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Genco Amends its Agreements
Just before the holiday break, Genco Shipping & Trading Limited announced it had separately amended its $1.4 billion revolver, its $253 million senior secured term loan facility and its $100 million term loan facility led respectively by DnB NOR, Deutsche Bank and Credit Agricole. The parties have agreed to waive both the maximum leverage and interest coverage ratio covenants through the quarter ending March 31, 2013. During that interim period, a new covenant which limits interest bearing consolidated debt to 62.5% of the aggregate of interest bearing debt plus consolidated net worth will be tested. In this instance the quid pro quo was the prepayment of the loans to the tune of $62.5 million of which $52.5 million was allocated to the $1.4 billion facility, $7 million to the $253 million facility and $3 million allocated to the $100 million facility. The banks also took their pound of flesh charging an upfront fee of 25 bps on the amount of the outstanding loans and applying the proceeds in inverse maturity. In addition, the $1.4 billion revolver is subject to a 200 bps facility fee payable quarterly on average daily outstanding loans, which reduces to 100 bps upon completion of an equity offering of a minimum of $50 million. Albeit expensive, this is yet another example of a company, having the wherewithal, taking the lead and managing the process to achieve a level of certainty despite the difficult markets.
HMM Seals USD 500 million Debt Facility
Hyundai Merchant Marine (“HMM”) has demonstrated that even during times of economic uncertainty, reputable ship owners with good track records are still able to tap the banking market. Last Tuesday, HMM concluded a USD 500 million syndicated debt facility led by DNB Bank. Other participating lenders include ABN AMRO, Credit Agricole, Korea Finance Corporation and Korea Development Bank. The facility will be used by HMM to fund the construction of five mega container vessels being built at Daewoo Shipbuilding & Marine Engineering which are scheduled to be delivered throughout 2014.
DNB says the latest transaction underlines the bank’s continued commitment to shipping throughout the cycle. In an earlier report, J.P. Morgan analyst Sofie Peterzens pointed out that the bank is well positioned to absorb potentially higher shipping losses from a profitability and capital perspective. With only 7.7% of total lending to shipping, a well diversified loan portfolio and LTVs averaging 60-75%, Ms Peterzens believes that DNB’s exposure to the sector is manageable.
Transocean goes All-In Raising $1.08 billion in Equity and $2.5 billion in Debt
During the last days of November, Transocean Ltd re-jiggered its balance sheet through an equity follow-on offering and the issuance of serial bonds. First up was the follow-on offering for 26 million shares with a green shoe of a further 3.9 million shares. The offering was priced, through an accelerated bookbuilding process, at $40.50/share (based upon an exchange rate of CHF 0.9215/USD), a discount of 11.8% from the prior day’s closing price when the offering was announced. Proceeds of the share offering will be used to partially re-finance the company’s acquisition of Aker Drilling ASA, which was originally financed from cash and assumption of Aker’s outstanding debt. The replenished cash will be applied to the expected repurchase of approximately $1.7 billion of its 1.5% Series B Convertible Senior Notes due 2037 that holders may require it to re-purchase in December 2011. Barclays Capital and Credit Suisse acted as joint book-running managers of the offering.
A Million Dollars’ Worth? – RBS and Credit Agricole vs. Marco Polo Seatrade
“In our druthers, we wouldn’t be here, we never would have been here, but unfortunately, we wound up here.” “Here” is the United States Bankruptcy Court of the Southern District of New York and the “We” are the lenders, The Royal Bank of Scotland (“Creditor”)and Credit Agricole who failed to convince Judge James Peck that the case against debtors Marco Polo Seatrade et. al. should be dismissed. Reading the transcript of the proceedings the outcome, while not a foregone conclusion, is not surprising. In the bankruptcy arena, the Judge has a great deal of discretion in making his decisions and the court tends to give the benefit of the doubt to the debtors. This is clearly evident in the following exchange between Creditor’s counsel and the Judge, with no one disputing the basic premise of the lender’s argument:
“There’s no prospect for this company to be reorganized absent an improvement in the shipping industry. And that falls within the cases of the debtor speculating with the secured creditor’s money. They don’t have any skin in the game, they’re not putting their money in, their equity investment is lost. If they – - if the shipping industry recovers, they have an option; they get the option value of the upside…”
Teekay LNG Taps Equity Market
In the first shipping follow-on since last July, Teekay LNG Partners L.P., utilizing its $750 million shelf registration, announced, priced and successfully sold 5.5 million shares yesterday in an overnight offering raising $183.7 million. The offering, which went primarily into retail hands, was priced at $33.40/share, a discount of 3.47% from yesterday’s closing price of $34.60. According to data compiled by Jefferies, the price discount was tighter than the year to date average of 7.5% and last month’s 5% suggesting strong demand. Sales proceeds will be used to pre-fund the company’s portion of the equity purchase price of the Maersk LNG acquisition, or $146 million, with the remaining funds used for the repayment of outstanding debt under one of its credit facilities, maturing in August 2018, which bears interest at LIBOR + 0.55%. In addition to a green shoe of 825 thousand shares, the offering is not contingent on the closing of the Maersk transaction nor is the Maersk transaction contingent on the closing of this offering. More details are provided in our Guts of the Deal below.
