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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.
Banking Crisis? Not an Issue for BW Group or NOL
2012 is broadly expected to be challenging for both shipping lenders and borrowers. As long as the Euro debt crisis persists and continues to worsen, capital will become increasing scarce. Even shipping companies at the top of the pyramid are busy strengthening their balance sheets and making sure that they have adequate funds to meet capital expenditure requirements in the coming years.
One of the world’s leading maritime companies BW Group has successfully completed a USD 1.5 billion seven-year revolver in mid-November. According to market sources, the proceeds will be used for refinancing and the participants are largely from the previous revolving facility. Pricing is said to be “slightly higher” than the previous revolving facility, although it remains highly competitive in today’s tight market conditions. Continue Reading
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.
Why Do One Deal When You Can Do Two – Teekay Teams with Marubeni to Purchase Maersk LNG
Following closely on the heels of last week’s announced transaction with Sevan, a joint venture of Teekay LNG Partners LP and Marubeni Corporation, announced the acquisition of Maersk LNG Carriers. Also thin on detail, the parties disclosed that the joint venture would acquire the ownership interests in eight LNG carriers from A.P. Moller-Maersk A/S for an aggregate purchase price of approximately $1.402 billion, which will be paid in cash with no assumption of debt. The average age of the fleet is 3.25 years making it the second youngest in the industry and the youngest among all independent owners. As far as responsibilities, Teekay LNG will provide the technical management upon turnover.
Of the eight vessels acquired, the joint venture will acquire 100% interests in six vessels and 26% interests in the remaining two (Maersk Qatar and the Maersk Ras Laffan), which are owned by limited partnerships. The limited partners will have the right to put their interests to the buyer. Of the eight vessels, five are currently operating under long-term fixed rate time charters with an average remaining term of 17 years, exclusive of extension options. The remaining three vessels are employed under short-term fixed rate time charters, however one of these includes an option which if exercised would put it in the long-term category. Based upon the current employment, the transaction will be accretive to Teekay LNG’s distributable cash flow. Although dated, the below chart describes the vessels and identifies those likely to be on long-term charter. Although not identified on the chart, known customers include Total, Yemen LNG, Woodside Petroleum, RasGas, Qatar Gas Transportation Company, Repsol YPF and the BG Group.
A Look Back – Some Further Insights on the GE SeaCo Acquisition
When the purchase of GE SeaCo by the HNA Group was announced, details of the transaction were few and difficult to come by. We scoured our contacts and were able to glean some color. We reprise the salient points below with the new details interspersed.
As the fifth largest player in the global marine container leasing industry, GE SeaCo owns and manages over 870,000 20-foot equivalent units, the industry’s standard measure of fleet size. The company was put into play last year as part of GE’s plan to shed financial assets and emphasize its industrial businesses. From its original beginning as Genstar, the container leasing business has never been a great success for GE Capital.
Private Equity Firms Charge into Shipping
A couple of eyebrow raising private equity deals in the shipping space were announced last week, just before the global markets took a beating. HNA Group, a Chinese conglomerate and parent of rapidly expanding shipping company Grand China Logistics has agreed to acquire Singapore based container leasing company GE SeaCo, together with Hong Kong based private equity and advisory firm Bravia Capital, for USD 1 billion.
GE SeaCo’s joint venture partners, GE and SeaCo Ltd, will receive approximately USD 500 million and USD 528 million each for their interests in the joint venture and their respective owned container fleets (net of certain seller transaction costs). And following the completion of the acquisition, GE SeaCo will operate as a core business within HNA’s existing logistics and finance businesses. The acquisition is being funded by a combination of equity and a committed debt facility, arranged through Deutsche Bank and ING. Deutsche Bank Securities served as sole M&A advisor to the sellers in this transaction.
Adam Tan, Executive Director of HNA, pointed out in a press release that the acquisition would fit precisely into the group’s strategic plans to quickly grow its logistics and transport business. HNA currently owns and operates China’s fourth largest port, a fleet of 30 container ships and a container ship finance arm. GE SeaCo began life in 1998 as a 50/50 joint venture between GE Capital and SeaCo Ltd, and has grown to become the fifth largest player in the global marine container leasing industry owning and managing over 870,000 20-foot equivalent units.
