Talent Finding New Homes!

Dahlman Rose & Co Add Powerhouse Chairman
Well know financier Kim Fennebresque has joined Dahlman Rose as the firm’s Chairman. The move continues the investment bank’s enormously successful development built on commitment to client service, top shelf independent research and superior personnel recruitment over the past half dozen years. In fact the current move should accelerate the firm’s growth and strengthen it’s already considerable platform.

Mr. Fennebresque joins Dahlman Rose after a distinguished career, which started at The First Boston Corporation in 1977. His career path since then could be used as a business school model for just how to gain valuable experience, contacts and skills needed to lead a successful investment bank. Mr. Fennebresque left First Boston in 1991 to join Lazard Freres as a General partner where he remained until joining UBS to lead that bank’s Mergers & Acquisitions and Corporate Finance departments.

Then in 1998 he joined SG Cowen, the US subsidiary of Societe Generale. He served as President, CEO and Chairman for most of his tenure at Cowen. It was that sort of reputation which led the US Treasury to ask him to join the Board of GMAC.
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Written by: marinemoney | Categories: Freshly Minted, The Week in Review | May 13th, 2010 | Add a Comment

Morgan Stanley II

Despite a pressing deadline, we couldn’t pass up the opportunity to get out of the office and attend Morgan Stanley’s 2nd Commodities and Shipping Conference. In these difficult times how could one possibly forego the opportunity to hear what Ole Slorer and his team have to say with the added benefit of gleaning some insights on the capital and lending markets. All interspersed with company presentations and lessons from Morgan Stanley’s commodities and freight trading experts. It is a rare opportunity for us to receive an invitation to these investor only meetings and we are most appreciative. Putting on an investor hat for a moment, we can confirm that if one is interested in the space there is no better way to get an education and gather information about this sector than attending these conferences. And, we did not even benefit from having a one-on-one meeting.

Wiley Griffiths, the Head of Global Shipping, and his team started us off with a view of what was happening in the market. Continuing historic trends, the markets as always remain interesting.

Written by: carisk | Categories: Freshly Minted, The Week in Review | June 11th, 2009 | Add a Comment

Hard Numbers

Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:

Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.

Written by: carisk | Categories: Freshly Minted, The Week in Review | November 6th, 2008 | Add a Comment

Going Out On a Limb

We have been reading the recent research reports by the sector’s analysts all of which are, as usual, excellent. There is insightful commentary about how we got here and prognoses on the future. Nevertheless, the multiple headwinds of a banking crisis, a commodity collapse, a recession, the collapse in demand from China and the newbuilding orderbook have combined to tank shipping shares. And, although almost all the analysts have put the proverbial “holds” on these shares, the general consensus is that the shares were oversold and therefore they now have higher price targets attached to them. This of course presumes that any investor interest remains in these shares. Or, as a friend recalled at our N.Y. conference, there is the possibility that investors have moved on never to be seen again as was the case in the aftermath of the dot com bubble. If this is true it would, on one hand, be a loss but in fact it would result in a reversion to the norm when ships were in private hands and banks provided all the capital that was necessary.
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Written by: carisk | Categories: Freshly Minted, Market Commentary | October 30th, 2008 | Add a Comment

Not to Be Missed

Despite the difficult environment, a veritable who’s who of the shipping community descended on the Jefferies 5th Annual Shipping, Logistics & Offshore Services Conference on Tuesday and Wednesday.

We must confess that walking in at the uncivilized hour of 8 AM to a sparse crowd and seeing Jefferies Magic Eight Balls gave us pause. Was Hamish making a market statement or was he merely giving investors a new forecasting tool? Our conclusion was probably both.

Written by: carisk | Categories: Freshly Minted, Market Commentary | September 18th, 2008 | Add a Comment

Capital Market Strength Makes Winners all around in ATB GMR Transaction

In a market in which issuing new equity at or above net asset value is nearly impossible, and at a time when high payout shipping companies are struggling to grow, General Maritime’s all stock acquistion of Arlington Tankers not only makes perfect economic sense – the cashless and symbiotic nature of the deal is probably a blueprint for a few more transactions to come.

