We had the pleasure of attending Oppenheimer’s 4th Annual Industrials Conference this week. Reflecting difficult and uncertain markets, the tone was muted and at least at the open presentations interest has seemingly flagged. Like the owners waiting for the perfect distressed deal, investors, too, seem to be circling and asking the difficult questions. Can you maintain your dividend? How low will asset values fall and so on? We wouldn’t call it bearish but it was certainly circumspect. Here are some of our takeaways. As always we leave the analysts to do the heavy lifting on the numbers.
The early morning slot went to Capital Product Partners LP with Iannis Lazaridis presenting the company. Despite the continued deterioration in the product markets, CPLP’s strategy of long-term employment continues to pay-off with 3rd quarter results in line with expectations. Distributable income was down due to lower revenues from a lack of profit sharing and higher interest costs attributable to the increased margin agreed in the recent loan amendment.
However, the company now has to face the difficult market with eight vessels coming off hire in 2010. MR spot market rates are at the lowest level in 20 years and consequently period activity is reduced.
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carisk | Categories:
Freshly Minted,
Market Commentary | November 19th, 2009 |
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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.
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With earning’s season reporting upon us, companies are disclosing the steps they are taking to bolster their balance sheets as well as recording the destructive efforts of the accountants. Companies are trying to strengthen their balance sheets in light of macro events, weak markets, leverage as well as future capex obligations. On the other hand, investments by shipping tycoons have also proved unsuccessful leading to mark to market write downs proscribed by accountants which diminish equity although they are non-cash charges. In no specific order, we highlight the following:
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With little time and no specificity in its investment guidelines, other than it be in shipping, Oceanaut Inc., Excel Maritime’s sponsored SPAC, announced, on Monday, that it had found its deal and will follow the footsteps of its sponsor and invest in drybulk but with a difference. It is the intention of the parties that Oceanaut will serve as Excel’s exclusive long-term charter dry bulk vehicle focusing on charters of 4 to 10 years.
The company has entered into definitive agreements to purchase four drybulk vessels from Irika Shipping S.A. for a total consideration of $352 million. The acquired vessels, which aggregate approximately 279,000 DWT, include three Panamax vessels and one Supramax vessel, which are described above together with their prospective employment.
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carisk | Categories:
Freshly Minted,
The Week in Review | August 28th, 2008 |
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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.
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Doubts about the global economy and gravity-defying oil prices were sidelined this week by extraordinarily robust shipping – and hence ship finance – markets. Polys and Nicolaos Hajionnaou’s Safe Bulkers came out with the first US IPO filing we have seen in some time while TBS and Genco both went to market with follow-on offerings. SPAC Seanergy announced a deal with Restis and 70% of Navibulgar at long last looks set to go to German-Indian consortium KG Maritime. In the private equity markets, Tufton Oceanic Middle East announced a new investment $50 million joint venture investment company with Kuwait Finance House. Reportedly the largest ever ship finance loan to a Turkish shipping company was closed for Kiran Holdings, and Ship Finance found $700 million in debt finance for the $850 million sale leaseback
FM understands that Genco executives made their presentation to the sales force at Joint Bookrunner Morgan Stanley today in preparation for the start of their roadshow on Monday.
The firm is certainly in the middle of the action these days. Morgan Stanley is also a Joint Bookrunner with Citigroup on the Quintana deal, which is currently on the road, with the New York investor launch and pricing expected next Thursday. However, since Jefferies is the lead manager of the Genco deal, the sales force at Morgan Stanley will not be playing as central a role in that deal as they are in the Quintana deal.
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carisk | Categories:
Equity,
Freshly Minted | July 7th, 2005 |
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In the light of the fact that at least 3 IPOs (Quintana, Genco and Wexford/Cavan) will be coming to market before the equity community goes on holiday in August, and another 5 have been completed recently, we thought it would be interesting to take a look at the valuations of these deals at the time of issue to see what, if anything, we could conclude about valuation trends and investor preferences.
As you can see from the deals in Figure 1, which are presented in reverse chronological order, it is very difficult to compare shipping deals to each other in a true “apples to apples” way. Some fleets are focused on a certain sector while others are diversified, some are new while others are older, some are exposed to the spot market while others have term time charter coverage, some companies charter-in tonnage while others prefer to own their ships – some pay hefty dividends while others conserve their capital for further growth and fleet replacement.
