Bitter Pills to Swallow but Recovery Nearer in Sight

Over 12 months of negotiations and uncertainty, Rickmers Maritime has finally reached an agreement with its lending banks and sponsor, Rickmers Group. Who would have thought that the decision to acquire ships with long term charters from the major liners during the good days could exert such a severe impact on the trust’s performance? After all, during the boom investors focused largely on growth but this has led to the challenges that shipping trusts are facing today in the form of deflated asset values and lease rates. Rickmers Maritime has two pressing issues to resolve – a) a USD 130 million top-up facility that matured in April 2010 and b) an obligation to acquire 7 vessels from the sponsor with total contract value of USD 918.7 million.

In terms of loan restructurings, Rickmers Maritime’s lenders believed to be Citibank, DBS and HSH Nordbank have agreed to convert the balance amount of the USD 130 million facility into a five-year amortising loan and the value-to-loan covenants will be waived by all the lending banks for up to three years. In addition, the trust can take comfort that no market disruption clause will be invoked during the wavier period. But in exchange for the loan extension and temporary covenant waivers, the trust is required to prepay USD 59 million in FY 2010 and accept a revised interest rate of 1.75% per annum over three month LIBOR, which represents increases of between 55 bps and 105 bps on its existing borrowings. Unitholders will also have to live with the decision that the trust can only make quarterly distribution payments of up to 0.6 US cents per unit, provided no event of default has occurred under any facility. Continue Reading

Buss Capital Restructures KG Funds in Singapore

Watson, Farley & Williams LLP (“WFW”) has advised three separate Singapore-based partnerships on the restructuring of their container and lease portfolios and USD 1.2 billion of related debt financing in Singapore, to allow the Partnerships to take advantage of Singapore’s Approved Container Investment Enterprise (“ACIE”) scheme, which provides container owners with concessionary tax rates on container leasing and management activities. The Partnerships are owned by German KG funds sponsored by Buss Capital GmbH & Co. KG of Hamburg, Germany.

From 1 April 2008, leasing of containers has been included under the Maritime Finance Incentive (“MFI”) and an ACIE will enjoy either a concessionary tax rate of 5% or 10% on its income from leasing sea containers (by way of operating or finance leases) to onshore and offshore lessees, depending on the level of local business spending and headcount commitments. The management company of an ACIE will also enjoy a 10% concessionary tax rate on its management fee income derived in connection with the management of an ACIE.

Covenants Waived

Last week, First Ship Lease Trust (“FSL Trust”) announced that they had come to terms with their bankers with respect to existing credit facilities. The amendment incorporates the following main terms.

During the loan to value covenant waiver period which extends until the end of 2Q 2011:

-          The minimum coverage ratio of the charter-free fair market value of FSL Trust’s vessel portfolio over its outstanding indebtness will be reduced from 145% to 100%. Continue Reading

NYK ACQUIRES TAIHEIYO KAIUN

In addition to its double bond issue, NYK has appointed Mitsubishi UFJ Securities to carry out its share swap with financially troubled Taiheiyo Kaiun. On May 28, NYK announced that it will bail out Tokyo listed Taiheiyo through the issuance of new shares and equity-swap arrangements. Taiheiyo is currently an affiliate of NYK and takes pride in managing NYK’s tanker fleet. It was in 2001 when the mega carrier transferred all of its tanker management business to Taiheiyo and took up a nearly 23% stake in the company.  

Trouble started when Taiheiyo diversified into the dry bulk sector during the boom. In order to profit from the sky-rocketing charter rates during that time, Taiheiyo chartered in a number of dry bulk vessels and chartered them out at higher rates. This high risk, high return model churned out profits for the company but losses started to accumulate very quickly when the dry bulk market crashed. In October 2008, an unnamed foreign sub-charterer informed Taiheiyo that it was no longer able to fulfill its contractual obligations for four Panamax/Handymax bulk carriers. To make matter worse, less than 5 months later, South Korea’s Samsung Logix filed for receivership in Korea and made clear that likewise unable to honour its charter contracts concerning two Handymax bulkers. Taiheiyo managed to return one of the six vessels to the owner, but it had to continue paying its charter hires for the remaining five vessels and in an effort to stem the losses, Taiheiyo bit the bullet and paid JPT 7.5 billion (USD 78 million) to the owners as cancellation fees. An unfortunate victim caught in between the charter market breakdown, Taiheiyo sold all its five VLCCs to NYK, but even that could not stop the company from bleeding financially. Taiheiyo has projected a net loss of JPY 5,140 million (USD 53 million) for FY2010. As at March 2009, Taiheiyo owned 6 tankers, 1 capesize and 2 wood chip carriers and manages another 20 vessels, mainly tankers from NYK. Continue Reading

Kanasashi Heavy Industries Files for Creditor Protection

Financially troubled Japanese shipbuilder Kanasashi Heavy Industries (“Kanasashi”) told creditors in a closed-door meeting that it will carry on with the construction of five newbuildings. The medium sized shipbuilder has filed for creditor protection with the Shizuoka District Court two weeks ago after failing to secure more funds from its bankers.  Kanasashi, which has a 25-ship orderbook including 33,000 dwt bulk carriers ordered by Hong Kong based Uni-Asia Finance (“Uni-Asia”), Denmark’s ID Shipping and J Lauritzen, used to specialise in fishing boats but ventured into the construction of larger sized cargo ships in the past few years. Continue Reading