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Is Now the Right Time for Opportunistic Shipping Investments?
By Andrew Hampson, Managing Director, Tufton Oceanic Asset Backed Investments
As economic fears increase globally and high profile maritime restructurings are increasingly evident, is the time right for opportunistic investments into shipping assets?
Tufton views the maritime industry as capital intensive, highly cyclical, generally fragmented, specialized and, in the main, has limited access to public capital markets; and this is in “normal” times. In times of distress such as we have experienced over much of the last three years and in particular the last few months, this situation is markedly worse for the industry, due to a lack of traditional bank debt, weak cashflow and strained balance sheets. With increasing pressure on most of our sectors’ lenders (many of whom are European) due to domestic turmoil, political and regulatory pressures and three years of deteriorating portfolios, over the past few months we have seen a sharp upturn in the number of high profile restructurings and forced sales in both the public auction and private second-hand markets. Although there was a similar brief flurry of such activity in late 2008, the current level of activity has not been experienced since the early 1990s.
An Investor’s Perspective on the Shipping Industry
By Wilbur L. Ross, Jr., Chairman & CEO, WL Ross & Co.
Editor’s Note: This is the text and ensuing Q&A from a speech given by Mr. Ross on November 10, 2011 at the Harvard Club in New York in conjunction with a Marine Money forum.
Thank you very much. Nice to have such a stirring eulogy while you are still alive and can enjoy it. Having heard the caution of the prior panel, I now understand why I was scheduled to be here before lunch, because they assumed I’d say at least something upbeat. They’re right, but you probably came here today somewhat curious to learn why our firm has gone into marine transport in a big way.
You already know we’re not Norwegian or Greek in heritage, and don’t even speak either language, and some of you may have heard that I once became seasick on a yacht some years ago. Despite all that, you do know that we invest in distressed companies, so that’s obviously part of the explanation, but there are lots of distressed industries, so why shipping? The 40,000 foot level answer is our belief that internationalization is the most powerful force in the world economy and will continue to cause standards of living to rise in the emerging countries, and in such countries with very low per capita income, rising standards of living basically mean only one thing: increased consumption of commodities, and it is the merchant fleets that haul these commodities as well as the finished goods emerging countries export. Because of this two way commerce between developing and developed countries, world trade consistently grows faster than the world economy, and will propel marine transport growth over the long term.
Chapter 11 – Liberation or Suspended Sentence
By Stephen Drury and Jasel Chauhan, Holman Fenwick Willan
Two thousand eleven has seen the insolvency of several shipping concerns. The boards of companies holding tankers and containerships in particular have watched their earnings decline to a level insufficient to service debt, leaving in prospect but one apparent alternative: wholesale repossession, foreclosure and liquidation.
In many jurisdictions the survival of an enterprise in such circumstances is neither realistic nor possible without the unanimous support of creditors. In the mid 1980s, a time of similar crisis in the shipping industry, there were some bold and dramatic restructurings, having as their ultimate and fortunate result the full payout of the institutions and investors concerned. Those rescues were, however, entirely consensual.
In recent months a number of highly leveraged shipping concerns have turned to another potential survival strategy by making applications to US federal bankruptcy courts for their reorganization under Chapter 11 of the US Bankruptcy Code: including as part of the relief provided the immediate and complete protection from further creditor action. Filings by Omega Navigation (in Houston on 8 July 2011) and Marco Polo Seatrade (in New York on 29 July 2011) have been among the most widely reported instances of this strategy.
CHAPTER 11 – De-mystifying the Process
By Steven B. Soll, Esq., Otterbourg Steindler Houston & Rosen, P.C.
The recent bankruptcy filings by Marco Polo Seatrade B.V., Omega Navigation Enterprises, Inc., General Maritime Corp. and Trailer Bridge Inc. have the industry buzzing about Chapter 11 of the United States Bankruptcy Code. Everyone talks about it, most (whether a potential debtor, lender, investor, contractual counterparty or other type of creditor) resist or fear it, yet few understand the process or how it can affect their business. The purpose of this article is to de-mystify the process by identifying select provisions of the Bankruptcy Code and the Chapter 11 process to provide you with a summary overview of what can happen in a Chapter 11 case.
Chapter 11 is considered to be a debtor friendly process, particularly in comparison to foreign insolvency proceedings, which tend to be more supportive of the strict enforcement of secured and unsecured creditors’ rights. By comparison, the objective of a Chapter 11 proceeding is to provide a debtor with a “fresh start” for the reorganization of its business. Despite this objective, in addition to creditors fearing Chapter 11, debtors resist it as well. Two primary reasons for this trepidation are 1) the high cost of a Chapter 11 case (which will be discussed below) and 2) the uncertainty of the outcome. As they say, you should expect the unexpected.