Written by: carisk | Categories: Freshly Minted, The Week in Review | August 7th, 2008 | Add a Comment

BUY! BUY! BUY! Results to Please Just About Anyone

It’s been earnings season the past two weeks and if there were ever a question about whether shipping could avoid a hit due to the sub- prime crisis, well, this should answer it.

For fun, here are a few analyst comments on recent returns… From Dahlman Rose:

Dahlman/Eagle Bulk Shipping – 1Q Operating Results Stronger Than Expected; In Solid Position to Re-Charter Vessels as Rates Continue Pushing Higher

We believe Eagle’s aggressive approach to re-chartering its vessels will payoff as the market has exceeded our expectations. During the past few weeks we have seen several long-term time fixtures as charterers look to secure vessels in the face of a rising market. We maintain our Buy rating and $33/share target, based on a 10% 2009 CF yield, ahead of the earnings call this morning.

Eagle’s share price jumped more than 10% following their conference call!

Written by: carisk | Categories: 1Q08 Earnings Special, Freshly Minted | May 8th, 2008 | Add a Comment

The Week in Review

While shipping stocks are no longer booming, the underlying shipping markets remain healthy. Jonathan Chappell and his team at JP Morgan are looking for near-record tanker rates at the end of 2007 to drive up 1Q08 EPS for tanker stocks and also believe that the tanker spot markets will hold up better than expected going forward. On the dry side, Urs Dür at Lazard sent out a note this week to correct common investor misunderstandings regarding the BDI, noting that it is not correlated to near-term world trade. He also expects Chinese iron ore price negotiations to be completed by March 2008, which combined with low inventories in China should lead to near-term improvements for dry bulk freight rates. Omar Nokta and his team at Dahlman Rose note that the tanker market could see some support as AG March cargoes come into the market this week while also observing that the dry bulk market has gained some positive momentum, though this has yet to be reflected in stock prices.

Written by: carisk | Categories: Freshly Minted, The Week in Review | February 14th, 2008 | Add a Comment

Arlington Tankers Appoints New CFO & Co-CEO

Ed Terino has joined Arlington Tankers (NYSE: ATB) as CFO and co-CEO. His arrival is intended to enable co-CEO Art Regan the time to focus on commercial business development. The company is also opening an office in Westport, CT, and as a result has become a U.S. domestic issuer for SEC reporting purposes.

And speaking of Arlington, Fortis analyst Dan Barrett recently released a report discussing adjustments made to the company’s 2005 and 2006 EPS forecasts. The adjustments resulted in an estimated dividend of $2.21 for 2005 and $2.06 in 2006. Both estimates were decreased by 10% of the original price and caused the target price fell from $25 to $23 based on a new anticipated yield of 9%, down from 10%.

Arlington dividend expectations have always been high after its first reporting period last November and December, when the freight rate environment, which sets its profit share above its floor rate, went through the roof. Mr. Barrett believes that expectations are now more firmly rooted in reality and that the company is well-positioned to grow through acquisitions once asset prices begin to fall from their present high level.

Written by: carisk | Categories: Freshly Minted, People & Places | July 7th, 2005 | Add a Comment

Eagle Bulk: Coming to Market at 200% of Net Asset Value

In what we think is a truly defining moment in history of shipping and the capital markets, Eagle Bulk Shipping began its roadshow this week to raise approximately $255 million of equity against a fleet of 11 handymax bulk carriers. We don’t mean to be histrionic here, but we think the valuation of Eagle will strongly influence the dozen other dry bulk deals queued up to come to market.

What we find fascinating about the deal is that Eagle Bulk is using its circa 14% dividend to come to market at approximately 2x net asset value at a time when the comparables are trading closer to 1x net asset value.

