Links
Syndicated Market Continues on Track
Last Friday, Dealogic released its Bookrunner and MLA Tables for Syndicated Marine Finance Loans for 2011 showing total syndicated loan volume at $68.4 billion up from last year’s $50.1 billion. From the macro perspective the trend remains upward as deal volume and number of transactions grew respectively 26.2% and 19.6% compared to the year earlier. This continues the growth which commenced in 2009. Ignoring the boom in volume in 2007 and 2008, the current volume is on par with the years prior. A further measure of the health of the syndication market is also reflected in the nominal reduction of club deal volume as well as the declining proportion of these deals versus total syndicated volume. This is best seen pictorially in the graphs below.
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.
Scorpio’s Opportunistic Equity Funding
Utilizing its earlier $500 million existing shelf registration, Scorpio Tankers, Inc. announced yesterday a follow-on offering of 7 million shares, with Morgan Stanley acting as sole book-running manager and Fearnley Fonds ASA as co-manager. The shares closed that night at $6.66 and were priced today at $5.50/share, a discount of 17.4%, raising gross proceeds of $38.5 million. A member of the insider Lolli-Ghetti family was allocated 700 thousand of the shares.
Proceeds of the offering will initially be used to partially repay outstanding indebtedness under the company’s 2010 revolving credit facility with Nordea and for general corporate purposes. The company then intends to re-draw all or a portion of the amount available under the revolver to fund the acquisition of two 52,000 DWT newbuildings that it is currently negotiating to have constructed at South Korea’s Hyundai Mipo Dockyard.
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.
Lots of Moving Parts Managed Nicely – Polarcus Re-capitalization
As the industry has moved away, voluntarily or not, from the simplicity of bank lending, as its primary funding source, borrowers, with the assistance of their advisors, have become far more sophisticated and used the liability side of the balance sheet as a palette for the many possibilities in financing structures. The multi-tiered capital structures that result may be warranted in an effort to achieve the lowest cost of capital possible or simply a necessity to access capital wherever one can find it. Nevertheless, whatever the motivation, these structures add a level of complexity given the number of stakeholders with their own unique incentives, thereby creating risk should Murphy’s Law apply.
Polarcus Limited, a pure play marine geophysical company, is a case in point. In recent presentations the company has included the following slides, which highlight its capital structure and the impact of the recently undertaken recapitalization of its balance sheet including a refinancing of its bank debt, an amendment to its 2nd lien bond issue and a private placement of equity.
First Dropdown – Golar LNG Partners Acquires FSRU
Last Thursday, Golar LNG Parners LP announced that it had entered into its first dropdown agreeing to acquire the companies that own the FSRU Golar Freeze from Golar LNG Limited for a purchase price of $330 million. The vessel is currently operating under a 10 year term contract with Dubai Supply Authority with a remaining fixed term of approximately 8.6 years with the charterer’s option for a further five years.
The transaction will be financed 100% with debt, which will consist of two tranches. First, the partnership will assume approximately $108 million of senior bank debt, which matures in June 2015. The interest on this loan has been swapped to a fixed rate giving an all-in cost of approximately 4%. The second tranche is a seller’s credit extended by Golar LNG in the form of a 3-year bullet loan in the amount of $222 million, which will bear interest at 6.75%. It is anticipated that the latter will be re-financed prior to maturity with third party debt and/or in connection with further dropdowns from Golar LNG.
Fall Outlook – Somber
Like the cycles it lives with, shipping constantly re-cycles itself. When the shipping markets are good, equity investors are all over it and when they turn bad, the opportunists come out. Despite their different perspectives, both somehow make money. It is the nature of the beast. But the current state of shipping cannot be solely attributed to the shipping markets themselves, there is another culprit.
This week, Jefferies is holding its 2011 Global Shipping Conference. Unlike last year, the greater demand for this hot ticket, we understand, is coming from their credit clients rather than the equity side as in years past. Many may believe the vultures are circling carrion but they lack understanding of the resilience of this industry. Shipping has historically survived bad markets but, in this instance, it has to overcome the hangover of the virtually free and easy capital which contributed to unprecedented supply growth. Easy money is hopefully no more, but cheap money remains, as the world’s bankers continue to fight recession with monetary policy. And it is this cheap money which is singlehandedly keeping the industry afloat.
The Right Stuff – d’Amico Gets Club Loan
On Tuesday, d’Amico International Shipping S.A. announced that its operating subsidiary d’Amico Tankers Limited – Ireland entered into a 7-year $48 million term loan facility with Credit Agricole CIB and DnB NOR for the financing of two 52,000 DWT MR Product/Chemical tanker newuildings. Proceeds will be used to partially finance the remaining installments of $56 million. The facility bears a highly competitive interest rate and is secured mainly by 1st priority mortgages and a parent guarantee. Under construction at Hyundai Mipo, the vessels will be delivered in March and April 2012.
FPSO Cidade de Paratay Contracted and Financing Arranged
Last week, a joint venture comprised of SBM Offshore N.V., Queiroz Galvao Oleo e Gas S.A. (“QGOG”), Nippon Yusen Kabushiki Kaisha (“NYK”) and ITOCHU Corporation announced that it, together with QGOG, had entered into 20-year charter and operating agreements with BM-S-11 Consortium, owned 65% by Petrobras SA (Operator), 25% by BG Group, and 10% by Petrogal Brasil Ltda, for the operation of the FPSO Cidade de Paratay on the Lula Nordeste field. This field is located in block BM-S-11 in the Santos basin in the pre-salt area offshore Brazil in water depths of 2,100 meters.
Straightforward Solution – The Banks Express Confidence in Genmar
On Wednesday, General Maritime Corporation announced that it had amended its $550 million revolving credit facility and its $372 million senior secured credit facility, each led by Nordea and DnB NOR as well as its $200 million facility with Oaktree Capital to reduce the minimum cash covenant. Under the agreed terms, the minimum cash and cash equivalent balance and revolver availability is reduced from $50 million to $35 million through December 31, 2011, which amount steps up to $40 million through March 31, 2012. Subsequent to the latter date, the original terms apply. In the case of the Oaktree facility only a 10% cushion in Genmar’s favor applies.
The Official Guide To Marine Finance Providers
Shipping Index
