Funding Opportunities

Last week, Goldenport Holdings Inc. announced a share issue by way of a “placing and open offer” to raise approximately STG 23.5 million or $35 million. The company intends to issue ~18.5 million shares at 127 pence per share, a discount of 1.55% from the prior day’s closing price. In order to demonstrate their commitment as well as to maintain their share position, Captain Paris Dragnis, the founder and CEO of Goldenport, along with certain directors have irrevocably undertaken to acquire approximately 7.5 million shares or approximately 40.7% of the offering. Seeing opportunities based upon the economic recovery and improving shipping fundamentals, the company intends to use the proceeds to fund future acquisitions. Assuming a conservative 50% leverage, the company will have at least $70 million of capacity to go shopping. Jefferies and Panmure Gordon are the joint bookrunners and underwriters with HSBC acting as Sponsor and Financial Adviser. The deal is expected to close on July 20^th.

Transformed

The shipowner, formerly known as Aries, has transformed itself and in our estimation has achieved critical mass. It may be small cap by definition but its growth trajectory is unparalleled. Since the company began the process of recapitalizing in the 4^th quarter of last year, NewLead Holdings Ltd has acquired 17 new vessels, including five newbuildings, while divesting inefficient non-core vessels and exiting the container sector. Unlike its peers, it has adopted a strategy of focusing on two diverse sectors, dry bulk and product tankers, rather than being a pure play, thereby minimizing to an extent portfolio risk.

In this week’s transaction, Newlead has signed a letter of intent with its affiliate Grandunion Inc., the private company controlled by its executives, for the dropdown of five dry bulk vessels, including 2 newbuildings, and the right of first refusal for three Korean built 81,000 DWT Kamsarmaxes, scheduled for delivery in 2013 with long-term charters attached. Total consideration for the dropdown of the five vessels is ~$148 million, which includes assumed debt and shipyard financing. The transaction is expected to close in the 3^rd quarter of 2010.

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Just Another Blockbuster

Marry opportunism with an ability to perform and the world is your oyster. Even in these uncertain times Peter G. and his team have a proven capability to perform and hence deals continue to find them. This has been the theme of the past few weeks as Genmar and Genco have made major acquisitions. Last Friday, it was Genco’s turn again and they found a willing seller in Setaf SA, a wholly owned subsidiary of Bourbon, a company, which is mainly focused on the offshore industry, although it had a dry bulk business for diversification.

Although for many it has become passé, perhaps because the world and information move so quickly, Bourbon utilizes a rolling five-year plan. In the latest iteration, “Bourbon 2015 Leadership Strategy,” the company has turned its focus to its offshore activity, which it intends to grow by further investing in innovative and cost effective vessels. By adding 80 supply vessels and 64 crewboats through a $2 billion investment plan in newbuildings, Bourbon will become a major force in the offshore sector operating a fleet of 600 vessels for deepwater and shallow water logistics services by 2015. Financing will come from the sale of its non-core fleet of 16 Supramaxes to Genco, deferred installments on the newbuildings, with 75% due upon completion, and a $400 million 12- year China EXIM Bank loan.

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Appetizer

Being somewhat disloyal to the team, we shirked our set-up responsibilities for Marine Money Week and snuck off to participate in Morgan Stanley’s 3rd Annual Shipping Conference, with its superb cast, for part of the morning. Wiley Griffiths set the stage by asking questions, which he hoped by the end of the day, would be answered. Where are we in the cycle? Where will investors find returns? He noted that banks were making loans selectively and the return of bonds and IPOs. But volatility remains a concern. He termed this a period of uncertainty, however there is a sense of optimism as fundamentals remain positive. Then there is the old standby saw intimating hope: no news is good news.

Ole Slorer then took the stage to introduce the master of PowerPoint, who also happens to be President and CEO of OSG, Morten Arntzen. Mr. Arntzen as always was right on point and this time provided an encore to Barbara Streisand’s The Way We Were, previewed at our Hamburg conference, with Bob Dylan singing The Times They Are a Changin’. While both were entertaining, they made very serious points. The lyrics of the former were a reminder that the banking world had changed and there is no turning back. The latter was a reference to the Deepwater Horizon intimating again that our world was going to change as a result and much quicker than anyone expects. Whereas in the past he conceded to requests to remove the technical management slide from the deck that would no longer be the case. Investors and lenders need to focus on the technical capabilities of the companies they invest in for to do otherwise is suicidal.
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Wedding Season or Offshore Consolidation Takes Two Giant Steps

Monday was a big day in the offshore sector with two major transactions announced. First BW Offshore (“BWO”) made a voluntary exchange offer for all of the shares of Prosafe Production Public Limited it does not currently own. The company is offering 1.2 BWO shares and NOK 5.25 in cash for each share, which consideration equates to NOK 16.21 based upon Friday’s closing price, valuing Prosafe at approximately NOK 4.1 billion or a 17% premium to Prosafe’s closing price on Friday. BWO currently owns directly or indirectly 23.88% of the total outstanding shares with a wholly owned subsidiary owning a further 6.1%. Presently BW Group owns 66.95% of the total number of shares in BWO and will be diluted to approximately 47% to 49% shareholding in the combined company based upon an acceptance level of between 90% and 100%. The combination will create an FPSO company with the diversification, presence, resources and competence to meet the increasing requirements from both clients and regulators.

