Dismantling?

It is a sad moment, when a company is forced by circumstances to sell pieces of itself, particularly when that company has been involved in shipping for 127 years. In that vein, Camillo Eitzen & Co. (“CECO”) announced Tuesday the sale of its majority shareholding (74.43%) in dry bulk operator, Eitzen Bulk Shipping to Navieras Ultragas Ltda, a Chilean shipping company, for $92.9 million or $5.07 per share. Navieras will be required to submit a mandatory public offering for the remainder of the shares meaning Eitzen may hold the record for the shortest life as a public company having begun trading on the Copenhagen Exchange only last December.

DnB’s Glen Lodden found some good news amidst the bad suggesting that CECO received a good price for their shares. The shares had opened at DKK 25.10 with the offer made at DKK 31.00 per share. Based upon the sale, Mr. Lodden’s calculation of NAV increased from NOK 3.66 to NOK 6.51. He maintains his buy recommendation but will revise the target price downward due to the weakness in Eitzen Chemical’s shares.
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Plan B(LT)

Berlian Laju Tanker (“BLT”)’s acquisition of Camillo Eitzen & Co ASA (“CECO”) may have hit a speed bump when its initial transaction structure, which involved the issuance of mandatory exchangeable bonds (“MEBs”), was rejected by the Indonesian market regulator. But we understand that the company and its advisor RS Platou Markets remain resolute and are working hard on an alternative plan. Since then, a series of developments have occurred that added uncertainty to BLT’s quest for CECO and we hereby provide a summary of these developments in chronological order.

On 1 October 2009, Eitzen Chemical ASA (“ECHEM”) reached an agreement with most of its lenders (all syndicate loans and most bilateral loans) on the restructuring of its bank debt. However, this was conditional upon a new equity issue of a minimum USD 100 million by November. ECHEM was in dire need of capital injection. Continue Reading

Picking up Distresed Assets and Private Equity

John Kennedy has a quote: “When written in Chinese, the word “crisis” is composed of two characters-one represents danger, and the other represents opportunity.” But even as the shipping markets in general remain in doldrums, there have been surprisingly few mergers and acquisitions in the market, contrary to what one might expect. The lack of liquidity and funding from the banks could be a reason. Or could it also be that market watchers are still holding on to the view that asset prices have yet to hit rock bottom? So whether it is this fear of catching a fallen knife or the lack of financing and quality investment opportunities, seasoned shipping investors and private equity firms remain largely on the sidelines. There were few public distressed situations this year and this could well suggest that banks are working very hard with their clients to avoid foreclosures, rather than accepting haircuts on assets. Continue Reading

Still Many Moving Parts

Eitzen Chemical is now on firm footing. Newbuilding commitments are gone and the company’s finances with the banks and bondholders have been restructured. The requisite private placement of equity was successfully completed last month raising approximately $115 million and the subsequent share offering of approximately $15 million is on-going ensuring reasonable liquidity.

As Terje Askvig, CEO of Eitzen Chemical notes,  “we are confident the robust financial platform following the restructuring, coupled with the company’s modern fleet and strong market position will be a solid basis for creating shareholder value and safeguarding our various stakeholders going forward.” With 2010 expected to be a tough year again, this is a good thing.
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Condition Met

Eitzen Chemical announced on Tuesday that the book building for the private placement to raise a minimum of $100 million in new equity was successfully concluded with ABG Sundal Collier Norge and Carnegie ASA, as joint lead managers, receiving orders in excess of the amount required. As you may recall this equity offering was a pre-condition for the waiver agreements with the banks.
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The First Deal is the Hardest

Last week, Northern Shipping Funds (“NSF”) closed what we believe to be its first transaction, assisting in the sale and leaseback of the Sichem Pace, a 19,900 DWT stainless steel chemical tanker built in 2006. The vessel was purchased from Eitzen Chemical for $34 million by a Pareto organized K/S. Senior debt was provided by Nordea, with NSF providing a $4 million mezzanine loan. The vessel was chartered back by Eitzen for five years under a bareboat charter, which the sellers characterize as an operating lease suggesting the seller may not have a purchase option or if it does it is at fair market value.

Although it is playing at a risky level in the capitalization, NSF has carefully mitigated the risks by financing a modern vessel with sub-employment for a short tenor. Moreover it benefits from the peculiarities of the K/S structure, which not only has paid in capital but also contingent uncalled capital to provide a cushion, if needed.

The deal was sourced by John Hartigan, with the rest of the team assisting in closing the transaction.

The Eitzen Group Also Cleans Up

This week Camillo Eitzen (“CECO”) and its subsidiary, Eitzen Chemical disclosed the results of their visits to the Japanese shipyards. CECO got the better deal having been able to cancel six 2,500 cbm gas carriers against a full and final settlement of $2.5 million. Eitzen Gas no longer has any newbuilding commitments.

Eitzen Chemical did not fare as well. The company has entered into an agreement with a Japanese shipyard to cancel five 12,000 DWT stainless steel chemical carriers which had a further capital commitment of $175 million. The company will compensate the yard by releasing a deposit of $7.5 million and paying a further cancellation fee of $7.5 million by November 30, 2009. The company expects to record a loss of ~$10 million as a consequence.

Both companies are presently in discussions with their lenders “…to amend the debt repayment schedule and to adjust the covenant structure to better fit today’s market environment.”

Waiver Obtained; Price Paid

Eitzen Chemical today announced that its banks have agreed to amend the loan agreements to allow a higher net debt to EBITDA ratio through 2010 thereby rectifying the breach of the covenant. Accordingly, the company’s loan margin has been increased to 275 bps.

Not to Be Missed

Despite the difficult environment, a veritable who’s who of the shipping community descended on the Jefferies 5th Annual Shipping, Logistics & Offshore Services Conference on Tuesday and Wednesday.

We must confess that walking in at the uncivilized hour of 8 AM to a sparse crowd and seeing Jefferies Magic Eight Balls gave us pause. Was Hamish making a market statement or was he merely giving investors a new forecasting tool? Our conclusion was probably both.

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