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Dahlman Rose & Co Add Powerhouse Chairman
Well know financier Kim Fennebresque has joined Dahlman Rose as the firm’s Chairman. The move continues the investment bank’s enormously successful development built on commitment to client service, top shelf independent research and superior personnel recruitment over the past half dozen years. In fact the current move should accelerate the firm’s growth and strengthen it’s already considerable platform.
Mr. Fennebresque joins Dahlman Rose after a distinguished career, which started at The First Boston Corporation in 1977. His career path since then could be used as a business school model for just how to gain valuable experience, contacts and skills needed to lead a successful investment bank. Mr. Fennebresque left First Boston in 1991 to join Lazard Freres as a General partner where he remained until joining UBS to lead that bank’s Mergers & Acquisitions and Corporate Finance departments.
Then in 1998 he joined SG Cowen, the US subsidiary of Societe Generale. He served as President, CEO and Chairman for most of his tenure at Cowen. It was that sort of reputation which led the US Treasury to ask him to join the Board of GMAC.
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Written by: marinemoney | Categories: Freshly Minted, The Week in Review | May 13th, 2010 | Add a Comment
Morgan Stanley II
Despite a pressing deadline, we couldn’t pass up the opportunity to get out of the office and attend Morgan Stanley’s 2nd Commodities and Shipping Conference. In these difficult times how could one possibly forego the opportunity to hear what Ole Slorer and his team have to say with the added benefit of gleaning some insights on the capital and lending markets. All interspersed with company presentations and lessons from Morgan Stanley’s commodities and freight trading experts. It is a rare opportunity for us to receive an invitation to these investor only meetings and we are most appreciative. Putting on an investor hat for a moment, we can confirm that if one is interested in the space there is no better way to get an education and gather information about this sector than attending these conferences. And, we did not even benefit from having a one-on-one meeting.
Wiley Griffiths, the Head of Global Shipping, and his team started us off with a view of what was happening in the market. Continuing historic trends, the markets as always remain interesting.
Written by: carisk | Categories: Freshly Minted, The Week in Review | June 11th, 2009 | Add a Comment
Don’t Throw the Baby Out with the Bath Water or How I Learned to Stop Worrying and Love the Fundamentals (with thanks to Stanley Kubrick)
With a full house, Simon Rose began Dahlman Rose’s 1st Annual Global Transportation Conference confessing that despite Wall Street’s having spent years educating investors as to the difference between period and spot business they have largely been ineffective. We disagree with this assessment believing the current market reflects a herd instinct and an avoidance of betting against the tape. The companies presenting at the conference are all clearly differentiated from spot players, with visibility of earnings and cash flows yet their shares have also been pummeled as the BDI continues its decline. Mr. Rose exhorted the crowd to take advantage of this anomaly, take a reality check and not to trade on fear.
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Written by: carisk | Categories: Freshly Minted, Market Commentary | September 11th, 2008 | Add a Comment
DnB NOR Chief Bullish Expansion Set – Lending Grows
It is always a pleasure to hear from someone with a fresh and confident outlook, and such was the happy occasion when the Norwegian American Chamber of Commerce presented Rune Bjerke the Group Chief Executive of DnB NOR at an early evening, late summer event in New York. Mr. Bjerke joined the Bank leaving the successful Hafslund ASA where he was CEO. And as he noted the switch to banking left some of his friends perplexed it was the sort of challenge that appealed even though his start date approximately coincided with the start of the Sub Prime crisis.
Written by: carisk | Categories: Freshly Minted, Market Commentary | August 21st, 2008 | Add a Comment
The Wall Street Journal’s Shipping Analysts Of the Year
For a Wall Street analyst the annual Wall Street Journal Best on the Street rankings is like an AcademyAward, only worth more, certainlyto those investors who bought basis the winning analysts picks.
This year Scott Burk at JPMorgan, but Bear Stearns when his picks were made (JPM acquired Bear Stearns in a sub-prime fire sale last March) came out number one in the Industrial Transportation classification. Doug Mavrinac of Jefferies & Co came in second and Omar Nokta with Dahlman Rose grabbed the third spot.