Dr. Strangelove, or How I Learned To Stop Worrying and Love the Restructuring Process
By Jim Dolphin, Managing Director, AMA Capital Partners
Recent announcements by a growing number of shipowners may not signal the coming of a nuclear winter, but it certainly may feel that way for many shareholders and bondholders – and even first lien banks. During the last big wave of shipping restructurings from 1998 until 2002, when the shipping community had little cash on hand and the bond defaults were coming fast and furious, my partner Peter Shaerf trotted out the line “We thought the market had hit bottom until they started handing out the shovels” as the market cratered quickly and in a very public fashion. This time around, we seem to be in a slow motion wave of defaults, initially concentrated in speculative offshore projects and now gaining pace in commodity shipping markets, where the turnaround seems hard to imagine given the still enormous orderbook. We know there is value locked in these assets, however, so full attention is being turned to restructurings to extract the greatest value – either by acting now or betting on a recovery. Dating back to the late 1990s AMA Capital Partners has been involved as an advisor to companies and creditors in more shipping and offshore restructurings than any other firm, and we have learned a few lessons along the way. Multiple names have been deleted from this piece to protect the innocent, and the not so innocent.
A Guide to Using the Owner’s Manual
By Nora Huvane
Asked to give a presentation on preserving value in difficult capital markets, Mark Whatley, Vice President at Evercore Partners, quipped “perhaps we should first evaluate whether there is any left.”
Fortunately ships do have some intrinsic value, but certain capital structures created during times of much higher values may have run into a negative value situation, which is where Mr. Whatley’s point becomes more apropos. Once the underlying value is disentangled and properly assigned, and losses properly recognized, the “house”, to allude to our cover metaphor, can begin to be restructured and ultimately rebuilt. Liquidity needs and cost tolerances can be accurately assessed, and existing stakeholders can recommit while new investors can also have an opportunity to get in at a time where they stand to make meaningful returns – if they are patient.
A Tale Worth Repeating
By George Weltman
Life was Simpler Then
We have a simple business. We fill empty holds with cargo and move the goods where directed. There is no cheaper alternative to moving raw materials and finished goods globally, leaving shippers at our mercy in what might be considered, in its largest sense, an oligopolistic market. But for the volatility of oil prices, our costs are relatively inexpensive. Operations with foreign crews are cheap and maintenance can always be deferred. A capital market that did not price in risk and insurers who also lost sight of risk while they sought market share. Could there be a more idyllic world?
Certainly revenues are volatile. But believing ourselves capable of timing the cycles, we order more ships in anticipation of the next cycle or a boom which we believe will never end. And like most wished for things, they come at the wrong time. The cartoon character Pogo best describes us: “We have met the enemy and it is us.”
New Sevan Successfully Places Shares
On Monday, Sevan Marine ASA announced that its offering and listing of up to 21,037,428 shares was fully subscribed. At an offering price of NOK 6.70/share gross proceeds raised were NOK 149,950,768 or approximately $25 million. Proceeds of the offering will be used for near term liquidity and general corporate purposes.
Part of the restructuring of the company, these shares were directed to former shareholders of Sevan and the unsecured bondholders who received unsecured bondholder shares in the unsecured debt conversion. This offering also provides for the listing of the directed placement of 21,047,276 new shares towards an affiliate of Teekay Corporation for NOK 141 million and the 5,261,595 new shares already issued pursuant to a conversion of the 14% Sevan Callable Senior Unsecured Bond Issue 2010/2014.
With a Little Help from Your Friends – SinOceanic Shipping ASA’s Parent Steps into the Void
Earlier in the year, SinOceanic Shipping ASA (“SINO”) announced the acquisition of three 13,100 TEU container vessels, the MSC Vega, MSC Altair and MSC Regalus together with 15-year time charters to MSC. The vessels are scheduled to be delivered from Hyundai in January, February and April 2012 respectively. The three vessels were purchased en bloc for $464.8 million, with $58 million in pre-delivery and deposit installments financed through shareholder loans from SINO’s sponsor and largest shareholder, Oceanus International Investment AS, a company owned by HNA Group Co. Limited, who is the ultimate beneficiary of a 33.33% shareholding in SINO.
Funding on Call – Navios Acquisition Taps DVB
Earlier this month, Navios struck again. Utilizing its financial prowess, the Navios team again accessed the bank market for the funding of two newbuilding LR1 product tankers, under construction at Sungdong Shipbuilding, with delivery in Q4 2012 and Q1 2013. The new term facility for up to $51 million, to be drawn in two advances, was provided by DVB Bank to Navios Maritime Acquisition Corporation.
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