Net Asset Value – Selling the Momentum
At the risk of being overly simplistic, if companies want to have any chance of pricing their deal at a high premium to net asset value, then they have to demand that value from investors. What we have seen in recent deals is that investors are now in discount mode and will likely put in limit orders at 10% or more off the bottom end of the price range. Although this led to a disastrous result for Capital Shipping last week, which had set its initial range at a reasonable level, it did not have a major impact on Eagle, which set its initial range very high. And the winner in this category is DryShips. In looking at why this company was able to achieve nearly 2x all-time high net asset values, it is clear that momentum played a role. In the world of IPOs, in which many investors buy deals simply to flip them for a quick profit, buyers do not care if they overpay so long as someone else will over pay more once the deal starts trading. The same was true of Arlington, which priced at 120% of net asset value, but did so with under the market charters, which would have effectively reduced their cash flow generation power.
Price/EBITDA
In looking at this metric, it is clear that two of the highest valuations, Aries and Arlington, went to the companies with the longest term employment of their vessels. Diana, boasting the highest cash flow valuation, also had what would qualify at the time as long-term contract cover, though as the market has come down this approach has come more into vogue. The lowest valuation, on the other hand, went to TBS and DryShips, which do not place any emphasis on long-term contracts. Another factor here is that this latter pair of companies also has the oldest vessels which also trade at the lowest multiples to cash flow because of the diminished productive life of their assets.
And, finally, with respect to dividends, it is unclear whether investors are really paying up for them when those dividends are not backed up by long-term underlying contracts. What is clear, however, is that when it comes to IPOs investors like to buy into markets that have positive momentum and the chance for a quick profit.
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carisk | Categories:
Equity,
Freshly Minted | July 7th, 2005 |
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Evangelos Marinakis had the world of shipping and capital markets contemplating and strategizing after Capital Maritime’s decision to withdraw its 16.7 million share IPO during pricing on Monday night. Goldman led the deal, while Bear Stearns and Jefferies played supporting roles as co-managers. With deals for Genco, Quintana, Wexford, and others confidentially filed by foreign issuers in the process of coming to market, Capital’s decision to pull has been a reality check for both issuers and underwriters that valuations are coming under increasing pressure with every new deal that comes to market, irrespective of the quality of the fleet and corporate structure.
Dissecting the Deal – Lessons Learned
Ironically, the factors that most influenced the pulling of this deal were determined before the company jumped on the first private jet out of Teterboro: the price range and the corporate structure. As we understand it, a solid group of blue chip institutional investors liked the Capital deal, especially in light of the fundamentals for the product tankers that Capital has on order. However, they became very focused on the price relative to the range.
Set the Range High and Negotiate Down
Unlike Eagle, which went to market at about 180% of net asset value and therefore had a lot of room to negotiate with investors, Capital was boxed in from the start. Goldman advised the company to put a very reasonable price on the cover of the red herring at $14-$16 (5.3x-5.8x EBITDA), hoping that investors would place enough market orders (which do not specify the price) to push the stock to the high end of the range or above it.
Unfortunately, since investors recently had their way with Aries, TBS and Eagle, they put in limit orders (which state a firm price) at $13 – or $2 below the range. The problem was that with a net asset value of about $15/share, Capital had little room to be negotiated down. This inflexibility was compounded by the fact that Evangelos Marinakis put his entire family fleet and management company into the public vehicle, making the impact of a dilutive deal even greater.
Don’t Offer Newbuildings If You Won’t Get Valuation Credit
Yield deals like Diana, Aries and Eagle were able to tap an investor community that focuses on valuations such as Price/EBITDA and dividend yield. However, Capital had much of its net worth in newbuilding contracts (which produce negative cash flow until the ships deliver) and therefore put the company squarely into the world of value – net asset value in this case – which allowed investors to feel they possessed the upper hand. This is not a new phenomenon; TEN has also struggled to have its fantastic newbuilding program assigned a fair value.
Keep It Simple
As superficial and shallow as it sounds, valuing the Capital fleet may have been more time consuming for investors than expected. As of June 3, 2005, the company’s existing fleet was comprised of 39 vessels of which twenty-six are product tankers, four are OBOs and nine are bulk carriers. In addition, Capital currently has 16 Ice Class 1A MR product tanker newbuildings on firm order, which are scheduled for delivery in January 2006 through November 2007. These tanker newbuildings have an aggregate carrying capacity of 665,500 deadweight tons and currently comprise the largest fleet of this type and size on order in the world. As sad as it sounds, valuing Capital’s fleet, which has a wide range of ages and types, may have required more of a commitment than the average value investor wanted to make.
