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Asian Liners Get Their Game On
Soaring bunker prices have motivated container liners to re-examine their strategy with a renewed focus on operating efficiency, cost reduction and high fleet utilisation. When market leader Maersk Lines announced its plans to pay USD 1.9 billion for 10 new generation 18,000 TEU vessels, it totally changed the rules of the game and has to some extent prompted other major carriers to look into ordering larger and fuel efficient vessels. Today, there appears to be some form of consensus among liner companies that they would need big ships that are over 10,000 TEUs to ply the Asia Europe trade by 2015 and possibly the Trans-pacific trade by 2020 to stay in the game. At the same time, some liner companies have also expressed their intention to build and own vessels to replace chartered-in vessels, so as to maximise their ability to manage excess capacity. During the shipping downturn, liner companies have realised that the decision to layup or sell vessels becomes much easier if they own the ships themselves.
At Marine Money’s conference in March, Kenneth Cambie, Executive Director and CFO of Orient Overseas International (“OOIL”), told delegates that he believes that container shipping is entering a watershed and it will be clear over the next six to nine months who is in the game and who isn’t. He reckoned that those players with the access to capital will be ordering larger ships and preparing themselves for 2015. The spate of newbuilding orders and the seeming lack of capacity discipline among liner companies have sparked market concerns, but while we leave the arguments and controversies to the industry experts, we agree with Mr. Cambie that the access to capital has become increasingly important to survival and in this aspect, Asian liner companies have the competitive advantage. Continue Reading
Better than Equity? – SeaCube Raises $50 Million from Unexpected Source
Last week, SeaCube Container Leasing Ltd. announced the successful closing of a $50 million unsecured term loan with Wells Fargo, as administrative agent, and Apollo Investment Corporation, as sole lead arranger. The loan matures on April 28, 2016 and bears interest at 11%. Proceeds will be used to purchase containers and for other general corporate purposes. The loan will be guaranteed by all of its subsidiaries, including Container Leasing International LLC, the main operating company.
CMA CGM Replicates Hapag-Lloyd Bond Model
Last week, CMA CGM S.A. successfully offered through a private placement, a $909 million equivalent dual tranche senior note issue, which, in many respects, closely resembled structurally last year’s Hapag-Lloyd bond issue led by Deutsche Bank. The offering consisted of a $475 million 8.5% tranche due in 2017 and a EUR 325 million 8.875% tranche due in 2019. Proceeds of the offering will be used to refinance the company’s existing Euro and Dollar denominated bonds and for general corporate purposes. Key terms are shown below in the Guts of the Deal.
Ocean Rig’s Debt Feast – Banks and Bond Market Provide Support
It’s been a very busy and productive month for Ocean Rig UDW Inc. as it has finally fully funded its current capex program. First, the company arranged a new $800 million syndicated secured term loan facility to partially finance the construction costs of the Ocean Rig Corcovado and Ocean Rig Olympia. The facility has a five year term based upon a 12 year amortization and bears interest at LIBOR plus a margin. The facility is led by Nordea and ABN AMRO and includes in the syndicate GIEK, DVB Bank, Deutsche Bank and National Bank of Greece. A portion of the proceeds of the loan will be used to repay the $325 million bridge loan used to partially finance the Corcovado.
In addition, the company restructured its $1.1 billion secured credit facility led by Deutsche Bank which is secured by the Ocean Rig Poseidon and Ocean Rig Mykonos. The parties have agreed to reduce the maximum availability from $562 million to $495 million for each rig. Ocean Rig has also agreed to provide an unlimited recourse guarantee and will be subject to certain financial covenants. This guarantee is in addition to the existing Dryships’ guarantee. With a contract now in place, full drawdowns will be permitted for the Poseidon. For the Mykonos, the company has up to one month prior to delivery to execute an acceptable drilling contract in order to draw down on its facility.
After putting these deals to bed, the company then announced its intention to offer, through a private placement, $500 million of senior unsecured bonds in the Norwegian market. While on the roadshow, the company met some resistance from investors and had to sweeten the terms. The coupon range went from 8.25%-8.75% to 9.00%-9.50% with the call options also increasing. Year 3’s call went from 103.5% to 104.5%, while year 4’s call increased 50 bps to 102.5. The company has also undertaken to have the bonds rated by both Moodys and Standard & Poors and to list the bonds publicly on a reputable exchange.
Yesterday, DryShips announced that it had priced the $500 million of the senior secured bonds due in 2016 at 9.5%, the top end of the adjusted range. The bonds were priced at par with the proceeds to be used to fund the group’s newbuilding program and for general corporate purposes. With substantial bank debt ahead of it, these unsecured bonds had to be priced right as well as carefully structured to protect the bondholders. In addition to tight financial covenants, the company has various undertakings including a negative pledge and covenants that restrict funds flow within the group as well as dividends. More detail is provided in the Guts of the Deal attached.
Ocean Rig is a pure play ultra-deepwater driller, with a superior asset base, including two harsh environment semisubmersible drilling rigs and, by the end of the year, four premium drillships with options for four more.
