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No Hype. We Delivered!
Our Chairman’s promotions are sheer artistry and we constantly marvel at these masterful gems. Of course, there are issues with punctuation but why let that get in the way of a great pitch. The amazing thing is that despite his protests otherwise, he really does get it. Our problem is that he is rubbing off on us and we are moving from analytical and objective to the dark side where it’s all about the love as both Matt and he are fond of saying. In the case of this year’s Marine Money week, there is no doubt we got it right. The numbers speak for themselves. This year we went out on a limb denoting the theme as the Comeback or Confidence Returns to Ship Finance. Whether or not that was the case and we believe it is, 1,078 registered guest wanted to hear the answer. This was a new record surpassing 2008’s 1042 guests. Uncertainty + optimism trump a boom.
We relish the awards afternoon. We devote a great deal of energy, although far less than the dealmakers themselves, in choosing the transactions from the many submissions we receive and it is a pleasure to see the winners bask in the recognition they rightfully deserve. It is also educational as the latest structures and ideas are on display for all to see and take advantage of as appropriate. Nigel Thomas and Dan Rodgers of Watson, Farlay & Williams did a masterful job moderating the session which included presentations by Sheldon Goldman, Efthymios Bouloutas of Marfin, Ronny Bjornadal of Nordea, Sean Durkin of NSF, Gerrit Parker of Citi and Craig Fuehrer of Deutsche Bank.
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Notes from the Center of the Shipping Universe
The waters around Singapore are littered with parked tonnage, while the vibrant nation’s skyline grows and changes daily as construction on new office towers, casinos, amusement parks, mass transit projects continues 24 hours a day. There is a dull roar of cranes, jackhammers and steel against steel always in the background.
It is clear in Asia that demand is not likely to be shipping’s problem, as growth numbers indicate a steady rebound of trade, led by China and many of its vibrant Asian neighbors. But as HSH Nordbank’s Mattias Umlauf told a full Marine Money Singapore Week conference crowd the growth while positive only begins to bring us part way back to where we were.
And that is why everything revolves around supply. As a veteran of several slides, we note glumly, but without surprise, the business has returned to the industry’s norm – a supply driven business with generally modest returns.
The question is how long before a semblance of balance between the enormous supply and demand creates utilization rates capable of more than modest returns.
Danaos Re-jiggers
In its first quarter report, Danaos provided further clarification with respect to the re-arranged delivery schedule of its newbuildings. China Shipbuilding Trading Company agreed to delay by 200 days on average the delivery of five 8,530 TEU containerships currently under construction. In addition Hanjin Heavy Industries agreed to delay the deliveries of five 6,500 TEU and the five 3,400 TEU containerships under construction by approximately one quarter each. In terms of the schedule, as of today, Danaos is expecting to take delivery of six vessels this year, twelve in 2010, of which three can rollover to the following year as they are scheduled to be delivered in December 2010, and eleven in 2010. Presuming the three 2010 deliveries roll over into 2011, the remaining capital expenditure installments are approximately $465 million for the balance of the year, $875 million for 2010 and $785 million for 2011.
Gleanings from Capital Link
Following the CMA, Capital Link held its 3rd Annual Invest in International Shipping Forum at the Metropolitan Club, which was overflowing for much of the day. There were general presentations, panels as well as company presentations. The following were our main takeaways from this forum.
The container sector has been the hardest hit and so we listened with great interest to that panel led by Ken Hoexter of Banc of America Securities-Merrill Lynch. The panelists included Gerry Wang of Seaspan, Aristides Pittas of Euroseas and Dimitiri Andritsoyiannis of Danaos. The collapse of the market is attributable to simple supply and demand. Overbuilding joined with reduced demand resulting from a slowdown in consumer buying. Mr. Wang believes this is a 12 to 18 month problem with 2012 to 2014 being good years. The lines will survive as they exercise self-help by utilizing alliances, like the airlines. Slot sharing is not as effective as filling a single ship instead of having two partially filled. Mr. Andritsoyiannis espoused the certainty that globalization will continue and that the containership is the only way to efficiently move finished goods. Mr. Pittas reminded everyone that it is a cyclical business and the good market will return. He plays the market more than his fellow panelists. He operates his smaller ships on shorter-term charters taking advantage of good markets and laying up vessels when the market is bad. He currently has three ships in lay-up and is relying on his solid balance sheet to get his company through the downturn.
Nor is Danaos Immune
In today’s earning’s release, Danaos reported generally satisfactory results but also began to show the effects of the economy and has consequently begun the process of shoring itself up for the future.
The extraordinary drop in vessel values combined with lower interest rates, which resulted in a negative valuation of its interest rate swaps, has resulted in the company’s breach of certain financial covenants, including the expected LTV as well as the equity covenant as non-cash charges have been taken against equity. Danaos has or is in the process of obtaining waivers for 2008 and 2009 under their various credit facilities.
Don’t Throw the Baby Out with the Bath Water or How I Learned to Stop Worrying and Love the Fundamentals (with thanks to Stanley Kubrick)
With a full house, Simon Rose began Dahlman Rose’s 1st Annual Global Transportation Conference confessing that despite Wall Street’s having spent years educating investors as to the difference between period and spot business they have largely been ineffective. We disagree with this assessment believing the current market reflects a herd instinct and an avoidance of betting against the tape. The companies presenting at the conference are all clearly differentiated from spot players, with visibility of earnings and cash flows yet their shares have also been pummeled as the BDI continues its decline. Mr. Rose exhorted the crowd to take advantage of this anomaly, take a reality check and not to trade on fear.
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“Don’t Give Up the Ship” – Marathon Acquisition Restructures Deal
This morning Marathon Acquisition Corp. (“MAQ”) announced amendments to its Agreement and Plan for Merger for its previously announced merger with Global Ship Lease Inc. (“GSL”), a subsidiary of CMA CGM. In order to allow enough time for the shareholders to consider these changes, the special meeting of the shareholders has been deferred to August 12th. As one might expect, the sponsor and GSL have taken haircuts in order to increase the returns to the prospective shareholders clearly reading the messages from the Street over the past couple of weeks. Or, as our esteemed President was explaining to me the other day they have picked up the tab for the dilution created by the carried interest.
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Yang Ming, FSL, Maersk & HCI in Half Billion of Lease Deals
The I.M. Skaugen deal was interesting, but not the only recent sale leaseback deal. First Ship Lease last week announced that it had purchased three 4250 TEU containership newbuildings from Yang Ming for $210 million en bloc with a 12 year bareboat back at a fixed rate market reports pin at $18,500 per day. The lease agreements contain purchase options for Yang Ming at undisclosed values at upon expiration of the leases.
TMI?
What a week for investors! Starting with CMA’s annual event, continuing with JPMorgan’s Conference and concluding with the Capital Link Forum, it is conceivable that even the most interested observer of the industry may have suffered from information overload. Thankfully, with Good Friday, many of us had the opportunity to recover with a long-weekend.
Despite the early start, the Capital Link Forum played to a full house. There were company presentations galore interspersed with lively and informative panel discussions. With far too much information to distill, here is a highly selected compendium of our outtakes.
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
The Official Guide To Marine Finance Providers
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