Taking Care of Business

While we know the capital markets are abuzz with activity, there are still the mundane but important things that must be taken care of. On Tuesday, General Maritime amended its $750 million credit facility with Nordea, DnB NOR and HSH Nordbank, as joint lead arrangers and joint bookrunners (the “Credit Facility”) to permit the incurrence of indebtedness under the new $372 million credit facility being utilized for the acquisition of the Metrostar vessels.
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Bitter Pills to Swallow but Recovery Nearer in Sight

Over 12 months of negotiations and uncertainty, Rickmers Maritime has finally reached an agreement with its lending banks and sponsor, Rickmers Group. Who would have thought that the decision to acquire ships with long term charters from the major liners during the good days could exert such a severe impact on the trust’s performance? After all, during the boom investors focused largely on growth but this has led to the challenges that shipping trusts are facing today in the form of deflated asset values and lease rates. Rickmers Maritime has two pressing issues to resolve – a) a USD 130 million top-up facility that matured in April 2010 and b) an obligation to acquire 7 vessels from the sponsor with total contract value of USD 918.7 million.

In terms of loan restructurings, Rickmers Maritime’s lenders believed to be Citibank, DBS and HSH Nordbank have agreed to convert the balance amount of the USD 130 million facility into a five-year amortising loan and the value-to-loan covenants will be waived by all the lending banks for up to three years. In addition, the trust can take comfort that no market disruption clause will be invoked during the wavier period. But in exchange for the loan extension and temporary covenant waivers, the trust is required to prepay USD 59 million in FY 2010 and accept a revised interest rate of 1.75% per annum over three month LIBOR, which represents increases of between 55 bps and 105 bps on its existing borrowings. Unitholders will also have to live with the decision that the trust can only make quarterly distribution payments of up to 0.6 US cents per unit, provided no event of default has occurred under any facility. Continue Reading

Capital Link

Following on the heels of CMA, today was the 4th Annual Capital Link Shipping Forum in New York. As always it was well attended with a full schedule of presentations and panels. The most intriguing for us was the bankers’ panel which was moderated by George Cambanis of Deloite Hadjipavlou Sofianos & Cambanis and included Robin Das of HSH Nordbank, Gust Biesbroeck of Fortis Bank Nederland and Brett Esber of Blank Rome. The good news was that panelists all agreed that bank lending has picked up this year. Mr. Biesbroeck talked of pockets of liquidity, noting in particular the increase in Asian lending to locals. The common characteristics of the loans were the involvement of strong credits with whom the bankers had long-standing relationships. Echoing the same idea, but humorously, Mr. Das affirmed there was a bifurcated market with the banks willing to lend to those who don’t need the money. The niche owner is being left behind.
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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.

Catch-22

It’s not only about new money. Keeping your existing credit facilities may soon become a concern. In his recent report on Omega Navigation, Omar Nokta, of Dahlman Rose raised the issue in his discussion of Omega’s credit facility with HSH Nordbank, which is scheduled to expire in April 2011.

While not a pressing problem for most, it certainly is something to be aware of generally, particularly in the case of weaker credits. Shedding assets is a sure way of improving banks’ capital ratios, which is the means to increased lending. Of course, the bigger question is how does one go about refinancing the facility your banker does not want?

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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Hard Work, Rewarded

Danaos Corporation announced last week that it has reached agreement with Aegean Baltic Bank acting as agent to its $700 million revolving credit facility with HSH Nordbank, Piraeus Bank and Aegean Baltic, its $60 million credit facility with HSH Nordbank and Dresdner Bank and its $148 million performance guarantee with HSH Nordbank on waiver terms with respect to these facilities.

With this agreement, together with agreements reached earlier this year relating to certain of its other credit facilities, the Company has now obtained waivers through January 31, 2010 covering all prior breaches of financial covenants in its credit facilities as well as any subsequent breaches of these covenants.

The company is now in a position to complete its annual 20-F filing, which will provide greater details on the waivers.

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.

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The Economy and the Markets

STAY HOPEFUL
Investor sentiment is very often unpredictable and moody, especially today when economic data continues to come in mixed and casts doubts on whether the economic stabilization will be able to materialise into a recovery. And against this uncertain backdrop, it was refreshing to listen to an optimistic voice among the crowd on where the global economy is heading. François Trahan, Senior Managing Director and Chief Investment Strategist, ISI Group started off the Wednesday’s session of Marine Money Week on a positive note by reminding the audience that even though consumer deleveraging has already begun and may well continue for the next decade, equities can rally even during such times if the government is able to offset the consumer contraction. He pointed out that the US stimulus package is still very much in its infancy stage considering the fact that the government has only spent 5% or USD 42 billion out of the USD 787 billion.

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Not Just a Warm-up

Prior to the start of the festivities, Teekay Corporation held its successful shareholders meeting. The room was filled with over 100 spectators with another 200 viewing through the webcast. What was extremely interesting to hear from the Teekay delegation was the acknowledgement that they did not recognize many of the people in the room. Fresh blood!

The first session began under cloudy but dry skies an unusual event in New York these days. The room was packed with the audience hoping to glean insights from last year’s deal of the year winners as the architects of the transactions discussed their deals and how they fit in today’s marketplace. The discussion was led by Stephen Peepels of DLA Piper.
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