BUY! BUY! BUY! Results to Please Just About Anyone
It’s been earnings season the past two weeks and if there were ever a question about whether shipping could avoid a hit due to the sub- prime crisis, well, this should answer it.
For fun, here are a few analyst comments on recent returns… From Dahlman Rose:
Dahlman/Eagle Bulk Shipping – 1Q Operating Results Stronger Than Expected; In Solid Position to Re-Charter Vessels as Rates Continue Pushing Higher
We believe Eagle’s aggressive approach to re-chartering its vessels will payoff as the market has exceeded our expectations. During the past few weeks we have seen several long-term time fixtures as charterers look to secure vessels in the face of a rising market. We maintain our Buy rating and $33/share target, based on a 10% 2009 CF yield, ahead of the earnings call this morning.
Eagle’s share price jumped more than 10% following their conference call!
Written by: carisk | Categories: 1Q08 Earnings Special, Freshly Minted | May 8th, 2008 | Add a Comment
Quintana Maritime: Shipping Deals Sober Up
In light of the pricing pressure we have seen on Capital and other recent IPOs, we thought it would be interesting to dig into the valuation of Quintana Maritime, which began its roadshow and filed an updated red herring today.
Where it seems that Eagle Bulk attempted to ensure a premium by aiming for a price range that would value the company around twice NAV and an EBITDA valuation that would put it at a premium to comparables DryShips and Diana, Quintana has taken a different approach and is instead looking to come to market right around where comparables Diana and DryShips are currently trading. Today’s dry bulk market is widely acknowledged to be at a low, and as a result comparables – and correspondingly Quintana if it prices in its range – hope it will spring back over the next few months, leaving some meaningful potential value for investors to capture. It is a fairly pragmatic approach at this point in time, enabling increasingly savvy investors an opportunity to buy into dry bulk while its bull run cools in the hopes that another is yet to come, and at the same time offering a substantial, if not particularly high, dividend yield in the realm of 8% with the long-term contracts necessary to support it.
Upon the consummation of its offering and delivery of all identified vessels, the newly-formed panamax company will have a fleet of eight modern to middle-aged panamax carriers, which have market value we estimate to be around $304 million, as shown in Quintana Maritime – Vessels & Values. From this we subtracted total liabilities, which the prospectus anticipates to be under $43 million post-offering, and add then add back cash and cash equivalents of $6.2 million. These calculations lead to a net asset value for Quintana post-offering of approximately $268 million.
Based on a total number of 23,019,492 shares, 16,700,000 million of which are to be publicly offered, this translates to a healthy net asset value per share of $12.00. This in turn implies that the targeted price range of $14.00-$16.00 is hardly outrageous but neither is it overly conservative. Rather, the bottom of the range would put Quintana at a price to NAV ratio of 120%, which is inline with comparables DryShips and Diana, who analysts now widely consider substantially undervalued. Even so, a bottom-of-the-range pricing would still mean a 20% premium for the selling shareholders, assuming they bought the vessels at current market prices. But the important thing is that if Quintana can price within its stated range, it will be capturing a premium at the same time that it leaves something on the table for investors.
Added to a reasonable valuation is the allure of a reasonable dividend. The prospectus states that the company intends to pay out quarterly dividends at a rate of 65% of available cash less any cash reserves for capital expenditures, working capital and debt service. Making the assumption that another 15% of available cash will be used to fulfill such needs and based on annualized EBITDA of around $56 million and pricing at the midpoint of the anticipated range, this would translate into a dividend yield of around 8.1%. What’s more, we calculate the EBITDA number based on fixed contracts for the six vessels that Quintana already has in its possession. We have assumed market 1-year timecharter rates as reported by Clarksons for the remaining two vessels, which are very similar to the rates at which Quintana has contracted out several of its other vessels. These are of course vulnerable to be lower if markets deteriorate further, but, equally, if the market picks up by the time the ships are delivered there is hope for rate improvement.
