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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
Oppenheimer Initiates on Containership Sector
Tim Tiberio and Lawrence Lee of Oppenheimer have released their first report on the containership sector, rating all three companies under coverage – Danaos, Seaspan and Euroseas – an impressive Outperform. To support this they cite several factors, including the shielding effect the leasing model provides from near-term cyclicality. While the analysts expect a moderation in global container volume growth in 2008, they expect growing consumer demand in Asia and Eastern Europe, ongoing globalization, and the continual growth of offshore manufacturing will continue to drive long-term growth in the sector.
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