In its credit analysis of the company, Nordea highlights as credit positives:
- Modern and competitive fleet of ultra-deepwater units
- Experienced deepwater driller and harsh environment operator, which has operated in 12 countries over the past nine years.
- Strong market outlook
- Modest credit profile
Credit challenges include:
- Exposure to a highly cyclical industry
- High newbuilding activity
- Limited cash flow visibility
- Significant committed capital expenditures as well as the possibility of the exercise of the options
- Risk of increased leverage.
On a preliminary basis, the company was given shadow rating of “B+” with the bonds one notch lower at “B.”
The global coordinator and lead manager was Pareto Securities and the joint lead managers were Fearnley Fonds and Nordea Markets .
A Peek Inside – Seaspan’s Piece of the Carlyle/Tiger Vehicle
With apologies to Frank Sinatra, “it was a very good year.” Seapan’s fleet continued to expand on schedule, generating improved normalized net earnings and cash available for distribution. And with the additional vessels, as well as the ones coming, the company’s cash flow will continue to improve setting the stage not only for the announced 50% dividend increase, but the adoption of a progressive dividend policy, aimed at increasing dividends in a manner that both preserves the company’s long-term financial strength and its ability to expand its fleet. This is consistent with its mantra of rewarding its shareholders while growing the company but not at the expense of the balance sheet. The company finalized its equity needs and completed the financing requirements for the balance of its newbuildings back in October and with the sale of the preferred shares, the company for the first time, in several years, has substantial growth capital. But why rest on your laurels?
A Huge China Bet – Carlyle and Tiger partner with Seaspan and the Washington Family to form a vehicle to invest in shipping in China, with Deutsche Bank playing key advisory role.
In a ground breaking transaction that achieved worldwide coverage, The Carlyle Group and Tiger Group Investments have formed a new company, tentatively named Greater China Industrial Investments LLC, in partnership with, Seaspan Corporation, the Washington family, Gerry Wang and Graham Porter that will invest in containerships, dry bulk and tankers. Mirroring the strategy of Japan in the 1980s, China, too, wants to control its freight and the new investment partnership seeks to capitalize on that desire.
Full Steam Ahead!
It is not exaggerating to say that investors are infatuated with Hong Kong Tycoon Li Ka-shing. In 2000, hundreds of thousands of people queued outside banks hoping to cash in on the Internet mania generated by the offer of shares in his Tom.com venture. Fast forward to today and you will read that the institutional book of his USD 5.8 billion business trust in Singapore, Hutchison Port Holdings (HPH) Trust, is also oversubscribed by strong demand. Perhaps this has to do with his philosophy in making sure that money is always left on the tables for his business partners.
In a Fortune magazine article years ago, Mr. Li was quoted advising his sons in the following fashion: When you enter into a partnership with somebody and you expect to make a dollar and your partner expects to make a dollar, too, then when the deal is over, why don’t you just take 80 cents? And if you take 80 cents, maybe he will offer you 90 cents, and you still have a good partnership. But even if he doesn’t offer you 90 cents and you take your 80 cents, that’s okay. But never, never should you try to take $1.10. If you follow my advice, he told his sons, you will never lack partners. Continue Reading
Distress Sale or a Steal – It’s All in One’s Perspective
After a protracted sale process, which began in early 2010, Affinity Equity Partners sold its 54.7% interest in Jaya Holdings for SGD 202.6 million ($158 million) with the intervention of Credit Suisse as sell side advisor. Purchased at the height of the credit boom in 2006, Affinity had acquired its stake in Jaya, which builds and operates offshore supply vessels, through a vehicle called Nautical Offshore Services, a private equity fund. As a result of the economic turndown in 2008 Jaya was unable to service the $233 million loan used to acquire the shares making the exit necessary.
“…Ask and you shall receive…”
The overriding theme of capital being available to existing companies continues. Both DHT Holdings Inc. (“DHT”) and Teekay Tankers Ltd successfully concluded overnight follow-on equity offerings last week and both were well received.
DHT initially announced plans to offer 8 million shares in an underwritten public offering, “subject to market conditions.” Market conditions were certainly good with the transaction approximately 3 times oversubscribed. The offer was upsized approximately 93% to 15.5 million shares, which included an exercised underwriter’s option to purchase up to 2.025 million shares to cover overallotments. The shares were offered at a discount range of 8-10% of the closing price on February 3rd of $5.08. The strong demand resulted in the transaction being priced at $4.65/share equal to a discount of 8.4%. Proceeds will be used for general corporate purposes, which may include, without limitation, vessel acquisitions, business acquisitions or other strategic alliances, reduction of outstanding borrowings, capital expenditures and working capital.
Stop Presses
Just as we were ready to publish, DHT Holdings and Teekay Tankers announced follow-on equity offerings. DHT intends to offer 8 million shares and will use the proceeds, approximately $40 million based upon today’s closing price, for general corporate purposes. The joint bookrunning managers are UBS, BofA Merrill Lynch and Citi. Dahlman Rose will act as Co-manager and Carnegie as sales agent in Scandinavia.
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