Earnings Season – Bask in the Glory!

As the global economy lurches from shaky economic measure to even shakier economic indicators and the public markets collectively hold their breaths prior to any major earnings release, shipping square in the middle of its own earnings season is proving to be a stellar financial performer. Who would ever have thought that?!

While Diana was punished for missing analyst estimates by 2 cents, the more important fact is that the direction of earnings is still upwards with year on year improvements, dividends are being increased and the forward book of business seems likely to assure that 2008 will be another hugely successful financial year.

Some representative quotes may say it best:
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Written by: carisk | Categories: Freshly Minted, The Week in Review | February 21st, 2009 | Add a Comment

Ship Finance Doubles Down

After entering into its first sale-leaseback with Seadrill for a drillship in May, Ship Finance announced on Tuesday that it had agreed to acquire two newbuilding ultra-deepwater semi-submersible drilling rigs from subsidiaries of Seadrill Limited in combination with 15-year bareboat charters back. The cost of the two rigs is approximately $1,700 million and will be financed with a $1,400 million bank facility (LTV of 82%). The $300 million net investment by Ship Finance will be sourced from existing liquidity, the refinancing of existing assets with low gearing and a substantial profit sharing payment due from Frontline.

Written by: carisk | Categories: Freshly Minted, The Week in Review | September 18th, 2008 | Add a Comment

Faster Than a Speeding Bullet, More Powerful Than a Locomotive, and Able to Leap Tall Buildings in a Single Bound”

No, we are not talking about Superman, but if that was your guess you were close. In fact, we are referring to John Fredriksen, who may be, in financial circles, more powerful than Superman. On Wednesday, Frontline announced the acquisition of five suezmax tankers and the intention to partially finance them with a private placement of new shares. The private placement was successfully completed today in less than 24 hours.

The five double hull suezmax tankers were purchased en bloc at a purchase price of $240 million from Top Ships Inc. The vessels were built in the period from 1992 to 1996 and will be delivered between June and August 2008.
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Written by: carisk | Categories: Freshly Minted, Transaction Report | June 26th, 2008 | Add a Comment

Defensive Maneuver?

While some companies issue new debt, others refinance. OSG announced on Tuesday that it would redeem all $176.11 5 million outstanding of its 8.25% senior notes due 2013 at a price of 104.125%. We expect that the lower interest rate will offset the premium paid.

The timing of this buy-back is interesting in light of Frontline’s recent share purchase. The resulting increase in share price presumably makes the share buy-back program less attractive. And, assuming that the redemption is funded partially by OSG’s cash on hand, does the reduction in cash make a potential acquisition more costly for the acquirer who would have had access to that cash in order to fund the purchase? On the other hand, one can counter this argument by saying the removal of this expensive debt makes the company more attractive on an overall basis. All we can do is sit by the sidelines and watch these grandmasters’ next moves in this exciting game of chess.

Written by: carisk | Categories: Freshly Minted, Transaction Report | April 10th, 2008 | Add a Comment

The Week in Review

The relatively quiet ship finance market over the past couple of months is beginning to show signs of life. The equity market this week picked up when K-Sea GP Holdings LP has filed for an IPO. Lehman Brothers and Citi are running the deal, which is set to raise up to $100 million. The company’s cash generating assets consist solely of partnership interests in US-listed K-Sea Transportation Partners, which currently operates a fleet of 73 tank barges, one tanker and 59 tugboats that serve a wide range of customers, including major oil companies, oil traders and refiners. We look forward to exploring this very interesting deal in more depth next week.

Written by: carisk | Categories: Uncategorized | March 6th, 2008 | Add a Comment

Independent Tanker Company to be Spun Out in Special Dividend

Last week it was announced the Frontline was planning a spin-off of Independent Tanker Corporation (ITC). This week Frontline announced that it would begin this process with the distribution of a special dividend of 20% of the capital stock of its Bermuda subsidiary ITC; this is not unlike what initially happened with Ship Finance International. However, unlike Ship Finance ITC will be traded on the Oslo OTC Market. It will maintain its share register through the VPS, and all shareholders must hold VPS accounts.

Non-US holders of Frontline will receive one share in ITC for every five Frontline shares they hold, as will US QIBs who hold 15,000 or more Frontline shares. Other US holders will receive a cash distribution based on the market value of the ITC shares on the OTC market as ITC’s shares will not be listed for trading in the US. The record date for the dividend will be February 28 and the share distribution will take place around March 6.
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Written by: carisk | Categories: Freshly Minted, The Week in Review | February 21st, 2008 | Add a Comment

The Week in Review

While shipping stocks are no longer booming, the underlying shipping markets remain healthy. Jonathan Chappell and his team at JP Morgan are looking for near-record tanker rates at the end of 2007 to drive up 1Q08 EPS for tanker stocks and also believe that the tanker spot markets will hold up better than expected going forward. On the dry side, Urs Dür at Lazard sent out a note this week to correct common investor misunderstandings regarding the BDI, noting that it is not correlated to near-term world trade. He also expects Chinese iron ore price negotiations to be completed by March 2008, which combined with low inventories in China should lead to near-term improvements for dry bulk freight rates. Omar Nokta and his team at Dahlman Rose note that the tanker market could see some support as AG March cargoes come into the market this week while also observing that the dry bulk market has gained some positive momentum, though this has yet to be reflected in stock prices.