And it is not just about Asian private equity firms buying up Western companies. A group of private investors, comprising First Reserve, WL Ross, Fairfax Financial Holdings, Morgan Creek Capital Management, PPM America Capital Partners and sovereign-wealth fund China Investment Corp, have committed to invest over USD 600 million in equity in private shipping company Diamond S Shipping. Diamond will in turn make use of the funds to acquire 30 MR product tankers from privately held Korean shipping company, Cido Tanker. With the acquisition of the 30 tankers, Diamond will quadruple the size of its fleet to 40 ships with an average age of 1.75 years. Incidentally, energy industry-focused firm First Reserve Corp is also Diamond S Shipping’s founding investor.
Mayer Brown JSM acted for Cido on this transaction which has been structured as a sale of shares in various vessel-owning companies while Jones Day advised Diamond S Shipping. The balance of the purchase price will be financed by Nordea Bank Finland and DnB Nor Bank ASA. We note that Cido’s fleet had been up for sale for quite some time. In 2010, DnB NOR sold 5 MR tankers for Cido to Blue Lines, a Dubai based shipping company backed by Middle Eastern funds.
China Shipping Nauticgreen Shelves USD 192 million IPO
World stock markets around the globe continue to fall sharply since Standard & Poor’s downgraded American debt for the first time in history last Friday, as fears that the twin debt crises in the US and Europe could drive the world economy into recession continue to shake investors’ confidence. Others believe that the markets are over-reacting and have accused large individual investors of “coordinated short-selling attacks” and preying on fragile market sentiments, which have prompted some countries to look into implementing a total ban on naked short selling, in order to stabilize the stock markets.
Without surprise, the market volatility has forced several IPO issuers to delay or drop plans to raise equity. China Shipping Nauticgreen, the container leasing unit of state-owned China Shipping Group, has postponed its plans to raise up to HKD 1.5 billion (USD 192 million) in Hong Kong, until market conditions improve. This decision was made despite the fact that the appointed bookrunners, China Merchants Securities and Deutsche Bank, were able to sell the entire institutional tranche after two days of book-building that began on August 1. Continue Reading
Separating the Wheat from the Chaff
Having worked in the sector, we are clearly prejudiced. However, it is obvious to us that investor interest in the container leasing sector has grown. Within the last year (i) one company has gone public (SeaCube); (ii) two companies have been sold to private equity funds (Cronos, Triton); and (iii) the stock prices of the two established public companies (TAL, Textainer) rose almost 50% before retreating in the recent market downturn. The interest of the private equity funds is not surprising. Unlike strategic buyers whose sole interest is in the assets, private equity offers going concern valuations taking into account the essential infrastructure which forms the backbone of the business, but which is extraneous to the strategic buyer. Adding further credence to the sector is the fact that two shipping analysts, Greg Lewis of Credit Suisse and Justin Yagerman of Deutsche Bank, follow the public companies engaged in the sector.
Into these Volatile Markets Goes Star Bulk
In its first follow-on offering since it began operations in December 2007, Star Bulk Carriers Corp. announced on Monday an underwritten overnight offering of 16.5 million shares based upon its previously filed $250 million shelf registration. The next day the offering was upsized to 16.7 million shares and priced at $1.80 per share, a discount of 10.4% from Monday’s closing price. While the file to offer discount is somewhat higher than the average year to date of 7.2% indicated by Jefferies, recall this is shipping and the markets remain volatile. Net proceeds were approximately $28 million. In addition, the company is allocating the usual 15% of the offering or 2.51 million shares to cover over-allotments.
Regent Seven Seas 2nd Lien Notes
Last week, Seven Seas Cruises S. DE R.L., the indirect owner of Regent Seven Seas’ three luxury cruise vessels successfully issued $225 million of 9 1/8% senior secured notes due in 2019. Due to strong demand the offering, sold at par, was upsized from $200 million to $225 million and priced at the tight end of price talk. The notes were rated B- and B3 respectively by Moody’s and S&P. The issuer is owned by Prestige Cruise Holdings Inc., a holding company which also owns Oceania Cruises and is itself ultimately controlled by Apollo Management.
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