“Just the Facts, Ma’am” – RBS and Credit Agricole vs. Marco Polo Seatrade B.V. et. al.
We are unlicensed, permitted to argue only at the neighborhood bar and have no standing in any venue but perhaps in the court of common sense. Nevertheless, having gained access to the court filings in the Chapter 11 case of The Royal Bank of Scotland and Credit Agricole vs. Marco Polo Seatrade B.V. (“MPS”), we looked at the arguments advanced by the debtors and the lenders in their pleadings with respect to the eligibility of the debtor for Chapter 11 protection and whether MPS had initiated its case in bad faith and present them below for you to judge. To color your judgment, we should perhaps put them in the context that the court ruled in favor of the debtors, rejecting all the debtors’ arguments. We look forward to presenting the Judge’s decision next week.
RBS and Credit Agricole requested the suspension of the Chapter 11 proceedings, or the lifting of the stay and the dismissal of these proceedings questioning first whether there is a sufficient nexus or connection to the United States. The lenders attorney, Cadwalader, Wickersham & Taft {“Cadwalader”) argued logically:
China Rongsheng Inks Another Massive Credit Facility
On Monday, Hong Kong listed China Rongsheng Heavy Industries Group Holdings signed a strategic collaboration agreement worth RMB 30 billion (USD 4.7 billion) with China Development Bank in the Chinese city of Nanjing. A large chunk of the facility will go towards its offshore engineering division. We note that Rongsheng has signed many similar corporative agreements with numerous Chinese lenders including China Exim, Bank of China, China Everbright Bank, China CITIC Bank and Agricultural Bank of China since August 2010, of at least total of over RMB 129.5 billion (USD 20.2 billion!).
We also have more details on Rongsheng’s recently completed USD 220 million offshore syndicated loan. Sole book runner Credit Agricole took up the biggest slice in the loan of USD 40 million while four lead arrangers Societe Generale, Aozora Asia Pacific Finance, Bank of East Asia and Bank of Tokyo-Mitsubishi UFJ committed USD 30 million each. Cathay United Bank chipped in USD 20 million. Italian bank Banca Monte Dei Paschi di Siena, Taiwanese lenders Chang Hwa Commercial Bank and Hua Nan Commercial Bank, as well as Metropolitan Bank and Trust in Philippines rounded up the syndication and contributed USD 10 million each. The loan offers the lenders a margin of LIBOR plus 130 basis points and is guaranteed by China Exim Bank.
China Rongsheng Inks Yet Another Massive Credit Facility
China Rongsheng has never failed to impress us with its ability to secure massive credit facilities from international and domestic lenders. Shortly after sealing a USD 220 million syndicated facility led by bookrunner Credit Agricole, the non-state owned shipbuilder has signed a credit facility with Agricultural Bank of China (“ABC”). This is the second credit facility that the shipbuilder has signed with the Chinese lender.
In the latest arrangement, ABC will provide China Rongsheng with a RMB 28 billion (USD 4.4 billion) facility, out of which RMB 20 billion (USD 3.1 billion) will go towards the development of its shipbuilding and marine engineering divisions while the rest of the funds will be used to invest in its machinery division. If we tally up the figures, China Rongsheng has raised USD 6.3 billion of debt so far this year. That is mind boggling, given the weakening industry outlook and severe challenges faced by the shipbuilding industry. To date, China Rongsheng has an orderbook of USD 6.8 billion.
China Rongsheng Heavy Secures USD 220 million Syndication Loan
Hong Kong listed Chinese shipbuilder China Rongsheng Heavy Industries has successfully closed its first ever overseas dollar denominated syndicated loan transaction of USD 220 million, led by bookrunner Credit Agricole. The successful closing of facility has strategic importance to non-state owned shipbuilder, given the tighter regulations and capital controls imposed by the central government on the Chinese lenders. The Import-Export Bank of China (“China Exim”) played an instrumental role in this syndicated transaction as a guarantor for the facility and according to sources, over 10 overseas banks participated in this deal.
The latest and maiden foray into the international syndication market marks an important milestone in its history as the shipbuilder seeks to diversify its funding sources and reduce its exposure to RMB loans. No other non-state owned shipbuilder in China has been as successful as Rongsheng when it comes to securing debt from the Chinese lenders. In 2010, Rongsheng entered into a number of strategic cooperation agreements with Bank of China, China Eximbank, Agricultural Bank of China and China Everbright Bank with a total credit line of up to RMB 118 billion (USD 18.5 billion)! In June, Rongsheng also inked a RMB 11 billion (USD 1.7 billion) credit line from China CITIC Bank.
A Sizeable Deal and the Power of the Press – Euronav Facility
It should come as no surprise that while the banks continue to be active, there still remains uncertainty. The banks seem to have capacity but the shipping markets are not cooperating and continued deterioration will continue to make things difficult. We were reminded of DnB Nor’s Harald Serck-Hansens’s comments at his bank’s conference earlier this year where he highlighted this possibility and encouraged owners to tap the market while they can.
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