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Orphan Adopted With Added Benefit of a Back-Door Listing of Ocean Rig Shares
Pair the brilliance of Mr. Economou with the ingenuity of Evercore Partners and problems become opportunities. On Tuesday, DryShips Inc. announced that it had agreed to acquire the outstanding shares of OceanFreight Inc. for a total consideration per share of $19.85 consisting of $11.25 in cash and 0.52326 shares of common stock of Ocean Rig UDW Inc., valued at the July 25th closing price of NOK 89 ($16.44) on the Norwegiaqn OTC. OceanFreight’s shares closed Monday at $9.47, implying a premium of 110%. The offer is not subject to any financing contingency as the cash portion will be paid from DryShip’s existing cash and the shares will come from outstanding shares currently owned by the DryShips, reducing its ownership from 78.3% to 75.9%.
Equity Sales Continue – Navios Maritime Partners and Safe Bulkers Follow-on
While the Golar LNG Partners IPO was a surprise, the prevalence of follow-on offering is not. Last week, Teekay LNG and Navios Maritime Partners LP (“Navios Partners”) successfully concluded their offerings and they were joined this week by Safe Bulkers Inc. While there is nothing that indicates that the window is closing, there nonetheless seems to be a rush to offer.
Seeing the Light – Golar LNG Learns From a Competitor
The MLP model is best suited for assets such as FSRUs and LNG carriers that have stable cash flows due to long-term contracts. The common units of the limited partnerships trade on yield and expected growth. Given the low interest rate environment and high demand for yield paper, the MLPs are trading at high EBITDA multiples and premiums to underlying asset value. The valuation premium gives MLPs a lower cost of capital making it an efficient way to grow and access capital.
Beyond Advisory
Last week, Evercore Partners took a major step forward in evolving beyond its staple business of advisory work. Although Evercore did receive its broker dealer license last year, the only public transaction in which it participated was the Safe Bulkers follow-on offering. But that is understandable given their herculean efforts in restructuring Danaos and Trico Marine Services. The company’s New Year’s resolutions clearly called for an expanding involvement in the capital markets.
At Last!
On Monday, Danaos Corporation announced the restructuring of the company having reached agreement with the banks for the restructuring of its existing debt, the provision of new debt facilities and, lastly, the sale of $200 million of new equity. This gargantuan and time-consuming effort will put the company on sure footing going forward.
First and foremost, under the agreed terms all 14 of the company’s lenders have agreed to provide $426 million of new debt financing to partially fund its existing orderbook. The existing loan facilities of approximately $3 billion have effectively been re-written with amortization and maturities rescheduled, interest margins reduced, and financial covenants, events of default, and guarantee and security packages revised.
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Silence Is Golden
It’s Wednesday, as we write this, and for the first time we can remember in months it’s been a quiet week in terms of transactions. We took the opportunity of a free moment to meet with Mark Friedman and Hugh Baker of Evercore Partners. Our agenda was twofold: we wanted to understand how Evercore is positioning itself in the competitive landscape of investment banking and to engage in a post-mortem of the recent shipping equity offerings to better understand why some have succeeded while others struggled.
Evercore is different. It is obvious when you walk into their offices, which are quieter than a library should be. There is no trading floor. This is about advisory work in the old style, built on relationships and trust. Like all bankers, they are client-centric, but with a difference. Lacking distribution, they are less driven by the constant need to feed securities through a distribution network. Instead, they are focused on long-term relationships and providing the highest quality advice with respect to their clients’ strategic needs.
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Ravenous Equity Appetite for Follow-ons Continues
Safe Bulkers Inc. joined the long line of recent issuers announcing last week that it would utilize its existing shelf registration and offer 9 million shares of it common stock in a follow-on offering. The offering will provide a green shoe of a further 1.35 million shares to cover overallotments. And, in order to minimize dilution, Vorini Holdings, Inc., the controlling shareholder (82%) of the company, has agreed to purchase 1 million shares at the offering price. Net proceeds will be used for vessel acquisitions, capex and for other general corporate purposes, including debt repayment.
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A Great Catch
It is official! Hugh Baker, formerly of HSH-Nordbank and ING, will join Evercore Partners as a Managing Director reporting to Mark Friedman. According to Mr. Friedman, “ We feel very fortunate to bring Hugh to Evercore. He is an extraordinarily talented banker with deep industry knowledge and strong relationships globally. His skills and relationships make him a perfect fit for Evercore’s shipping restructuring and advisory practice.” Welcome aboard.
OSG Tenders for its US Flag Offspring
Offering OSG America LP Unit Holders $8.00 in cash per unit, Overseas Shipholding Group, Inc. (OSG) announced that it intended to initiate a tender offer for all the outstanding publicly held common units. OSG, through current aggregated holdings, already controls 77.1% of the outstanding equity of OSG America.
“Evercore Partners and BofA Merrill Lynch are acting as financial advisors to OSG. Evercore Vice President Mark Whatley was with Merrill Lynch when OSG America L.P. went public. Whatley is part of the Evercore team, including Senior MD Robert Pacha and Elizabeth Cheever advising OSG now. Although temporarily sidelined on garden leave, we understand that Mark Friedman, who will be back in action next week when he starts as the co-head of transportation and the global head of shipping at Evercore Partners, was also very involved. Simpson, Thacher & Bartlett is acting as legal counsel to OSG.”
Complications Unwound. How DRYS Got There.
Last week, DryShips announced that it had agreed to acquire, from George Economou and other third party interests, the remaining 25% minority interest in Primelead Shareholders, Inc., the holding company and operating platform for DryShips ultra deepwater drilling rig assets including two owned and operational ultra deepwater semisubmersibles and 4 newbuilding drillship contracts as well as the commercial operating company, Ocean Rig ASA.
The transaction was structured to minimize the cash outlay and leverage with the price being dilution. Consideration for the transaction included $50 million in cash and the issuance of $280 million in face value of mandatorily convertible preferred stock, based upon a price per share of $5.36, the weighted average seven day trailing price. At the offering price, this equates to 52.2 million shares. The shares are manditorily convertible in four equal installments at $6.83 per share (a 27.5% premium) upon delivery of each of the four newbuilding drillships.
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