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A Frank Assessment
With the exception of the syndicated loan market, it is difficult to get a feel for the level of ship lending activity at any point in time no less any sense of trends. To the extent lending exists today, much of it has gone underground in the form of bilateral loans. So any intelligence we find on the subject is of great interest.
This week we received Deutsche Schiffsbank’s annual report for the past year and as the title of this article suggests the bank was extremely transparent in its disclosures. And, as one might expect, given their location in one of the hardest hit regions, it is going to be a tough year. Moreover, the bank itself is going through immense change as the merger with Commerzbank and Dresdner Bank continues.
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At Last!
We were wrong and for that we blame Joe Royce and his management team, who over an extensive period successfully re-negotiated new covenants in their loan agreements without having to issue a high yield bond to reduce the bank exposure as we surmised. But then again, as an industry insider suggested, given their credit and the uncertainty surrounding the negotiations, it may not have been possible or the price was too high.
TBS International successfully concluded the negotiations this week and amended its credit facilities with the three syndicates led by Bank of America (“BofA”), The Royal Bank of Scotland and DVB Group Merchant Bank as well as its loan agreements with AIG Commercial Equipment, Commerzbank, Berenberg Bank and Credit Suisse. Objective success will be determined on whether TBS remains in compliance with the new covenants going forward. Currently, the company expects to be in conformance with the financial covenants through maturity of the facilities. The important outcome of the agreements is that long-term debt, which had been previously classified as short-term, as the debt was considered callable due to the borrower’s inability to cure the breaches within a twelve month period, is again being classified as long-term debt.
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Pricing May No Longer Be an Issue
Yesterday, TBS International announced that it had secured a waiver of certain covenants from its lenders for an additional 30-day period so that negotiations of new or amended credit facilities could continue. The lenders consist of syndicates led by Bank of America, The Royal Bank of Scotland and DVB Group. There are also loan agreements with AIG Commercial Equipment, Commerzbank, Berenberg Bank and Credit Suisse.
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Funding the Equity Shortfall
New York-listed Navios Maritime recently announced a series of transaction that are very interesting but mostly the territory of our western sister publication, Freshly Minted. However among this series of transactions was one very important one that bears discussion here, namely a USD 52.82 million reduction in cash requirements for three existing newbuild capesize vessels. This reduction will be effected with part of the issuance of USD 165.22 million of mandatorily convertible preferred stock. Reports indicate the vessels in question are being constructed at Sungdong Shipyard in South Korea.
What is interesting is that the stock of a Greek shipping company listed in New York is being used in lieu of cash to fund the equity portion of a newbuilding commitment in South Korea, all the more so because of all the yards the Koreans have thus far been reputed as the least flexible in amending newbuilding orders for the benefit of their clients. It should be noted that Navios is also acquiring other vessels understood to be under construction at the same yards from entities currently being controlled by Commerzbank, so such flexibility should work to the benefit of all parties involved. Still, the deal highlights how equity investments and even M&A deals will come into play where cash is scarce. It also brings forward the question of whether publicly-listed companies, with their liquid and transparently valued stock, will be at an advantage as newbuilding acquisition candidates in situations such as these.
De-leveraging
In its 1Q earnings release last week, Navios Maritime Partners (“Navios Partners”) announced that it had amended the terms of its existing $235 million credit facility with Commerzbank in January. The company prepaid $40 million during the first quarter resulting in an approximate $1.5 million in interest expense savings for 2009 and a commensurate reduction in leverage. Throughout 2009, the partnership will additionally have to fund into a pledged account a further $37.5 million. The interest rate on the remaining facility of $195 million now bears a spread of 2.25%, giving an estimated interest rate of 3.98% for 2009 including the margin (versus 4.17% the effective rate in 2008), and no further installments are due until the 1Q 2010.
“Green Financing” – Resolution Shipping
Last week, Fortis Merchant Bank announced that it had successfully arranged and structured a EUR 250 million club deal for Resolution Shipping Ltd. A subsidiary of Vroon Group BV, Resolution, a Cyprus company, operates a windmill installation vessel, which is currently on time charter to Centrica installing wind turbines in the North Sea. The facility finances the existing vessel as well as two newbuildings, which are currently under construction and includes pre- and post delivery finance.
Oceanaut Takes Out Its Checkbook
With little time and no specificity in its investment guidelines, other than it be in shipping, Oceanaut Inc., Excel Maritime’s sponsored SPAC, announced, on Monday, that it had found its deal and will follow the footsteps of its sponsor and invest in drybulk but with a difference. It is the intention of the parties that Oceanaut will serve as Excel’s exclusive long-term charter dry bulk vehicle focusing on charters of 4 to 10 years.
The company has entered into definitive agreements to purchase four drybulk vessels from Irika Shipping S.A. for a total consideration of $352 million. The acquired vessels, which aggregate approximately 279,000 DWT, include three Panamax vessels and one Supramax vessel, which are described above together with their prospective employment.
The Week in Review
While there are rumors of a number of IPOs in the works, volatility and uncertainty has all but brought the US equity markets to a stop, and we don’t expect to see much more done over the summer. Bank debt has not proved as much of a problem for shipping. Most recently this week Deutsche Bank and HSH Nordbank acted as MLAs on a $753.1 million loan for E. R. Schiffhart GmbH & Cie KG to finance ten capesize bulkers currently under construction in Korea by the Hyundai Group with delivery expected throughout 2010. BNP Paribas, Commerzbank and Dresdner Kleinwort joined DB and HSH as arrangers while Deutsche Schiffsbank came in as a co-arranger for the deal, which finances 71% of the $1,056 million project cost and covers both pre and post-delivery financing. Notably Ralph Bedranowsky of Deutsche Bank and Harald Kuznik of HSH both hailed the deal as an example of “the global shipping market…returning to reasonable, market-consistent valuations…”
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The Week in Review
The week has been relatively quiet from a transaction standpoint, but sentiment by and large is upbeat. The shipping markets as a whole continue to perform above expectations, and the credit and equity markets functioning smoothly, if not lavishly.
For example, Caterpillar Financial Services this week entered into an agreement to increase Aker Philadelphia Shipyard’s credit line by $150 million. Under the agreement, Caterpillar will fund up to $80 million in construction costs for seven consecutive product tankers, valuing the full agreement at $560 million. Interest payments will be required only during the construction period, and Aker may apply the funding to up to three ships simultaneously. The deal takes care of financing for the remainder of the 12 Jones Act tankers under construction at the yard, which are to be sold to Aker American Shipping for bareboat charter to OSG America. Four these tankers have been delivered, three are currently under construction, and the remainder are to be completed by 2011. Continue Reading
Surveying the Credit Markets
Marine Money has concluded the collection of data for its 2008 shipping banker survey and would like to sincerely thank all who have participated. We are currently concluding work on our annual shipping portfolio league table and would like to thank the following banks for their cooperation and contribution to the development of a transparent and well-informed ship finance industry: Bank of Ireland, Bank of Scotland, Bremer Landesbank, Calyon, Commerzbank, Danish Ship Finance, Danske Bank, Deutsche Bank, Deutsche Schiffsbank, DnB NOR, Dresdner Bank, DVB, Helaba, HSH Nordbank, HVB, JP Morgan, KfW, Lloyds TSB, Natixis, Nordea and RBS. If you don’t see your bank’s name on the list, think it belongs there, and haven’t been in touch with us this weekend, please send an email to nhuvane@marinemoney.com ASAP to ensure you are included. Both survey and portfolio data will be released in the upcoming May issue of Marine Money.
The Official Guide To Marine Finance Providers
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