After running these calculations, we took a look at a cashflow-based valuation. Nothing particularly out of the ordinary here. $56 million annualized EBITDA, as is better explained by Quintana Maritime – Vessels & Economics, and pricing at the midpoint of the stated range would translate to a Price to EBITDA ratio of 6.16x, which falls approximately inline with comparables, though is higher than the ill-fated Capital.
Although shipping deals are clearly coming to market at lower valuations, deals such as this one are still very good valuations for selling shareholders in light of where we are in the cycle. And with the bulk market poised for another rebound, transactions coming to market now with more reasonable terms offer real upside for investors and the issuers who still control the majority of the stock after the offering and will benefit from capital appreciation. The fact remains that for serious companies committed to going public, the window is still wide open.
IPO Market Remains Robust For Shipping Issuers
Don’t be misled by the trade press articles and the fact that recent shipping issuers have priced IPOs at the low end of already lowered price ranges; the fact remains that based on our valuations of these companies, issuers are continuing to do U.S. capital markets deals at very attractive valuations. Moreover, we are seeing deals with single hull tankers (Capital), older vessels (TBS) and secondary share sales (Eagle), as well as related party management companies (various). Despite claims to the contrary, the fact remains that the American equity markets are wide open for all kinds of shipping deals. As we see dry cargo rates begin to bounce in recent days, we would not be at all surprised to see this sector regain momentum and enjoy another run.
As one of the 150 investors at Marine Money Week said over coffee, “just because we aren’t paying the retail price that investment banks put on the prospectus doesn’t mean that sellers aren’t getting a premium.” We would concur with that. The message being telegraphed back to the industry from Wall Street and Main Street investors is that the market is open for shipping IPOs even though the heady days of 2x net asset value are gone – at least until rates begin to gather momentum in the coming months.
That said, we should acknowledge the two companies currently engaged in roadshows in the U.S. Capital Maritime & Trading Corp filed an F-1 today for the issuance of 16.67 million shares at $14-$16 per share on the NYSE. We will discuss this deal further next week, when it is expected to price. Cosco has also traveled a long way to bring its roadshow to New York this week.
Eagle Bulk – Don’t Believe What You See
But deals still in the market do little to demonstrate investor appetite. Let’s take Eagle Bulk as our first in-depth example of why the U.S. equity markets are still open, and yes even attractive, to shipowners. The U.S.-based handymax owner Eagle cut the estimated price of its initial public offering to $14-$15 a share from the planned $16-$18 a share, but the company increased the size of the IPO to 14.4 million shares from 13.25 million to make up for the shortfall. The deal priced at $14 per share, which we estimate to be around 1.6x a net asset value that is already high, especially in light of declining charter rates. This is a phenomenal execution that gives start-up Eagle a better valuation than Teekay or OSG. As mentioned above, despite the fact that investors have supposedly rejected issuer’s attempts to sell secondary shares, private equity fund Kelso, which is the financial sponsor behind the Eagle deal, was able to extract about $70 million through fees and debt repayment, which represents almost the fund’s entire investment in Eagle, even while it still retained about half of the equity.
Soft Aftermarket Trading for Eagle
As we saw with Diana Shipping, Eagle has sagged in early aftermarket trading as the stock immediately sank to $13.50. As we understand it, Citigroup’s Smith Barney and UBS’s Paine Webber sold about 65% of the deal to retail investors while the joint bookrunners, which include the names above plus Bear Stearns, sold the balance of the deal to institutional investors. Although this type of sales technique resulted in solid pricing, as it did in the Diana deal, the aftermarket performance prevents “flippers” from immediately selling their stock for a gain. We do not know whether the underwriters exercised the green shoe or are willing to offer support by buying stock to stabilize the pricing. If they have already used their dry power to support the stock, however, we would not be surprised to see continued soft price performance, at least until we run into some sort of market upturn.
Are Dividends Losing Effectiveness?
