First Bank of Teekay

As Justin Yagerman aptly put in his piece about this deal “Teekay Tankers or Teekay Bankers?”,  providing further evidence that the reduced availability of shipping debt is affecting the cost of capital, the structure through which it is lent and, as result, who provides it, Teekay Tankers (TNK) announced this week that, in a deal structured by Deutsche Bank , it has drawn down $115m of its revolving credit facility and used the funds to provide what is effectively a first preferred ship mortgage bond secured by 2x 2010-built VLCCs owned by a Far Eastern shipowner.

So what does this deal mean? Maybe it means that TNK’s Peter Evensen, a former commercial banker at JPMorganChase and predecessors, missed the documentation of a ship mortgage loan.  More likely, what it means is that those with the combination of liquidity and flexibility the understanding that there are a lot of different ways to make money in shipping (think Denis Washington providing preferred stock to Seaspan and Seacor forming Sea Tiger) are finding that they can achieve ROCE’s that compare favorably with the historical financial performance of shipping assets, without taking market risk that is outside their commercial comfort zone.
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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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Dream Team in the Making

After 20+ years at Citi, Simon Booth has decamped and moves to Deutsche Bank effective September 1st, where he will serve as a Managing Director and Co-head of Deutsche Shipping, Deutsche Bank’s lending arm to the shipping sector.  Simon will be based in London and head up Deutsche Shipping alongside Ralf Bedranowsky, who is based in Hamburg where Deutsche Shipping is based.

This move further strengthens Deutsche Bank’s overall shipping sector coverage platform, which includes Craig Fuehrer in New York as the Head of Deutsche Bank’s Investment Banking platform offering capital markets and advisory product experience as well as Justin Yagerman’s equity research platform with approximately 15 shipping companies currently under coverage. For borrowers, Deutsche Shipping’s global presence makes it a one-stop place to shop for financing solutions in both the loan and capital markets. Through it careful focus on long-standing client relationships, consistent risk management and continuously diversified shipping portfolio, Deutsche has not only survived the credit crisis but continues to thrive in these illiquid markets.

Markets In Disarray

The equity markets can best be described as volatile, although that characterization may be kind, as they seem to be heading in one direction only. Two companies, Ridgebury Tankers and Navios Maritime Acquisition have braved the onslaught but we suspect would have preferred a better choice of timing. Unlike the preceding IPO offerings, Crude Carriers and Scorpio Tankers, that took place earlier this year, Ridgebury is not the master of its fate. Specifically, its vessels are on option from a third party seller, Teekay, as opposed to an affiliated party, which implies certain time limitations. Despite the switchover from the Gemini to Heidmar pool, they remain on the road for a second week. As a firm believer in no news is good news, we remain hopeful that Bob Burke and his team along with Jefferies will be successful.

Clearly, Ms. Angeliki Frangou leads a charmed life or is an extraordinary negotiator. Despite the uncertain markets and a preliminary vote that was largely against the acquisition of a tanker fleet of 11 product carriers and 2 chemical tankers, shareholders of Navios Maritime Acquisition approved the transaction on Tuesday thereby avoiding the necessity of Navios Maritime Holdings becoming the owner/operator of the tonnage. According to Chris Wetherbee of FBR Capital Markets, the company was able to secure a 60% plus one majority vote from shareholders, but expects Navios’ ownership stake will likely be higher than its 33% target, as it likely purchased shares from dissidents. With three public companies under her purview, Ms. Frangou is approaching Peter G’s record of four. We are in awe of the capacity of these two industry leaders to manage successfully these distinct companies in different sectors with distinctly different shareholders.
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It’s Spring and the Convertible Takes Another Spin

On Tuesday, DryShips announced that it would re-open the indenture of its original convertible bond offering done November 25, 2009, and offer an additional $150 million aggregate principal amount of the 5% Convertible Senior Notes due 2014 (“Convertible Notes”). As a consequence of the strict six-month window, this is a highly unusual occurrence, which we understand has only happened twice in the last five years.