BWO will finance the cash consideration from available credit facilities. In connection with the offer BWO has established a new bridging credit facility of $1.1 billion from BW Group on competitive terms with expiry in November 2011. The new facility together with the availability under the existing credit facility of $1.5 billion will be sufficient to finance the entire cash consideration and refinance Prosafe’s existing credit facilities, while providing capacity for growth.
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First Buy

Diana Containerships Inc, a majority-owned subsidiary of Diana Shipping, entered into agreements to acquire, from a third party seller, two 3,400 TEU newbuilding containerships constructed at TKMS Blohm + Voss Nordseewerke GmbH for EUR 37.3 million which equates to approximately $45.5 million. The first vessel is scheduled to be delivered on June 25th and will enter into a 9 to 12 month charter with A.P. Moller – Maersk at a gross rate of $16,000/day. The second vessel is scheduled to be delivered in the first half of July with no employment arranged as of yet.
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Volatility and Uncertainty? Where?

Any concerns the market or we had with respect to volatility and uncertainty in the markets were put to rest last Thursday when General Maritime priced its follow-on offering.  While being an established company was key, we also noted the positive trend in the share price as both the vessel acquisition and follow-on offering were announced. The result was in our estimation remarkable. Described as a blowout, the deal was over 2 times oversubscribed with all the shares purchased by institutional buyers Due to demand, the deal was upsized by 20% and yet no one received their full allocation.  Moreover, from a pricing perspective, the shares were discounted by the typical 4.5% from the day’s closing price. While the transaction was accretive and positive in the long run, the results were a strong vote of confidence in Peter G. and his entire team.

Like the earlier high yield offering, it had to be done and the whole world knew it (the downside of transparency), not a favorable position for any seller. Yet Genmar’s team of bankers together with management clearly overcame that problem raising net proceeds of $195.6 million (exclusive of the green shoe), which when combined with the proceeds of the credit facility provided available financing totaling $567.6 million and therefore a funding gap of $52.4 million based upon the agreed purchase price of $620 million. However given the demand for the shares it is a near certainty that the green shoe will be exercised generating further gross proceeds of ~$31million making the gap easily manageable.
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Price Issue Resolved

OceanFreight announced this week that the previously announced reverse stock split was approved by shareholders last week and became effective as of the start of trading today. The 1-for-3 reverse split will automatically convert three current shares of the company’s common stock into one new share of common stock. The split will reduce the number of outstanding shares from approximately 238.1 million to 77.3 million shares with a commensurate increase in the share price.

Pure Play or Mixed Fleet?

Is it time to diversify to diminish risk? Mr. Fredriksen clearly thinks so or perhaps sees more opportunities with his companies being more closely aligned. Previously, Knightsbridge Tankers ordered two newbuilding Capesize bulkcarriers. This week they added a third acquiring the M/V Golden Future, delivered from Zhoushan Jinhaiwan Shipyard in February 2010, from the Golden Ocean Group, a related company, for a purchase price $72 million. The vessel is employed a 3-year time charter at a gross rate of $31,500 per day. The transaction is subject to the approval of Knightsbridge’s lenders.

This was an opportunity for Golden Ocean to diversify, which it did by taking partial payment in shares of Knightsbridge. Knightsbridge will pay $25 million of the purchase price by issuing to Golden Ocean 1,464,515 restricted common shares and will finance the balance through a senior secured credit facility, although it will evaluate other alternatives. The shares were priced at $17.07/share a 4.2% discount to the prior day’s closing price.
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Dismantling?

It is a sad moment, when a company is forced by circumstances to sell pieces of itself, particularly when that company has been involved in shipping for 127 years. In that vein, Camillo Eitzen & Co. (“CECO”) announced Tuesday the sale of its majority shareholding (74.43%) in dry bulk operator, Eitzen Bulk Shipping to Navieras Ultragas Ltda, a Chilean shipping company, for $92.9 million or $5.07 per share. Navieras will be required to submit a mandatory public offering for the remainder of the shares meaning Eitzen may hold the record for the shortest life as a public company having begun trading on the Copenhagen Exchange only last December.

DnB’s Glen Lodden found some good news amidst the bad suggesting that CECO received a good price for their shares. The shares had opened at DKK 25.10 with the offer made at DKK 31.00 per share. Based upon the sale, Mr. Lodden’s calculation of NAV increased from NOK 3.66 to NOK 6.51. He maintains his buy recommendation but will revise the target price downward due to the weakness in Eitzen Chemical’s shares.
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