One question we’ve been asked lately relates to yields. Specifically, how are investors looking at them? The answer, in our view anyway, is that yield can be used to increase valuation among certain fringe buyers of these stocks such as retail, but most experienced institutional investors clearly are looking at net asset value because issuers like Eagle do not have the long-term contracted cash flows required to meet the dividend in question over a sustained period.
In fact, investors that we spoke with at Marine Money Week seem to like growth stories and are discounting the real value of the dividend over the long-term. They are, however, looking at dividends as a way for them to lower their cost basis by receiving their deprecation and earnings in cash. As one Eagle investor said, “Do I think the 16% dividend is a guaranteed? No. But based on the company’s charters, I know I can get more than 30% of my money back over the first two years, meaning that I am really buying this company at closer to net asset value. That is the trade.”
This logic, although tempting, neglects to embrace the potential loss of principal that would result if rates and values return to historically normal levels. In our view, companies that seek to pay dividends and do not have long-term employment to back them up should just be careful to set them at realistic levels that do not stress the company’s liquidity and leave enough cash to take advantage of growth opportunities. It follows from this that Eagle priced at a quite respectable valuation, indicative more that investors have sobered a bit since January than that they have lost interest in dry cargo equity.
Quintana – Wall Street Mining Wall Street
A few weeks ago, we wrote an article in these pages called “Eagle Bulk – All About the Arbitrage.” The article outlined the recently filed S-1 for an IPO of handymax bulk carriers being offered by New York private equity fund Kelso. In this article, we discussed the concept of private equity funds buying ships just prior to, or even concurrent with, IPOs so that they could capture the arbitrage that exists between the value of ships in the private and public markets.
Although much of this premium has been drained away during the last six weeks due to choppiness in both the equity markets and the shipping markets, we believe it is likely to return in the very near future and look for shares back in the range of 1.5x net asset value. The transaction concept is one with which private equity funds are comfortable: buy a company cheap, then sell enough of it to the public to get their money out with a return through a dividend, and then keep a slug of shares in the company that has the potential to result in a real home run.
With the economics of the shipping markets fitting this bill, the concept is spreading, and we are seeing more and more non-shipping company issuers in the shipping markets. The way to think of this is that Wall Street wants products and is willing to pay a certain price for them, and in response a variety of experienced financiers are creating these products and attempting to bring them to market. There is nothing necessarily wrong with this; in fact companies created for the sole purpose of equity offering might offer cleaner management structures and fewer conflicts of interest than old-line companies.
This week, we saw the filing of an IPO called Quintana Maritime, which is backed by Corby Robertson, whose family sold the Quintana oil field in Texas to Exxon many years ago, and who has since made investments in commodities such as coal mining. Robertson has teamed up with First Reserve of Greenwich (who have been plotting an entry into shipping ever since their agreement to purchase OMI shares at about $1.50 each a few years ago failed amidst bad feelings) and American Metals & Coal International, also of Greenwich. Stamatis Molaris, former CFO of Stelmar, is serving as CEO and President of Quintana. Citigroup and Morgan Stanley, who lent the company the money it needed to acquire its fleet, are acting as joint bookrunning managers.
A Short History
Quintana does not have the storied history that many recent and future issuers have. They cannot point to hundreds of years of experience or their origins from an island – except perhaps Long Island. In fact, they were formed on January 13th, 2005, and began operations in the following April, in other words last month. As of March 31, 2005, Quintana had not taken delivery of any of the identified panamax vessels, though the company did take delivery of three such vessels in April, and expects to take two more in May and the remaining three in July, August and September.
Distinguishing Deals
One of the challenges borne of the incredible torrent of deals heading to market is differentiation. What we mean is that there is nothing particularly compelling about this deal compared to others currently or soon to be trading in terms of asset type, employment, age, deal size, management or structure. Like Eagle Bulk, Quintana has signed MOAs and placed deposits on the eight modern panamax bulkers outlined in Figure 1.