By the time it was priced, this deal, like the previous one, was upsized from $150 million to $220 million, an increase of almost 47%. The notes are being offered as additional notes under an indenture, as supplemented by a supplemental indenture, under which the company issued the original $460 million of the Convertible Notes. In addition, the underwriter will be granted an option to purchase up to an additional amount of $20 million of the notes to cover over-allotments. The notes offered currently and the previously issued notes will be treated as a single series of debt securities under the indenture. The terms of the new notes, other than the issue date and public offering price will be identical to the previously issued notes. Upon completion of the offering the total outstanding amount of the Convertible Notes will be $680 million, assuming the overallotment option is not exercised. After the announcement the shares traded down 4.6%, closing yesterday at $6.19.
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With 2 Months to Spare

Today, Navios Maritime Acquisition Corporation, the SPAC formed by Navios Maritime Holdings (“Navios”) back in June 2008, announced that it had agreed to acquire a 13 vessel fleet, consisting of 11 product tankers (4 LR1s and 7 MR2s) and 2 chemical tankers for an aggregate purchase price of $457.7 million. The company also has options to purchase two additional LR1s for $40.5 million each. The purchase price will be paid from cash ($123.4 million) and $343 million of bank financing consisting of a three term loans aggregating $277 million and a $57 million revolving credit facility. The high leverage also leaves excess cash remaining for growth from the original $220 million raised. The company’s rationale for the purchase is its belief that the assets are being acquired near their inflation adjusted historic low prices and the anticipated increased demand for products as the global recession eases.
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Insatiable!

Investors cannot seem to be able to get enough of the shares and bonds of Teekay and its subsidiaries. In the latest iteration, Teekay Tankers announced Monday, after market close, its intention to offer 7 million shares of Class “A” common stock of the company in a public offering. But even before the market opened the next day, the company announced that the offering had been increased to 7.7 million shares, following the trend of Teekay’s previous offerings.

With the joint bookrunners, UBS, Citi, J.P. Morgan and Deutsche Bank opening up their retail systems, the bulk (75% to 80%) was covered by retail with the balance covered by institutions. In a world of low interest rates, a consistent dividend payer is a star.
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“Gone in 60 Seconds”

Like the movie highlighted in the title, it comes as no surprise that people work better under pressure. Last week’s $225 million convertible bond offering by Frontline Ltd. evidences that fact. In a matter of two days, Frontline’s bankers, led by joint book-runners ABG Sundal Collier and Deutsche Bank, successfully structured and executed the company’s debut convertible bond issue. And when it came to market, the transaction was fully covered within 1.5 hours and priced within 3 hours of launch. With strong demand across a broad spectrum of investors and geographies, the deal was upsized from the originals $200 million to $225 million.
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Seacastle Redux Or Fortress’ 2nd Attempt to Exit

Stripping off the baggage of its container ships and chassis, both unattractive businesses today, Seacastle Inc. has offered the public the opportunity to invest this time in its container leasing subsidiary through an initial public offering of that business, which they have named SeaCube Container Leasing Ltd. This is another example of a part that might be worth more than a whole as management recognized the recent outperformance of the publicly traded container leasing companies, Textainer and TAL International due to operating leverage. Trade has begun to resume which equates to more boxes coming on line, higher utilization and hence more revenue, with little incremental cost. In addition, given the financial constraints of the liner companies due to a very difficult 2009, it is likely that the lines will increase the portion of leased rather than owned containers in their fleet. From that standpoint, timing could not be better.
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Bite the Bullet?

Showing the resilience of its model, Seaspan Corporation last week reported its 4th quarter and year-end results, which were generally in line with consensus and given the unprecedented conditions in container shipping, the credit markets and the economy quite good in our estimation. But our focus is on capital and, as of year-end, the estimated remaining installments of the 26 remaining contracted vessels that have not been delivered amounts to approximately $1.7 billion.  While the company has successfully reduced its equity capital needs through deferral of vessel deliveries, it was temporary and now it must now face the issue of raising approximately $180 to $240 million in equity or other forms of capital to finance the remaining portion of the purchase price of vessels on order. In terms of timing, it is likely that the need will commence in Q1 2011and extend through Q2 2012 as deferrals remain a possibility. However, the good news is that Seaspan has secured long-term credit facilities to fund the vessels and has no facilities maturing until 2015.
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