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K-Sea Financing in Place – Kirby Taps Banks
On the last day of May, Kirby Corporation entered into a $540 million five-year unsecured floating rate term loan facility led by Wells Fargo, BofA Merrill Lynch and J.P. Morgan. Lenders include BTMU, Branch Banking & Trust Company, Compass Bank, RBS, U.S. Bank, Amegy Bank, Bank of Texas, Comerica, Keybank, Mizuho, Northern Trust and Royal Bank of Canada. Proceeds of the loan will be to provide financing for Kirby’s acquisition of K-Sea Transportation Partners L.P., with the amount drawn dependent on the final breakdown of the merger consideration between stock and cash.
Partial Spin-Off to Follow-on – Diana Container Raises Equity
Back in December, Diana Shipping Inc. spun off 80% of its 55% interest in Diana Containerships Inc. by distributing to its shareholders 2,667,066 shares. The shares began to trade on NASDAQ in January of this year.
Subsequently, on May 9th, Diana Containerships filed an F-1 registration statement for a follow-on offering of common shares. The shares closed that day at $12.64 per share. On May 31st, the company filed a press release announcing a follow-on offering of 14 million shares and a concurrent $20 million private placement of common shares to Diana Shipping. The offering, which was upsized to 14.25 million shares due to investor interest, was priced on June 10th at $7.50/share, a 27% discount from the closing price the day of the public announcement. While substantial, it needs to be put in context. On May 2nd the Dow Jones Industrial Index hit a recent high of 12,807.36, which began a steady six week market decline, its longest slump since 2002. This was certainly not a propitious moment for an equity offering. In fact from the date of filing to the date of pricing the market as measured by the DJI fell 5.8%. If in fact the window for equity offerings was open it must have been barely a crack with investors clamoring for a substantial discount given the falling market and only being receptive, in this instance, because of the good name attached to the deal.
Equity Overdone?
Regularly, we hear that the markets are open for well-known serial issuers of equity and debt securities. This week one regular issuer, Seaspan, quickly and successfully accessed the preferred market, issuing more of its Series C preferred. There were also two filings for equity follow-ons from a recent transplant from London and one of the original public companies. It will be interesting to gauge investor appetite in the case of the latter given the overall weak market conditions.
Navios Prices New Issue
With Moody’s maintaining its B2 rating on these add-on senior secured notes, Navios Maritime Acquisition Corporation last week priced this latest issue, totaling $105 million, of its 8 5/8% first priority ship mortgage notes due in 2017. Trading earlier in the week at 104% to yield approximately 7.3%, the notes were priced at 102.25% to yield approximately 8.44% in line with price talk at 102%. Proceeds of the notes will be used to finance the acquisition of the VLCC due in June.
BofA Merrill Lynch and J.P. Morgan who led the original offering also receive credit for this one.
Golar Partners Prices While Parent fills Warehouse?
Was it a vote for shipping, for the MLP structure, or Mr. Fredriksen? At the end of the day, it does not matter as the first shipping IPO of 2011 met with strong demand and priced above its range. Last week, Golar LNG Partners LP (“GMLP”) priced its initial public offering of 12 million shares at $22.50, above the stated range of $20 to $22 per share. Total gross proceed were $270 million, which could increase to $310.5 million if the green shoe is exercised in full. The limited partners own a 30.1% interest in the company with Golar LNG Limited owning the 2% GP interest as well as a 67.9% limited partner interest. The final details of the transaction are shown in the Guts of the Deal below.
Seeing the Light – Golar LNG Learns From a Competitor
The MLP model is best suited for assets such as FSRUs and LNG carriers that have stable cash flows due to long-term contracts. The common units of the limited partnerships trade on yield and expected growth. Given the low interest rate environment and high demand for yield paper, the MLPs are trading at high EBITDA multiples and premiums to underlying asset value. The valuation premium gives MLPs a lower cost of capital making it an efficient way to grow and access capital.
Market Timing – Sale of Primary and Secondary Shares by TAL and Insiders
The container leasing business is back on track, growing again at over a 10% CAGR after 2009, which witnessed the first decline in demand in 25 years. After a difficult 2008 to 2009, mirroring the financial crisis, when orders for new boxes were non-existent and manufacturers closed down, the container lessors are back on a spending spree. New containers are needed to meet growing demand, for fleet replacement and to meet the shortfall arising from a reduced spend by the container lines.
A Peek Inside – Seaspan’s Piece of the Carlyle/Tiger Vehicle
With apologies to Frank Sinatra, “it was a very good year.” Seapan’s fleet continued to expand on schedule, generating improved normalized net earnings and cash available for distribution. And with the additional vessels, as well as the ones coming, the company’s cash flow will continue to improve setting the stage not only for the announced 50% dividend increase, but the adoption of a progressive dividend policy, aimed at increasing dividends in a manner that both preserves the company’s long-term financial strength and its ability to expand its fleet. This is consistent with its mantra of rewarding its shareholders while growing the company but not at the expense of the balance sheet. The company finalized its equity needs and completed the financing requirements for the balance of its newbuildings back in October and with the sale of the preferred shares, the company for the first time, in several years, has substantial growth capital. But why rest on your laurels?
Don’t Fight the Tape – ACL I Done
We scratch our head in wonder and realize there is much for us to learn. Certainly this week we understand that logic may not prevail against the appetite for yield, or as Mr. Market reminded us, “don’t fight the tape”.
Last week we described in some detail why we thought ACL I’s unsecured Senior PIK Toggle Notes (“Notes”) were not a good idea and since the deal was oversubscribed and upsized it clearly is not worth repeating the litany here. Instead, we will focus on the deal itself, details of which are highlighted in the Guts of the Deal contained herein.
“…Ask and you shall receive…”
The overriding theme of capital being available to existing companies continues. Both DHT Holdings Inc. (“DHT”) and Teekay Tankers Ltd successfully concluded overnight follow-on equity offerings last week and both were well received.
DHT initially announced plans to offer 8 million shares in an underwritten public offering, “subject to market conditions.” Market conditions were certainly good with the transaction approximately 3 times oversubscribed. The offer was upsized approximately 93% to 15.5 million shares, which included an exercised underwriter’s option to purchase up to 2.025 million shares to cover overallotments. The shares were offered at a discount range of 8-10% of the closing price on February 3rd of $5.08. The strong demand resulted in the transaction being priced at $4.65/share equal to a discount of 8.4%. Proceeds will be used for general corporate purposes, which may include, without limitation, vessel acquisitions, business acquisitions or other strategic alliances, reduction of outstanding borrowings, capital expenditures and working capital.
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