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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.
Private Equity and Commercial Banking – a Powerful Partnership for Shipping
There has been a lot of discussion at Marine Money Forums in recent years about the role of private equity in the international shipping industry. While some believe that private equity has been “waiting” to make investments in the shipping industry, and others say private equity may not be an appropriate source of capital for the shipping industry, the facts prove otherwise.
In an effort to illustrate the significant impact that private equity is having on the shipping industry, we took the opportunity to create the table below, based solely on publicly available information. As you can see, we estimate that private equity funds have committed more than $10 billion of equity capital to the industry. We also think it is significant, and intelligent, that many of the larger funds have chosen industry “experts” to guide them in making their investments. To put the scale of this activity in perspective, private equity investments are greater than the total amount of equity raised during the IPO boom years from 2005-2008, combined.
China and the Euro Crisis
The problems in the Eurozone have been grabbing headlines for several months now and there are still no solutions in sight. Following the Greek’s Prime Minister’s shocking call for a referendum on the EU bailout package, Greece could be heading one step closer to bankruptcy and banishment from the Eurozone if the people vote against the deal – designed to slash the country’s mountain of debt by nearly a third.
It is an irony, as Britain’s Daily Telegraph newspaper noted, that the root of the lender’s problem is not due to reckless lending to borrowers with doubtful credit histories like US subprime crisis. Many of them had been compelled to buy these bonds because of regulatory requirements. But now, these banks are forced to accept a 50 percent write-down on their holdings of Greek debt. The banking sector will also have to recapitalize to the tune of around €106 billion and were told to increase core cash reserves to 9% by next summer. Continue Reading
Another Perspective on European Credit markets
We spoke with a banker on the subject of the credit markets who decried the world’s focus on French banks, in particular, and capital ratios generally. The market has been indiscriminate painting all the banks in Europe as part of the problem, failing to distinguish those with little sovereign debt exposure.
The Official Guide To Marine Finance Providers
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