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Syndicated Market Continues on Track
Last Friday, Dealogic released its Bookrunner and MLA Tables for Syndicated Marine Finance Loans for 2011 showing total syndicated loan volume at $68.4 billion up from last year’s $50.1 billion. From the macro perspective the trend remains upward as deal volume and number of transactions grew respectively 26.2% and 19.6% compared to the year earlier. This continues the growth which commenced in 2009. Ignoring the boom in volume in 2007 and 2008, the current volume is on par with the years prior. A further measure of the health of the syndication market is also reflected in the nominal reduction of club deal volume as well as the declining proportion of these deals versus total syndicated volume. This is best seen pictorially in the graphs below.
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.
The 3rd Quarter in Pictures
We continue our periodic look at quarterly results for a basket of shipping stocks we’ve been tracking. As in the past, we look at the percentage change in stock prices, comparing the beginning price versus the closing price for the quarter 3Q2011 and 3Q2010. We also look at the percentage change in EBITDA for 3Q2011 versus 3Q2010 and 3Q 2010 versus 3Q2009. This is our version of the proverbial crystal ball.
Watch the Clock – The Price of Bankruptcy
For the debtor, who is already overburdened with debt, it is just the beginning. Companies enter bankruptcy because they are over-leveraged, illiquid and unable to meet their existing obligations. They seek relief, but in that journey instead find a new contingent of creditors, the experts, financial advisors and lawyers, who are necessary to guide them through this re-structuring process. But the expense is not limited to their own advisors, they must also pick up the tab for their creditors, secured and unsecured. How can they possibly pay for this? The Bankruptcy Code makes it easy by providing fresh liquidity in the form of Debtor-in-Possession (“DIP”) financing, which has a super-priority over the existing secured debt obligations. With funding in place and available, “Katy bar the door”.
Reading between the Lines
Rolf Wikborg is an old and respected friend whose views on the industry are always interesting. Perhaps his latest message needs to be read between the lines. Last week, Rolf announced that he was leaving AMA Capital Partners, a firm he helped found 25 years ago, to focus on his non-shipping related family businesses, which includes hotels along the coast of Norway. Non-shipping sounds good these days. Perhaps we should consider an extended stay at his hotels through the Norwegian winter isolating us from the barrage of bad economic and shipping news.
Navios Family Investor Day
Four companies represented in 83 slides were on view to a packed room of over 100 investors all interested in hearing the Navios’ story from the management team, which shared the duties. Not only has management got their presentation down to a science, they keep getting better. Clearly, it worked well with the entire presentation completed in just over an hour and with few questions asked at the end.
A comment by Ted Petrone summed up the day for us. “We can’t control the market, but we can control costs and manage risks.” Nor, unfortunately, can they control the share price, much to their dismay, but that should hopefully take care of itself based upon management’s efforts and a hoped for market turn.
So If It Isn’t a Hedge and You Can’t Gamble with It…
In the Markit Sovereign Report October 2011, Gavan Nolan, Director – Credit Research at Markit in the UK, takes a look at CDS liquidity noting that:
“Volumes in the sovereign CDS market have been buffeted of late by the uncertainty in the Eurozone. Question marks over the efficacy of sovereign CDS as a hedge and a ban on naked sovereign CDS positions may also have contributed to drop in trading.”
In commenting on the report, Otis Casey, his counterpart in the U.S., emphasizes that the lack of liquidity will mean that fewer people will be willing to use the hedge. Its value as a hedge is being diminished as the solution to the Greek debt problem involves a workaround to avoid triggering its CDS with the negative headlines that will result.
What We’re Reading
Our interests are varied and we are fortunate to receive many different and distinct publications covering sectors other than shipping and offshore. There are often bits and pieces in them which we find interesting or informative. Often we find a connection to our coverage or an interesting parallel. The following comes under the category of: “we are not alone.” We hope you find the following and future selections as interesting as we do.
Helane Becker of Dahlman Rose made the following comments in her weekly research, “Takeoffs & Landings: Reviewing the Regional Airlines” (November 7, 2011)
Selected excerpts appear below:
The Regional Model is Broken and the Companies are Suffering
In this week’s Random Thoughts section we discuss our view of the regional airline industry. There are three publicly traded companies and a host of privately held airlines; the Regional Airline Association lists 61 members!
Comment: The regional airlines are barely eking out profits; it wasn’t always this way, and it cannot continue this way. Right now, the capital markets are still open to these companies, but unless the returns improve, this won’t be the case for long.
Faces & Places
We received word this week, that leading German law firm, Ehlermann Rindfleisch Gadow, has expanded its practice, opening a new office in London to be led by former Watson, Farley & Williams partner, Richard Henderson. With the addition of Mr. Henderson, the firm will be better able to advise its clients on all aspects of English law relating to commercial shipping, shipping finance and restructuring. While the intention is to grow the new office, Stefan Rindfleisch, the firm’s managing partner, has no intention of losing the boutique nature of the firm, which has served its clients so well.
The Pool’s the Thing
While everyone touts the commercial advantages of pooling in terms of market presence, it does also provide unexpected benefits, in these difficult times, in terms of credit, liquidity and working capital. In a pool arrangement, owners charter their vessels to the pool and the pool, as disponent owner, assumes commercial management and charters the vessels out in the market. The immediate benefit of this arrangement is that ships upon entering into a pool are paid for the bunkers on board, with the pool then assuming responsibility for bunkering the member’s vessel. But perhaps more importantly, the pool utilizes its cash flow and credit lines, secured by voyage receivables, to provide working capital to the participants thereby smoothing out the irregular earnings of each member vessel, which are typically paid upon voyage completion.
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