Although we expect valuations to improve, the company shows strong asset and structural similarity to Diana Shipping, which suffered from bad timing in both the shipping and equity markets that may have been exacerbated by the fact that it was fully priced and sold into the wrong types of accounts. This must be a little unnerving for the sponsors, and we fail to understand how this deal will ever be judged on anything other than how much of discount it is offered at relative to Diana. Although Quintana does not indicate that it will use the model of a dry cargo version of Nordic American Tankers as Diana did, the company does plan to repay its debt in full upon consummation of the offering.
Perhaps there will be enough buyers to go around. There is nothing inherently wrong with the Quintana deal, but the sponsors will need to see valuations improve and have one heck of a good roadshow. That said, with the firepower of Citigroup and Morgan Stanley behind them, who likely do lots of other business with the sponsors of this deal, it is unlikely that it will be sold into the accounts of hedge fund “flippers” as the Diana deal seems to have been.
Of Bridge Loans and Mezzanine
As we also wrote in our article about Eagle Bulk, these kinds of deals are not without risk to the sponsors as we cruise along a high point in the cycle. In fact, they involve a lot of risk. Unlike the Top Tankers IPO, in which the purchase of the Sovcomflot fleet was contingent upon a successful equity offering, both Eagle and Quintana involve the sponsors buying ships first and hoping they can get a premium in the future. In this case, the joint bookrunners have provided both secured debt and mezzanine facilities to result in 85% financing. This structure is not dissimilar in concept to the highly leveraged facility that Citigroup and Nordea provided to soon-to-be-public Genco, sponsored by yet another private equity firm, Oak Tree Capital.
Quintana entered into a $150 million bridge loan facility, dated as of May 3, 2005, with Morgan Stanley Senior Funding, Inc., not a regular player in the world of ship finance. In addition, the company entered into a new six-year three-month $262 million secured delayed-draw term loan facility, dated as of April 29, 2005, with Citigroup. The term loan facility consists of Tranche A, in an aggregate amount equal to the lesser of $213 million and an amount equal to 65% of the fair market value of the vessels, and a Tranche B, in an aggregate amount equal to the lesser of $49,210,500 and 15% of the fair market value of the vessels. The aggregate principal amount applied in respect of any vessel acquisition must not exceed 80% of the fair market value of the vessel. According to the filing, interest on amounts drawn will be payable at a rate of 1.625% per annum over LIBOR in respect of Tranche A and 2.50% over LIBOR in respect of Tranche B, for interest periods of 1, 2, 3 or 6 months or, if agreed by all lenders with commitments, 9 or 12 months. In the event the Tranche B term loans are not syndicated within 45 days, Tranches A and B will collapse into a single tranche and interest will be payable at a rate of 1.75% per annum over LIBOR.
Quintana – Wall Street Mining Wall Street
A few weeks ago, we wrote an article in these pages called “Eagle Bulk – All About the Arbitrage.” The article outlined the recently filed S-1 for an IPO of handymax bulk carriers being offered by New York private equity fund Kelso. In this article, we discussed the concept of private equity funds buying ships just prior to, or even concurrent with, IPOs so that they could capture the arbitrage that exists between the value of ships in the private and public markets.
Although much of this premium has been drained away during the last six weeks due to choppiness in both the equity markets and the shipping markets, we believe it is likely to return in the very near future and look for shares back in the range of 1.5x net asset value. The transaction concept is one with which private equity funds are comfortable: buy a company cheap, then sell enough of it to the public to get their money out with a return through a dividend, and then keep a slug of shares in the company that has the potential to result in a real home run.
With the economics of the shipping markets fitting this bill, the concept is spreading, and we are seeing more and more non-shipping company issuers in the shipping markets. The way to think of this is that Wall Street wants products and is willing to pay a certain price for them, and in response a variety of experienced financiers are creating these products and attempting to bring them to market. There is nothing necessarily wrong with this; in fact companies created for the sole purpose of equity offering might offer cleaner management structures and fewer conflicts of interest than old-line companies.
