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On Monday, Omega Navigation Enterprises, Inc. (“Omega”) announced the re-structuring of its Senior Debt Facility with HSH Nordbank into two pieces. The senior facility, which is secured by first mortgages on the company’s fleet, was reduced from $284.2 million to $242.7 million. The pay down gets the senior lenders to where they would have been in 2011 when a bullet payment in this amount would have been due. The loan will be non-amortizing and will mature in three years. Pricing is based upon a grid with margins ranging between 0.9% and 1.1% above LIBOR based upon loan to value. The current rate is calculated at 0.9%.
The proceeds of a Junior Facility in the amount of $42.5 million provided by NIBC Bank N.V. and Bank of Tokyo-Mitsubishi UFJ Ltd. will be used to partially re-pay the senior facility together with associated fees. This facility will also be non-amortizing and will be coterminous with the senior facility. Pricing will also be on a grid ranging from 2.25% to 3.00% over LIBOR based on the loan to value of the combined facilities. Presently the rate is calculated at 2.5% above LIBOR but will be fixed through the 3-year period using a swap rate of 2.96%. As the sole security is the second mortgage, the rate is believed to be competitive.
Although the overall debt level of the company remains about 55%, a level at which both the banks and the company are comfortable, the re-structuring increases the company’s financial flexibility while lowering its overall cost of borrowing. The non-amortizing facilities, which will free-up $15 million in cash flow in 2008 and $41 million in total through the 3-year period, will allow the company to reserve more cash for acquisitions. In addition, the low gearing potentially allows more room to take on additional acquisitions without over levering themselves. As part of the restructuring, the company was also able to negotiate covenants that are more in line with industry standards. Finally, Omega believes that the re-financing risk is mitigated by the young age of the fleet as well as the relatively low advance rate. Moreover when it comes time to refinance they will have an additional five ships on the water.
All this goes to show that credit crisis or not a carefully structured deal that meets the needs of both parties can get done. The bankers, given the quality of the collateral, employment and the short maturity, were willing to trade off rate, amortization and covenants.
From the Dark Side
One of the more interesting aspects of the analytic exercise is the separation of church and state. Without assigning categories, the stock analysts look at valuing a company whether through peer comparisons of multiples or discounted cash flows. The credit folks on the other hand are looking to see whether the company can pay its bills. Both are selling but from highly divergent viewpoints. We struggle with the question of whether these are, in fact, mutually exclusive.
ETA-Ascon Star Group in $88 million
Tom Kane-led SSY Capital continues to prove that natural synergies do in fact exist between shipbrokers and finance houses with as it announces the structuring of an $87.8 million financing for ETA-Ascon Star Group. The purchase and bareboat charter deal provides ETA-Ascon Star with 100% financing for the purchase of four handysize bulk carriers. ETA-Ascon Star is one of the largest Dubai- based shipowning groups with a fleet of more than 60 bulk carriers and tankers including newbuildings.
Norwegian Bond Update
Nordea’s Monthly High Yield Report for March came in this week and to no one’s surprise nothing much as changed. A quiet primary market, ratings changes, a default and increasing spreads are all highlighted in the report.
Two oil service companies, MPU Offshore Lift and Ziebel, issued convertible bonds. MPU Offshore’s offering was for a 5-year $110 million fixed rate convertible paying 8%. The conversion price was set at $1.36 per share through a book-building process. When combined with the established EUR21 5 million facility, there are sufficient monies to complete the MPU Heavy Lifter 1. In a smaller deal, Ziebel completed a 3-year NOK 125 million subordinated convertible bond issue with a 9% coupon. The conversion price was set at $8.00.
TBS Increases Liquidity through Bank of America Facility Amendment.
TBS International this week amended and restated its existing Bank of America facility dating back to the summer of 2006. They increased the deal from $140 million (of which $65m was revolving and $75m was in a term loan) to $267.5 million (of which $125m is revolving and $142.5m is a term loan). TBS will initially draw down the full $142.5 million available under the term facility to pay outstanding principal and interest due on its existing facility, pay closing costs and for general corporate purposes.
Transaction Report
A significant portion of loan volume for the past years, up through 1H07, was driven by refinancing. An $850 million facility could give way to a $1.1 billion facility with a lower pricing and, oftentimes, a different bank. These days things are a bit different. A company can’t simply shop around to get terms that will allow for more ambitious expansion and modernization strategies. They can, however, work with their banks to create facilities that may allow for more opportunities. TBS International and Omega Navigation have both in the past week announced restructurings of their existing credit facilities that accomplish this.
On the topic of the bank debt market, before going further, we’d like to ask all of our banker readers to take a few minutes and answer our 2008 Shipping Banker Survey at http://shmyl.com/zrtpson. The questions are primarily multiple choice and answers are completely anonymous. Of course if you have any additional thoughts or comments, we encourage you to share those as well. In 2007, while statistical reads on the market remained robustly healthy, it was your comments that foreshadowed the credit crisis that would rock the banking markets in the summer and leave them permanently changed. This year we are again looking to you to tell us the real state of the market and what you think might be next.
Tinker to Evers to Chance
Spring is here and with it is the beginning of the baseball season. So please forgive our title which refers to the most famous double play combination in baseball history. The idea of two outs in a single play somehow seems analogous to the latest transaction done by Pacific Basin Shipping Limited (“Pac Basin”).
CMA-CGM Finds Public Buyers in Marathon
Private equity funds have long had a glamorous reputation as the real movers and shakers in the financial world, buying and selling companies at will and making tremendous returns for their partners and investors. While they are under some pressure now as the easy access to capital they rely upon has been hampered, this was not so in 2006. And it is the 2006 crop of SPACs that is just now coming to maturity, driving the volume of acquisitions by SPACs to $3.9 billion so far this year, more than six times the comparable period in 2007, according to Dealogic.
It was in just this time period, in August 2006 to be precise, that Marathon Acquisition Corp came to the public markets, backed by Michael Gross, a founding partner of private equity powerhouse Apollo. Fast forward to February 2008, however, and Mr. Gross’s SPAC was quickly closing in on its deadline to announce an acquisition target or risk being liquidated. Continue Reading
Courting Quintana
Like many closely watched deals, especially those of the public variety where publicly reported information is strictly regulated, the headlines that came out over the past months regarding Quintana’s future were sometimes conflicting and often confusing. And with good reason; many insiders could not have said in early January what the future of the company would be, nor were they at liberty to share information about the details of the sale process. That said, we considered it worthwhile to take a deeper look at Quintana’s sale process, the offers the company received, and other alternatives they considered, as well as the valuations calculations and assumptions that formed the basis for Quintana’s ultimate decision to recommend Excel Maritime’s cash and share offer. Details have been made available to the public in advance of Quintana’s April 14 shareholder vote. Continue Reading
Further Diversification
Late Friday, Ship Finance announced that it had agreed to acquire two 17,000 DWT newbuilding chemical carriers for $60.2 million en bloc or $30.1 million each. The vessels will deliver in March and August 2008 at which time they will enter 10 year bareboat charters to Bryggen Shipping & Trading at a rate of $8,000 per vessel per day. At the end of the charter period, Bryggen has a fixed purchase option of $20 million per vessel. Interestingly, Bryggen has sub- chartered the vessels for 10 years on a bareboat charter to Sinochem International (Holding) Co., a leading China-based chemical logistics provider.
The transaction will be financed with a 10-year non-recourse senior loan facility of $49 million with the balance paid in as equity. The interest rate has been swapped to a fixed rate for the term. Average annual net cash contribution after debt service is estimated to be $1.4 million.
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