Written by: carisk | Categories: Freshly Minted, The Week in Review | February 14th, 2008 | Add a Comment

Frontline Exercises Purchase Option with Dr. Peters, Makes a Buck or Two

Marine Money Freshly Minted January 27, 2005

Frontline Exercises Purchase Option with Dr. Peters, Makes a Buck or Two

Frontline reported this week that they have exercised their purchase options on two vessels from Dr. Peters, the German KG house where Frontline is chartering ten ships, as shown in the table below. Front Champion and Front Century were acquired by Dr. Peters for $160 million in 1999 and placed on a ten-year charter to Frontline. Frontline has now acquired the vessels at $142 million and sold the vessels to Ship Finance International for $196 million, needless to say making a healthy profit. The market value of the ships was reported to be over $200 million. Frontline is now working at exercising another purchase option on VLCC Golden Victory, and as the tables show, they have plenty of opportunities to make more good deals.

Frontline reported this week that they have exercised their purchase options on two vessels from Dr. Peters, the German KG house where Frontline is chartering ten ships, as shown in the table below. Front Champion and Front Century were acquired by Dr. Peters for $160 million in 1999 and placed on a ten-year charter to Frontline. Frontline has now acquired the vessels at $142 million and sold the vessels to Ship Finance International for $196 million, needless to say making a healthy profit. The market value of the ships was reported to be over $200 million. Frontline is now working at exercising another purchase option on VLCC Golden Victory, and as the tables show, they have plenty of opportunities to make more good deals.

Written by: carisk | Categories: Equity, Freshly Minted | January 25th, 2007 | Add a Comment

Bear Stearns Follows Up with Report on NAT’s Latest Acquisition

On June 24, Nordic American Tanker Shipping, Ltd. (NAT) announced its decision to purchase a seventh modern suezmax tanker for $71.4 million. Justin Yagerman of Bear Stearns acted quickly to discuss the implications of this for the company he just recently initiated. The seller of the Korean built tanker is presumed to be Frontline (FRO). In January, NAT announced the purchase of the Nordic Fighter for $68.3 million, a sister ship to the most recent tanker purchase. The two tankers are among the four suezmax’s acquired by NAT since 2004. The newest tanker acquisition falls in line with NAT’s avowed policy of expanding through purchases with promising potential. Mr. Yagerman believes that this new vessel acquisition will provide for an increase in net voyage revenue, higher earnings, and share distributions.

After the recent purchase, NAT now has six of its seven ships trading in the spot market. However, Mr. Yagerman explains that although spot-rates usually outperform time charters, Bear Stearns would still like to see some additional long-term charters to add stability to NAT’s cash flow.

Mr. Yagerman believes that NAT will finance this deal with a combination of cash readily available as well as drawing from its currently untouched $300 million credit resource, though this purchase will increase NAT’s daily cash break-even hurdle. The analyst does not expect NAT to come back to the equity market to refinance this debt at any time in the near future.

However, given the fact that NAT’s dividends and earnings are so dependent on suezmax spot rates, Mr. Yagerman finds NAT’s risk/reward is less than convincing. NAT was down 1.1% on June 24 versus the S&P 500, which was down 0.7%; while the rest of the Tanker Universe was down 0.8%. Even though NAT has more than doubled its fleet in less than a year, there is still a significant amount of risk considering the company’s leverage to the suezmax spot market. The latest tanker acquisition follows suit with NAT’s precedent of purchasing vessels at peak prices, which Mr. Yagerman sees as a risk to NAT’s return profile in the current rate environment.

Another cause for concern is NAT’s decentralized vessel management. It is unclear as to who will control the commercial and technical management of the newly purchased vessel. Mr. Yagerman gave the company a rating of Peer Perform, meaning he projects that the stock will perform approximately in line with the analyst’s industry coverage over the next twelve months.

Written by: carisk | Categories: Freshly Minted, Market Commentary | June 30th, 2005 | Add a Comment

Fyhr & Mavrinac Initiate Diana, Bullish on Arlington

Jefferies analysts Magnus Fyhr and Douglas Mavrinac continued to expand their comprehensive shipping sector coverage with the initiation of coverage on Diana Shipping with a Buy rating and a $21 price target. The analysts note that Diana operates a modern dry bulk fleet while dry bulk fundamentals remain attractive. The company has a strong balance sheet that is readily available to support future growth, and it has announced a policy to pay out all free cash as dividends, a policy which is supported by Diana’s timecharter strategy.

The analysts also reiterated this week their Buy rating for Arlington Tankers, with a target price of $25.00, though the report also reduces EPS estimates based on lowered charter rate expectations. One thing that both these Buy ratings have in common is a notable dividend yield. Calculating the value of near-term returns, dividend yields mean a lot to analysts, but how much do they mean to equity investors?

General Maritime’s recent inauguration of a considerable dividend policy gives us a rare venue to test the hypothesis that higher dividends translate into higher share prices. The accompanying graph comparing General Maritime’s share price evolution, starting in the beginning of January and going through the period when the company announced its new dividend policy, to that of Frontline.