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The Story that Does Not Stop
In yesterday’s Markit North America Intraday Alert – Snapshot, Otis Casey reminded us that a new year does not always bring changes:
“Additionally on the banking side, concerns about liquidity and the need for recapitalization in the European financial system weighed on sentiment. News that the ECB’s overnight lending facility was tapped for EUR 15 bln along with record amounts in the deposit facility sparked concerns over liquidity. Reports that UniCredit floated an equity issue that would yield a discount of 43% less than yesterday’s closing price, excluding the value of rights, prompted speculation that many European banks would need to raise equity and provide similar discounts.”
A dysfunctional interbank market and unresolved capital issues are not a welcome start to the year.
Welcome to Brazil, Mr. Fredriksen
Given the growing opportunities in Brazil, it is not surprising that Seadrill Limited would seek the advantages of a local presence in country. Back in early December, Seadrill announced that its wholly owned indirect subsidiary, Seabras Servicos de Petroleo S.A. made an initial filing of a Reference Form with the Brazilian Securities and Exchange Commission in connection with a potential initial public offering of its shares on the Nova Mercado segment of the Sao Paulo Stock Exchange. Naturally any offering would be subject to market conditions and the approval and the registration of the shares by the Brazilian authorities.
SeaCube’s Shelf
Also, just before the holidays, SeaCube Container Leasing Ltd announced the filing of a universal shelf registration to sell up to $75 million of securities, which could include common or preferred shares, debt securities, warrants, subscription rights, purchase contracts, purchase units or any combination thereof. In addition, the company registered up to 8.525 million shares owned by an affiliate of Fortress for sale in a secondary offering to take place sometime in the future. Proceeds of the primary offering will be used for working capital and general corporate purposes which might include the re-payment or refinancing of outstanding indebtedness and the financing of future acquisitions. The filing was effective as of December 30th.
Build, Borrow and Extend – Scorpio Covers the Bases
Surely, Scorpio Tankers Inc. waited until all the pieces were in place before announcing a multitude of transactions just prior to the holidays. To begin, the company announced that it had contracted with Hyundai Mipo Dockyard to construct the sixth of a series of 52,000 DWT MR product tankers, with new propulsion technology, for a price of $36.4 million with delivery in January 2013. This follows the order for five sister vessels placed at Hyundai back in June for approximately $37.4 million with delivery scheduled between July and October 2012. This latest contract also contains options for a further three vessels of the same specification. Declarable in mid-January the first option is exercisable at the same price. Should the company exercise the first option, it has a second option, which must be declared in mid-March 2012 for the construction of a further two vessels at a slightly higher price of $37.2 million each.
NewLead Sheds Assets
Less fortunate was NewLead Holdings Ltd with its mixed fleet of tankers and dry bulkers. While a sound strategy, its levered balance sheet and lack of liquidity could not withstand the abysmal tanker market. With limited options, the company and the bank syndicate led by the Bank of Scotland agreed to sell its four LR1 product tankers with the banks agreeing to accept the net sales proceeds in full satisfaction of all amounts owed under the loan agreement. The sale of two of the vessels occurred on December 22nd with the sale of the other two expected to take place this month. As a result, NewLead’s indebtedness will be reduced by $147.9 million to $437.5 million, which will encumber a remaining fleet of 14 dry bulk vessels, including one handysize under construction and two handymax product tankers. This was a huge step in a process that continues.
Genco Amends its Agreements
Just before the holiday break, Genco Shipping & Trading Limited announced it had separately amended its $1.4 billion revolver, its $253 million senior secured term loan facility and its $100 million term loan facility led respectively by DnB NOR, Deutsche Bank and Credit Agricole. The parties have agreed to waive both the maximum leverage and interest coverage ratio covenants through the quarter ending March 31, 2013. During that interim period, a new covenant which limits interest bearing consolidated debt to 62.5% of the aggregate of interest bearing debt plus consolidated net worth will be tested. In this instance the quid pro quo was the prepayment of the loans to the tune of $62.5 million of which $52.5 million was allocated to the $1.4 billion facility, $7 million to the $253 million facility and $3 million allocated to the $100 million facility. The banks also took their pound of flesh charging an upfront fee of 25 bps on the amount of the outstanding loans and applying the proceeds in inverse maturity. In addition, the $1.4 billion revolver is subject to a 200 bps facility fee payable quarterly on average daily outstanding loans, which reduces to 100 bps upon completion of an equity offering of a minimum of $50 million. Albeit expensive, this is yet another example of a company, having the wherewithal, taking the lead and managing the process to achieve a level of certainty despite the difficult markets.
Risk Off? – Frontline Closes within its Self-Imposed Deadline
While not a joyous conclusion to the year, the announcement of the successful completion of the restructuring of Frontline does at the very least bring a sigh of relief to all the parties involved. While we have covered the details of the transaction in prior issues, we would highlight the following key elements.
The newly formed “risk” tanker company, Frontline 2012 acquired five VLCC newbuilding contracts, six modern VLCCs, including one time charter and four modern Suezmax tankers from Frontline for $1.121 billion based upon fair market values. In addition, the new company assumed $666 million in debt associated with the vessels and newbuilding contracts as well as $325.5 million in remaining newbuilding commitments. Based upon a year-end book value of $1.428 billion, Frontline will incur a book loss of $307 million.
Resurrected – TBS Deleverages
On Wednesday, TBS International plc announced agreements with its bank lenders on terms to reduce its leverage. TBS and its main bank syndicates led by Bank of America and DVB Group Merchant Bank have agreed to exchange the current outstanding senior debt for new senior debt and equity. The terms provide for the full repayment of the amounts owed to the syndicates over a significantly extended maturity period, while keeping current management in place. TBS’ other lenders Credit Suisse and AIG have agreed on similar terms. The transaction led by The Royal Bank of Scotland was concluded with the bank agreeing to accept redelivery of the six collateral vessels in exchange for a full release of all amounts owed to that syndicate. Unfortunately, the terms of these agreements do not provide for any residual value in the common and preferred equity. We suppose you can call this a negotiated pre-packaged bankruptcy without the courts and the expense.
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.
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