Like many good deals, the sellers didn’t need the money, and indeed may have been disgusted by the way future partners valued the company after the efforts made to construct a first class investment opportunity. All in all, this was a good deal and it is a disappointment that it didn’t get completed. In the end, we think it is the investors who have lost out here. Although every deal seems to influence the next one, we do not think the pulling of this deal will have a major impact on future shipping IPOs – so long as issuers go into the market with reasonable expectations. The fact remains that at today’s high net asset values, issuing a minority interest in equity at even a slight premium is a very attractive proposition.
Written by:
carisk | Categories:
Equity,
Freshly Minted | June 30th, 2005 |
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Evangelos Marinakis had the world of shipping and capital markets contemplating and strategizing after Capital Maritime’s decision to withdraw its 16.7 million share IPO during pricing on Monday night. Goldman led the deal while Bear Stearns and Jefferies played supporting roles as co-managers. With deals for Genco, Quintana, Wexford, and others confidentially filed by foreign issuers in the process of coming to market, Capital’s decision to pull has been a reality check for both issuers and underwriters that valuations are coming under increasing pressure with every new deal that comes to market, irrespective of the quality of the fleet and corporate structure.
Dissecting the Deal – Lessons Learned
Ironically, the factors that most influenced the pulling of this deal were determined before the company jumped on the first private jet out of Teterboro: the price range and the corporate structure. As we understand it, a solid group of blue chip institutional investors liked the Capital deal, especially in light of the fundamentals for the product tankers that Capital has on order. However, they became very focused on the price relative to the range.
Set the Range High and Negotiate Down
Unlike Eagle, which went to market at about 180% of net asset value and therefore had a lot of room to negotiate with investors, Capital was boxed in from the start. Goldman advised the company to put a very reasonable price on the cover of the red herring at $14-$16 (5.3x-5.8x EBITDA), hoping that investors would place enough market orders (which do not specify the price) to push the stock to the high end of the range or above it.
Unfortunately, since investors recently had their way with Aries, TBS and Eagle, they put in limit orders (which state a firm price) at $13 – or $2 below the range. The problem was that with a net asset value of about $15/share, Capital had little room to be negotiated down. This inflexibility was compounded by the fact that Evangelos Marinakis put his entire family fleet and management company into the public vehicle, making the impact of a dilutive deal even greater.
Don’t Offer Newbuildings If You Won’t Get Valuation Credit
Yield deals like Diana, Aries and Eagle were able to tap an investor community that focuses on valuations such as Price/EBITDA and dividend yield. However, Capital had much of its net worth in newbuilding contracts (which produce negative cash flow until the ships deliver) and therefore put the company squarely into the world of value – net asset value in this case – which allowed investors to feel they possessed the upper hand. This is not a new phenomenon; TEN has also struggled to have its fantastic newbuilding program assigned a fair value.
Keep It Simple
As superficial and shallow as it sounds, valuing the Capital fleet may have been more time consuming for investors than expected. As of June 3, 2005, the company’s existing fleet was comprised of 39 vessels of which twenty-six are product tankers, four are OBOs and nine are bulk carriers. In addition, Capital currently has 16 Ice Class 1A MR product tanker newbuildings on firm order, which are scheduled for delivery in January 2006 through November 2007. These tanker newbuildings have an aggregate carrying capacity of 665,500 deadweight tons and currently comprise the largest fleet of this type and size on order in the world. As sad as it sounds, valuing Capital’s fleet, which has a wide range of ages and types, may have required more of a commitment than the average value investor wanted to make.
Like many good deals, the sellers didn’t need the money, and indeed may have been disgusted by the way future partners valued the company after the efforts made to construct a first class investment opportunity. All in all, this was a good deal and it is a disappointment that it didn’t get completed. In the end, we think it is the investors who have lost out here. Although every deal seems to influence the next one, we do not think the pulling of this deal will have a major impact on future shipping IPOs – so long as issuers go into the market with reasonable expectations. The fact remains that at today’s high net asset values, issuing a minority interest in equity at even a slight premium is a very attractive proposition.
Written by:
carisk | Categories:
Equity,
Freshly Minted | June 30th, 2005 |
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