Clean-up Then to Market – DryShips Cuts ATM Deal with Deutsche Bank

Back from the summer break, if in fact they had one, the team at DryShips announced on Tuesday that it was in compliance with all of its loan facilities, had entered into new management agreements with Cardiff and Mr. George Economou’s financial advisory firm, and, finally entered into an equity sales agreement with Deutsche Bank.

While some borrowers choose to have relationships with a few lenders, others prefer a larger number particularly when borrowing on an asset basis.  With a multiplicity of lenders, a borrower’s dealings with its bankers are at best difficult, as one has to deal with each one and their different needs separately. Mr. Economou has a large stable of lenders and has devoted substantial time to negotiating waivers with a number of them. However, at long last, Dryships was able to report it was now in full compliance with all of its loan agreements having signed a waiver agreement with DVB with respect to $230 million of loan facilities through December 1, 2010.

Continue Reading

In Conversation With DVB

CEO of DVB Bank, Mr Wolfgang Driese and Member of the Board of DVB Bank and Head of Shipping Division, Mr Dagfinn Lunde were in Singapore last month and we were very happy to have the opportunity to spend some time with the two affable gentlemen, who shared with us their take on the turmoil that the shipping industry has been through.

Mr Driese is credited with transforming DVB from an unknown generalist domestic German bank into a global player with a specialisation in international transport finance, staying true to its name Deutsche VerkehrsBank AG. Mr Lunde carried out a successful reorganisation of DVB’s shipping division in January 2008, and “sectorised” the previous regional sales team into ten groups focusing on key shipping sectors: Container Box Group, Cruise & Ferry Group, Crude Oil & LNG Tanker Group, Chemical & LPG Tanker Group, Container Vessel Group, Dry Bulk Group, Floating Production Group, Offshore Drilling Group, Offshore Support Group and Product Tanker Group. Ship financing now makes up a substantial chunk of 54.2% in DVB’s lending portfolio, with a total value of USD 13.88 billion as at 30 September 2009. Continue Reading

George Jumps into a Convertible

DryShips announced on Tuesday that it intends to offer $300 million aggregate principal amount of convertible senior notes under its previously filed shelf registration. In addition, the underwriter will be granted an option to purchase up to an additional amount of $45 million of the notes to cover over-allotments. Proceeds of the notes will be used for vessel acquisitions, working capital and general corporate purposes.
Continue Reading

Not to Be Outdone

Navios Maritime Partners announced after the market closed Wednesday that it intended to issue 4 million common units with a green shoe of 600 thousand units. Proceeds would be used for fleet expansion and/or general partnership purposes. The deal was priced today at $14.90 per unit, a discount of 5.8% from the prior close.

Joint book running managers were Citi and JPMorgan with S. Goldman Advisors, DVB and Cantor Fitzgerald serving as co-managers.

And Now For Something Completely Different – A Word From a Banker

Although you might not notice, it’s not just earnings season for the customers; the banks also have to report to their shareholders. In most cases, bank earnings, as a consequence of size and multiple business segments are impenetrable and therefore hold little interest for us. But when DVB reports, we listen. As a transportation specialist, DVB’s report is of particular interest, as it provides an up close and personal look at a ship lender, in terms and numbers we can understand.

During these times of crisis, DVB, in certain respects, can be likened to an orphan. It is not owned by a German state and its simple sustenance is derived from highly cyclical transportation businesses. Without the benefits of other “siblings” or businesses, the bank’s success is closely tied to how they manage risks, both credit and funding.

The results for the first half-year according to management were satisfactory in light of the current market environment. Net profit before taxes was down 28% to EUR 61.3 million. However, DVB correctly notes that the severity of the financial crisis did not appear until the second half of 2008 and consequently first half results were not burdened by the effects of the crisis. Moreover, the shipping markets were performing relatively well last year compared to the first half of this year. In short, the year over year comparison is somewhat disingenuous.

Continue Reading

Investing and Investment Banking

The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.

The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.

We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
Continue Reading

Where the Sun Never Sets

Nora Huvane was kind enough to file the following report from Oslo:

The mood in Oslo today largely matched the weather. A bit wet and chilly for June, but there were some sunspots and hope is high that fairer weather will return. The hearty and well-prepared will survive and prosper regardless – so if you’re planning any investments in shipping, be sure to pack your umbrella.

Marine Money’s 11th annual Norway Ship & Offshore Forum, held with partners DnB NOR and Nordea and in conjunction with Nor Shipping, focused largely on the offshore markets and outlooks. Respected analysts reviewed outlooks for the oil market, drilling, FPSO and FSO and offshore support vessel markets. While there were concerns about oversupply and short-term mismatches in E&P budgets and industry capacity, the general consensus is that long-term fundamentals remain what they have been safely out of the reach of traders, speculators and gamblers and in the long-range budget planning and price targets of well established oil companies. The world population and economy will continue to grow over the long-term, and until a suitable alternative for oil is found so will oil demand growth. Gavin Strachan of ODS Petrodata pointed out that the oil price drop came as 2009 E&P budgets were being set, making oil price irrelevant for the offshore market in the short-term, over the longer term supply depletion on the order of 9% pa without further investment will ultimately drive demand for the offshore industry.
Continue Reading

TOPS Turvy

In its 4th quarter and year-end report, Top Ships (“Top”) disclosed the uncertain state of its debt obligations due to a breach of certain loan covenants. It is currently in discussions with all its lenders to obtain waivers extending to March 2010. Without waivers, the company must classify its debt as short-term, since it is due and payable within the year. As a consequence of cross-default provisions, it requires agreement from all of its banks, a tough position to bargain oneself out of as the last holdout effectively cuts the deal. The company’s lenders include: RBS, HSH Nordbank, DVB, Alpha Bank, and Emporiki Bank.

Continue Reading

Secondary Opportunity

The German Ship Finance Forum followed last years’ pattern of commencing with a half-day seminar. This year’s topic was focused on opportunities in secondary markets. Chairman Michel Bourgery of DVB started things off with a brief overview of the markets. Based upon his successful prognostications in the past, we listened carefully as he suggested that listed companies would be taken private. He bases this upon the fact that there is no re-cycling of equity and they are locked-in loss making position. Moreover, limited visibility and overall pessimism are also factors. For those who have no fear, he suggested taking a position in the tanker market was too early as the one-year t/c rate is greater than the three year. For bulkers, the time to go shopping will be this summer.

Dr. Albrecht Gundermann of Salomon Invest took the audience through the secondary market in KG funds, which is relatively new. Historically, once you joined the party you could not leave it. Trading remains limited but there is a real market with real prices. Right now it is a buyers’ market. With a total market of EUR 30 billion, only 4% has been traded.

Pareto’s Peter Wallace next gave his insights into the IS/SPC (formerly the K/S) market. The size of the market is approximately $15 billion and is split evenly between shipping and offshore. The basic structure is a limited partnership which has both paid-in and uncalled capital. No longer tax-driven, this product is extremely flexible and can be designed in any form that makes economic sense to the participants. It is an ideal alternative when public equity is difficult or expensive or when the asset is trading below NAV. Investors like it because:
•    There is no management risk
•    You can pick the asset you want
•    The structure is transparent
•    A trigger clause allows the holders of 15-25% to cause a sale
•    There is a liquid secondary market
•    The price to put the project in the market is relatively cheap at 3-4% of the cost of capital
Continue Reading

Dong Fang in DVB Financed Container Sale

A transaction from last month was announced this week whereby a syndicate of lenders led by DVB Bank financed the “sale and manage-back” of certain containers between the DCM Deutsche Capital Management AG group and Dong Fang International Investment Limited. Continue Reading