This week, we saw the filing of an IPO called Quintana Maritime, which is backed by Corby Robertson, whose family sold the Quintana oil field in Texas to Exxon many years ago, and who has since made investments in commodities such as coal mining. Robertson has teamed up with First Reserve of Greenwich (who have been plotting an entry into shipping ever since their agreement to purchase OMI shares at about $1.50 each a few years ago failed amidst bad feelings) and American Metals & Coal International, also of Greenwich. Stamatis Molaris, former CFO of Stelmar, is serving as CEO and President of Quintana. Citigroup and Morgan Stanley, who lent the company the money it needed to acquire its fleet, are acting as joint bookrunning managers.
A Short History
Quintana does not have the storied history that many recent and future issuers have. They cannot point to hundreds of years of experience or their origins from an island – except perhaps Long Island. In fact, they were formed on January 13th, 2005, and began operations in the following April, in other words last month. As of March 31, 2005, Quintana had not taken delivery of any of the identified panamax vessels, though the company did take delivery of three such vessels in April, and expects to take two more in May and the remaining three in July, August and September.
Distinguishing Deals
One of the challenges borne of the incredible torrent of deals heading to market is differentiation. What we mean is that there is nothing particularly compelling about this deal compared to others currently or soon to be trading in terms of asset type, employment, age, deal size, management or structure. Like Eagle Bulk, Quintana has signed MOAs and placed deposits on the eight modern panamax bulkers outlined in Figure 1.
Although we expect valuations to improve, the company shows strong asset and structural similarity to Diana Shipping, which suffered from bad timing in both the shipping and equity markets that may have been exacerbated by the fact that it was fully priced and sold into the wrong types of accounts. This must be a little unnerving for the sponsors, and we fail to understand how this deal will ever be judged on anything other than how much of discount it is offered at relative to Diana. Although Quintana does not indicate that it will use the model of a dry cargo version of Nordic American Tankers as Diana did, the company does plan to repay its debt in full upon consummation of the offering.
Perhaps there will be enough buyers to go around. There is nothing inherently wrong with the Quintana deal, but the sponsors will need to see valuations improve and have one heck of a good roadshow. That said, with the firepower of Citigroup and Morgan Stanley behind them, who likely do lots of other business with the sponsors of this deal, it is unlikely that it will be sold into the accounts of hedge fund “flippers” as the Diana deal seems to have been.
Of Bridge Loans and Mezzanine
As we also wrote in our article about Eagle Bulk, these kinds of deals are not without risk to the sponsors as we cruise along a high point in the cycle. In fact, they involve a lot of risk. Unlike the Top Tankers IPO, in which the purchase of the Sovcomflot fleet was contingent upon a successful equity offering, both Eagle and Quintana involve the sponsors buying ships first and hoping they can get a premium in the future. In this case, the joint bookrunners have provided both secured debt and mezzanine facilities to result in 85% financing. This structure is not dissimilar in concept to the highly leveraged facility that Citigroup and Nordea provided to soon-to-be-public Genco, sponsored by yet another private equity firm, Oak Tree Capital.
Quintana entered into a $150 million bridge loan facility, dated as of May 3, 2005, with Morgan Stanley Senior Funding, Inc., not a regular player in the world of ship finance. In addition, the company entered into a new six-year three-month $262 million secured delayed-draw term loan facility, dated as of April 29, 2005, with Citigroup. The term loan facility consists of Tranche A, in an aggregate amount equal to the lesser of $213 million and an amount equal to 65% of the fair market value of the vessels, and a Tranche B, in an aggregate amount equal to the lesser of $49,210,500 and 15% of the fair market value of the vessels. The aggregate principal amount applied in respect of any vessel acquisition must not exceed 80% of the fair market value of the vessel. According to the filing, interest on amounts drawn will be payable at a rate of 1.625% per annum over LIBOR in respect of Tranche A and 2.50% over LIBOR in respect of Tranche B, for interest periods of 1, 2, 3 or 6 months or, if agreed by all lenders with commitments, 9 or 12 months. In the event the Tranche B term loans are not syndicated within 45 days, Tranches A and B will collapse into a single tranche and interest will be payable at a rate of 1.75% per annum over LIBOR.
The Official Guide To Marine Finance Providers
Shipping Index
