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A Random Talk on Wall Street
This week we spoke with a few shipping investment bankers to get an assessment of what is happening on Wall Street during these hot summer days and what might be waiting in the wings when September arrives. While there are some differing opinions, mainly with respect to the banks, activity in the capital markets remains strong, in general, with strong undercurrents of potential activity in shipping. Some even suggest that we might not have to wait for September, as is typical. In the pipeline are IPOs, follow-ons and even M&A transactions. What follows is a compendium of views on the various opportunities as well as some thoughtful commentary.
Less Buzz, but…………More Business
On the outside, this year’s Jefferies Conference was subdued with less buzz than previously. However, it was a marked improvement to last year’s event, which coincided with the collapse of Lehman Brothers. Then the shipping markets were still good but all eyes were focused on the Bloomberg screens awaiting developments, while discussions revolved around whether or not to buy gold. Today was different. The economy seems to be improving while the shipping markets struggle. Shipping’s main source of capital, bank debt, is rationed while the equity markets are offering hope. Today was the day for public shipping companies to plead their case to investors. It was all about business.
We know that the presentations are the interlude and that the real action takes place behind the scenes during the one on one meetings as investors and companies engage in speed dating. Yet even in the public venue, we saw a clear dichotomy between the haves and have not’s. The rooms were packed for those companies with large market caps, liquidity and share volatility. For investors these days, slow and steady does not win the race. Nevertheless, the good news was that all the companies had meetings, although some had more than others. But all agreed the meetings were of high quality and now included a new class of investor – the opportunity fund.
As usual, our coverage will focus on points of interest to us. But as it was impossible to cover three tracks, our emphasis, for the most part, was on those unappreciated companies where interest may have waned, whether for lack of coverage or as a consequence of the market sector in which they participate.
Tightening the Screws
Last week, Global Ship Lease (“GSL”) announced that they had come to terms with their bankers, Fortis, Citi, HSH Nordbank, DnB NOR and SMBC, with respect to an amendment of their $800 million credit facility. The amendment incorporates the following main terms:
• The LTV covenant is maintained at 75% but is waived through November 30, 2010, meaning the first test will take place on April 30, 2011. Ongoing testing is conditioned upon the availability of valuations.
• Amounts borrowed under the facility will bear interest at LIBOR plus 3.50% through November 2010 and thereafter pricing will be on a grid of 2.50% to 3.50% depending on the LTV.
• The $82 million purchase of the CGM Berlioz will be funded by a $42 million drawdown on the facility, no less than $20 million from cash on hand with the balance of no more than $20 million funded from an over advance loan (“OAP Loan”) under the facility.
• The OAP Loan has repayments scheduled for November 2009 and January 2010 based upon free cash flow in excess of $20 million. In any event, the loan must be repaid in full by June 30, 2010.
• Concurrently, with the Berlioz funding, all undrawn commitments, approximately $200 million, will be cancelled and the facility will convert to a term loan.
• CMA CGM has agreed to defer redemption of its $48 million in preferred shares until after the final maturity of the credit facility in August 2016. Dividends on these shares will be permitted. In addition, CMA CGM will not reduce its holdings of common shares below the current level of 24.4 million until the conclusion of the waiver period, November 2010.
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Global Ship Lease Continues to Struggle With LTV
Global Ship Lease (“GSL”) remains in default of the loan to value covenant in its $800 million credit facility with Fortis, Citi, HSH Nordbank, SMBC, KfW, DnB Nor and Bank of Scotland. As of December 31st, there was $542.1 million outstanding under the facility.
Among the many restrictive covenants, the company has breached and sought waivers from the banks for the LTV test, which provides for a maximum leverage of 75%.
Directly impacted by the economic recession, demand for liner services and therefore containerships collapsed last year. Consequently, there has been a dramatic decline in values and de minimis sale and purchase activity. With little activity and therefore no comps, there is hesitancy on the part of brokers to value assets. Hence the value of GSL’s fleet is a question mark. If, in fact the leverage test is exceeded, the company must either provide additional collateral or prepay the loan to cure the default.
Waivers And More Waivers
Not unsurprisingly, the difficulties in the marketplace are becoming more evident as the number of waivers of covenants increases in the public sphere. However, we understand that it is on the private, or dark side if you will, where the heavy lifting, at least in terms of restructuring, is taking place. The appropriate analogy might be the bare-knuckle storm below the calm sea of the public genteel discussions. Nevertheless, these exercises may be nothing more than band-aids should the market not improve. We certainly understand the cautious approach taken with respect to the public companies given the ramifications. The question remains as to what impact the private discussions might have on the public. We watch and wait as the parties stake out their positions.
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Seanergy – 3rd Time’s the Charm
In contrast to the Oceanut transaction, Seanergy Maritime Corp. can rightfully say, “been there done that” as shareholders finally approved its transaction to acquire 6 bulk carriers from the Restis family this week. It has not been an easy road for the company as we have previously documented. The shareholder vote was deferred three times necessitating the Restis family to increase its investment twice. Ultimately, Restis affiliates owned beneficially 10,114,761 shares, representing 35.4% of the company’s outstanding shares, which amount excludes 2,750,000 shares with respect to which affiliates of the Restis family have shared voting power but do not have dispositive power. Their position was solidified by George Koutsolioutsos, Seanergy’s Chairman, who increased his beneficial ownership to 8.4% of the outstanding shares exclusive of an additional 3,190,000 shares over which Mr. Koutsolioutsos has shared voting power.
CMA-CGM Finds Public Buyers in Marathon
Private equity funds have long had a glamorous reputation as the real movers and shakers in the financial world, buying and selling companies at will and making tremendous returns for their partners and investors. While they are under some pressure now as the easy access to capital they rely upon has been hampered, this was not so in 2006. And it is the 2006 crop of SPACs that is just now coming to maturity, driving the volume of acquisitions by SPACs to $3.9 billion so far this year, more than six times the comparable period in 2007, according to Dealogic.
It was in just this time period, in August 2006 to be precise, that Marathon Acquisition Corp came to the public markets, backed by Michael Gross, a founding partner of private equity powerhouse Apollo. Fast forward to February 2008, however, and Mr. Gross’s SPAC was quickly closing in on its deadline to announce an acquisition target or risk being liquidated. Continue Reading
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