According to our calculations, the net asset value of the fleet is about $221 million. We arrive at this figure using our fleet value of $339 million (which includes 3 vessel to be acquired) against liabilities of about $130 million (which includes $97 million on those 3 new vessels and $30 million drawn from the company’s credit facility) and cash of $12 million. Based on the 26 million fully diluted shares (by which we mean the 13.25 million sold to the public and the balance allocated for the green shoe and retained by the sponsor) Eagle Bulk has a net asset value of $221 million, or $8.50/share versus an offering price of $16-$18 per share.

With the serious institutional shipping buyers very savvy in their ability to value shipping companies these days, we can only assume this deal will be sold into the retail market where buyers will be attracted to the yield. Another possibility is that the underwriters have put a very high number of the cover of the prospectus knowing that it will be negotiated down by the investors in today’s choppy IPO market. Eagle Bulk could effectively price its offering more than 50% below the mid price of the range and still capture a premium.

The Opportunity

Aside from the high valuation, small enterprise value and lack of vessel diversification, we think the Eagle Bulk deal provides a well-structured opportunity for investors to participate in the handymax dry cargo market. We say it’s well structured because commercial management is inside and technical management is in the hands of third party V Ships. Moreover, the charters are good, the ships are modern, the company has a large credit facility and the vessels operate in the handymax sector – which enjoys the best supply/demand fundamentals of all the dry cargo markets.

If this deal is successful, the real credit goes to whoever at Eagle (or, perhaps, credit facility provider Royal Bank of Scotland!) decided to put medium term charters on the ships while the market was still strong. Although charter default risk exists in a weakening market, as you can see from our calculations the cash flows generated by these vessels for the next 18 months are presently higher than what could be achieved in the market today and will improve the EBITDA and net asset valuation of the company.

The Challenges – Overcoming Diana

The successful execution of the Eagle Shipping IPO will not be without some challenges, at least if it is sold to institutions. For one thing, the deal is being brought to market by the same pair of bookrunners that brought out the similarly structured Diana Shipping – UBS and Bear Stearns. Citigroup was also added on the cover recently (they did not appear on the original S-1 filing), perhaps to broaden the distribution, and CSFB is the sole co-manager.

Although the high dividend yield structure has created extraordinary premium valuations for tankers companies such as Nordic American Tankers, Knightsbridge Tankers and Arlington Tankers and has clearly inspired replicas in other sectors, the model has not yet successfully translated into dry cargo. Take for example, Diana Shipping, a first rate, high quality company that was the first deal of this sort in the dry bulk space, which has suffered mightily since it began trading in March. It trades at a premium of about 1.3x net asset value and was priced at about 1.4x net asset value before falling in the aftermarket.

Market sources indicate that there were some mistakes made with the execution of Diana, such as who it was sold to, high pricing and a premature exercise of the green shoe, but to be fair to everyone involved the fact that the dry cargo market began falling immediately after the offering was probably the underlying culprit. That said, the unpleasant fact remains that buyers of the Diana IPO have suffered losses – which is why we assume from the high pricing on this deal that it will sold into a new market that puts a greater emphasis on yield than underlying value – retail. Although many within the shipping industry have been astounded by the valuation of companies like Nordic American Tankers, the fact remains that they have delivered very good returns to investors who bought them and held the, over the years.

The Valuation

As is our editorial policy, we will not tell you what we think Eagle Bulk is worth. We will, however, attempt to help you make sense of the information that is presented in the prospectus. As mentioned earlier and outlined in the accompanying figures, the Price/Net Asset Value appears to be high relative to comparables. The key to achieving this high valuation will derive from the healthy dividend that the company is able to pay from free cash flow. As you can see from our calculations, Eagle will generate close to $80 million of EBITDA per year of which about $60 million will be returned to shareholders through a dividend, which will equate to 13.5% yield.