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Transparency Reigns – All Leases to Be Capitalized
We are extremely indebted to Thor Andre Lunder and Kay Lim of DnB NOR for their excellent analysis of the new leasing proposals from which we have borrowed heavily for the factual information contained below. The opinions, unless stated otherwise, are ours.
Let the negotiations begin. The IASB and FASB have begun the process of establishing a new accounting model for leases by circulating an exposure draft for comment by all interested parties. In essence, the favorable off balance sheet treatment of leases, like other hidden gems, will not be tolerated in this age of transparency. Leasing joins other off balance sheet structures, such as SPVs, that have fallen victim to the credit crisis. But that may very well be a good thing.
Clarification
Last week we reported on Ship Finance’s acquisition of three Supramax bulk carriers and need to clarify two points. First, the vessels were acquired charter-free with employment arranged separately. It is therefore likely that they are worth more today encumbered with the long-term charters. Also, we erred in our assumption that the vessels will be debt free at the end of the average nine-year charters. Clearly, they remain favored borrowers of the banks.
Life Preserver – K-Sea Receives Equity Investment and Restructures Debt
Yesterday, K-Sea Transportation Partners L.P. announced that KA First Reserve, LLC (“KA First Reserve”), a partnership between First Reserve and Kayne Anderson Capital Advisors, agreed to invest up to $100 million in exchange for approximately 18.4 million convertible preferred units (the “Preferred Units”). All of the sales proceeds will be used to repay outstanding debt and pay fees and expenses related to the transaction.
The Preferred Units will have a coupon of 13.5%, with payment-in-kind distributions through the quarter ended June 30, 2012 or, earlier, should the Company resume cash distributions on its common units. Applying simple interest, the investment could increase to roughly $130 million over the PIK period. The Preferred Units convert on a unit-for-unit basis into common units at KA First Reserve’s option. The Preferred Units were priced at $5.43 per unit, which represents a 10% premium to the 5-day volume weighted average price of K-Sea’s common units as of August 26, 2010, but a 22% premium to the closing price the day prior to the announcement. The Company will have an option to force conversion after three years if the price of K-Sea’s common units is 150% of the conversion price on average for 20 consecutive days on a volume-weighted basis. In connection with the Preferred Unit investment, KA First Reserve will appoint three directors to the board of K-Sea’s general partner and will be granted the right to acquire a 35% interest in the entity that owns the Company’s Incentive Distribution Rights, or IDRs.
Taking Control – Seanergy Buys Out the “Minorities”
Last week, Seanergy Maritime Holdings announced that it had entered into letters of intent for the acquisition of the remaining ownership interests in Bulk Energy Transport (50%) and Maritime Capital Shipping (51%) that it does not own. Following the acquisitions, the Company will wholly own a fleet of 20 dry bulk vessels with a combined cargo-carrying capacity of approximately 1.3 million dwt and an average fleet age of 12.8 years. In terms of vessels, the diversified fleet will consist of four Capesize, three Panamax, two Supramax, one Handymax and ten Handysize dry bulk carriers. The sellers are related companies due to the common shareholder, the Restis family.
As Predicted, Warrant Program a Success
Today, Navios Maritime Acquisition Corporation announced the successful completion of its warrant program. Of the total public warrants, 76.13% were exercised, exceeding the minimum threshold of 75%, thereby allowing the exercise of the private warrants. The final tally showed 19,262,006 public warrants were exercised of which 19,246,056 were exercised on a cashless basis and 15,950 were exercised by payment of the $5.65 cash exercise price.
As a result of the successful conclusion of the program, Navios Maritime Holdings (“Navios”) and Angeliki Frangou will exercise 13,835,000 of the privately issue warrants for cash. The remaining 90,000 private warrants will also be exercised of which 75,000 will be done on a cashless basis.
Going Long – SFL Leases
As a “leasing company”, Ship Finance has a different perspective. They are in deals for the long haul, which was evident in today’s announced acquisition of three 57,000 DWT Supramax bulkers for $100.7 million. One of the vessels is on the water, having been built in 2009 with the others coming in 4Q 2010 and 1Q 2011. The vessels are encumbered with existing time charters from an investment grade Asia-based logistics company with a market cap of ~$5 billion. The charters have an average term of 9 years, with an average net charter rate of approximately $17,000 per vessel per day.
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A Specialist Investment Banking Model for Sourcing Capital and Giving Advice – Pareto Carves Out a Niche and Creates a Gateway in New York
For Pareto, it all starts with what you know and being Norwegian they are experts on industries such as shipping, oil services and E&P. In fact, their knowledge starts at the grassroots level through company and industry research and extends to asset brokerage for both ships and offshore drilling rigs. They know the players, understand industries and have global access to market intelligence. These factors together with a focused investment banking team and dedicated institutional sales force, both equity and fixed income, underlie their strength in deal origination and execution. As they say, they are “in the market” which is evidenced by three very different recent transactions. They played an important role in the Vantage Drilling bond and equity offerings and are advising Rowan on its acquisition of Skeie Drilling.
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Top Ships and DVB Bank Agree
A preliminary agreement was reached last week between Top Ships and DVB Bank pursuant to which Top Ships will receive waivers for covenant breaches through the end of 2010 and the loan related to the acquisition of the M/T Ionian Wave and M/T Hongbo, due July 30, 2010, will be restructured.
In return for a partial payment of $7.7 million, of which $3.7 million was from cash on hand and the balance from two bridge loans from unrelated third parties, DVB agreed to the repayment of the loan in quarterly installments through June 2015 and the termination of the stock pledge of approximately 12.5 million shares.
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“Progress Is Our Most Important Product” – Ridgebury Filing Amended
As an alumnus, Bob Burke can readily identify with the GE slogan referred to above as his IPO moves forward. We missed the first amendment to the Ridgebury Tanker filing earlier this month, in which the initial targeted vessels are identified. The company has entered into MOAs to acquire four identical sisters, built at Bohai Shipbuilding Heavy Industries Co. Ltd from Teekay Corporation as follows:
Cool Reception – Navios Extends Offer
With only 38% of the outstanding public warrants tendered (2% for cash) as of the close of business Monday, Navios Maritime Acquisition Corporation announced a five day extension of the program and amended its terms to waive the condition that at least 15% of the outstanding warrants be exercised for cash. The requirement that at least 75% of the 25.3 million outstanding public warrants be exercised remains in place.
This threshold is also condition to the exercise of the warrants held by Navios Maritime Holdings (“Navios”) and Ms. Angeliki Frangou, who agreed to exercise on a cash basis a combined 13.84 million warrants with an aggregate cash exercise price of approximately $78.2 million. These proceeds together with those from the exercise of the public warrants on a cash basis were to be used to fund the acquisition of the seven VLCCs. In the event there is a cash shortfall as a result of the waiver of the 15% cash exercise condition, the parent company has agreed to provide additional financing to Navios Acquisition in the form of short-term debt priced at Navios’ average unsecured borrowing rate.
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