary or inappropriate information was shared. Together the fleets of our participants represent a substantial portion of the world’s fleet.
It is estimated that in 2008 the world’s shipyards delivered 2,173 ships.
Mea culpa!
Last week we erred in our report that Global Ship Finance was in default of certain covenants. In fact, technically, they are in breach of these covenants. We apologize for the error.
Hard Work, Rewarded
Danaos Corporation announced last week that it has reached agreement with Aegean Baltic Bank acting as agent to its $700 million revolving credit facility with HSH Nordbank, Piraeus Bank and Aegean Baltic, its $60 million credit facility with HSH Nordbank and Dresdner Bank and its $148 million performance guarantee with HSH Nordbank on waiver terms with respect to these facilities.
With this agreement, together with agreements reached earlier this year relating to certain of its other credit facilities, the Company has now obtained waivers through January 31, 2010 covering all prior breaches of financial covenants in its credit facilities as well as any subsequent breaches of these covenants.
The company is now in a position to complete its annual 20-F filing, which will provide greater details on the waivers.
Fixing Debt
Also, last week, Commercial Barge Line Company (“CBL”), a direct wholly owned subsidiary of American Commercial Lines Inc. (“ACL”) announced the private placement and pricing of its $200 million 12 1/2% senior secured second lien notes due July 15, 2017. The notes were issued at a price of 95.181% yielding 13.13%. Concurrent with this offering, CBL and ACL will close on a new four-year $350 million senior secured first lien asset-based revolving credit facility.
The proceeds of the notes and the credit facility will be used to repay ACL’s existing credit facility, to pay certain related transaction costs and expenses and for general corporate purposes.
The book-running managers for the notes were Bank of America, UBS, SunTrust and Wachovia.
TOPS Share Sale
Last week, Top Ships Inc. (“TOPS”) entered into a shelf registration to sell up to $500 million of common shares, preferred shares and warrants, including the sale of 70,462,300 common shares by selling shareholders. Contemporaneously, the company also entered into a Standby Equity Distribution Agreement (“SEDA”) with YA Global Master SPV LTD (“YA Global”), an investment vehicle managed by Yorkville Advisors LLC, who previously utilized a similar structure with OceanFreight. Under the latter agreement, which is sometimes referred to as an equity line of credit arrangement, TOPS has the option, for a three year period from the effective date of a registration statement, to sell its common shares to YA Global for a total of up to $200 million, at the company’s sole discretion. YA Global intends to sell up to an estimated amount of 70,462,300 of these shares.
More Normal?
Dealogic released its first half tables on Wednesday and they resembled, at least in terms of names, what we more typically expect, particularly in the case of the bookrunner table. Nevertheless, the newcomers from the 1st quarter did retain positions on the leader board. Total deal value grew to $17.5 billion comprised of 50 deals, versus the year earlier $43.1 billion comprised of 165 deals, continuing an expected trend. However on a quarter over quarter comparison, transaction volume declined a substantial 47.3% this year marking an even more worrisome trend.
The top 20 bookrunner table underwent the most change as it filled out from 8 banks in the first quarter to 17 in the first half. SMBC held on to first position increasing its volume by 71% and its market share to 6.5%. Nordea returned jumping to 2nd place with a 3.5% market share. SBI Capital fell to 3rd place with Mizhuo and DnB NOR rounding out the top 5. DnB Nor’s placement is significant and representative of its size and importance as its lending, oft repeated, is strictly limited to run-off. In addition to Nordea, the usual European suspects are back, including KfW, BNP Paribas, HSBC, Deutsche Bank, Citi, SG CIB and Calyon. RHB Investment Bank of Malyasia and Axis Bank of India were new entrants and added to the already significant Asian representation.
Global Ship Lease Continues to Struggle With LTV
Global Ship Lease (“GSL”) remains in default of the loan to value covenant in its $800 million credit facility with Fortis, Citi, HSH Nordbank, SMBC, KfW, DnB Nor and Bank of Scotland. As of December 31st, there was $542.1 million outstanding under the facility.
Among the many restrictive covenants, the company has breached and sought waivers from the banks for the LTV test, which provides for a maximum leverage of 75%.
Directly impacted by the economic recession, demand for liner services and therefore containerships collapsed last year. Consequently, there has been a dramatic decline in values and de minimis sale and purchase activity. With little activity and therefore no comps, there is hesitancy on the part of brokers to value assets. Hence the value of GSL’s fleet is a question mark. If, in fact the leverage test is exceeded, the company must either provide additional collateral or prepay the loan to cure the default.
A Grand Union?
Last Wednesday, Aries Maritime announced that it had entered into a letter of intent with Grandunion Inc, a company controlled by Michael Zolotas and Nicholas Fistes, that contemplates the acquisition by Aries of 3 Capesize vessels, with an approximate net asset value of $36 million, in exchange for ~16 million newly issued shares and a change in control of Aries’ board. Based upon a share count of 29 million shares, the new owners will control ~35.5% while the ownership interest of the company, affiliated with Messrs Bolin and Petridis, will have it’s interest diluted to ~ 33.1%.
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