Shipping High Yield – It’s Back and Just in Time

By Ethan Ram, DVB Capital Markets LLC

In light of the recent offerings by Hornbeck and Seacor, Ethan Ram’s latest capital markets offering could not be more timely, as the industry searches for alternatives to bank debt.

The tight supply of ship mortgage debt has highlighted the shipping industry’s need for alternative sources of capital, and the role the capital markets can play in ship finance.  In recent months, many shipping companies, public and private, have resorted to raising equity to fund themselves, in some cases diluting shareholders in order to bring themselves into compliance with their bank facilities.  For those companies that are eligible, however, an alternative to issuing dilutive equity is to tap the high yield bond market, where recent developments have made conditions highly favorable for issuers.

The high yield market got off to slow start in 2009 in a continuation of the preceding four quarters of 2008 which saw the volume of new issuance shrink to the lowest level in nearly ten years and yields for the average high yield bond expand to over 20%.  In April, however, there was a surge of new issuance and since then the high yield market has not looked back.  Driven by a sustained period of net capital flows into bond funds totaling $15.9 billion (31 of the past 36 weeks have registered net inflows), positive market sentiment on the back of rising equity markets (the DOW and the S&P 500 have risen 48% and 56%, respectively, since their March lows), the past five months have seen a renewed investor appetite for high yield bonds.   Today yields have compressed to below 9% for the average high yield bond and, despite the slow start, 2009 is on track to be a solid year in terms of amount raised and number of transactions.
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GulfMark Offshore Makes the “First Call”

Last week, in what GulfMark’s Chairman David Butters termed a “transformational event”, GulfMark announced the acquisition of Rigdon Marine Corporation (“RMC”), a major operator of technologically advanced offshore supply vessels in the Gulf of Mexico. The RMC fleet of 28 vessels (21 on the water) includes next generation deepwater supply vessels, ultra modern crew and fast supply vessels. The combination will create an organization of over 2,000 employees and 90 vessels, capable of working in virtually all OSV markets, with an additional 16 vessels of several different designs scheduled for delivery through 2010.

Under the terms of the purchase agreement, GulfMark will acquire 100% of the outstanding equity interest of RMC for consideration comprising $150 million in cash and approximately 2.1 million shares of GulfMark stock ($63.56 per share on the date of the announcement), plus assumption of approximately $268 million in debt and approximately $19 million in expenditures to complete the vessels under construction. The cash portion will be financed with cash on hand, and borrowings under its current $175 million revolver.

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GulfMark Offshore Makes the “First Call

Last week, in what GulfMark’s Chairman David Butters termed a “transformational event”, GulfMark announced the acquisition of Rigdon Marine Corporation (“RMC”), a major operator of techno­logically advanced offshore supply vessels in the Gulf of Mexico. The RMC fleet of 28 vessels (21 on the water) includes next gener­ation deepwater supply vessels, ultra modern crew and fast supply vessels. The combination will create an organization of over 2,000 employees and 90 vessels, capable of working in virtually all OSV markets, with an additional 16 vessels of several different designs scheduled for delivery through 2010.

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Transaction Report

It was great news for the equity markets this week when Safe Bulkers got out its Merrill Lynch and Credit Suisse- led IPO. While the deal did price $1.00 below its $20-$22 target range, it’s been so long since we’ve seen any shipping IPOs that the very fact of a new deal getting done is a good sign. But the real interest this week was in the oil market, and Marine Money could not have asked for a better time to host its 10th annual Norway Ship & Offshore Finance Forum. The gathering was full of those hearty souls that will shape the next generation of oil production and dis­covery, financing and building machines to pull oil out of 12,000 feet of water, through thousands of miles of crust­ed salt, and anywhere else it can be found. The gathering formed the epicenter of the activity that is the focus of the better part of the world’s citizens.

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