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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.
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.
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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Notes from Japan
We had a lot of talk at Marine Money’s 4th annual Japan Ship Finance Forum last Tuesday about strategies on strengthening balance sheets and managing vendor relationships to understanding one’s rights and remedies in contractual disputes. The strong support shown by over 150 delegates is a tribute to the Japanese shipping industry and its ability to manage the global financial crisis and shipping market downturn to achieve long-term success. We present some quick notes from the event. Continue Reading
6th Annual Marine Money Istanbul Ship Finance Conference
On a balmy day over the Bosphorus, Marine Money and Geden Line, our Anchor Sponsor, held the 6th Annual Marine Money Istanbul Ship Finance Conference. A week before delegates had been slow to sign up and we were concerned the crisis was taking it’s toll. But true to form the Turkish shipping community showed it’s solidarity and on Thursday 30th April over 170 speakers and delegates filled the ballroom of the Swissotel – The Bosphorus.
Our keynote address was given by Mr. Suay Umut, President of Dunya Shipping. Getting on in years but young in energy and initiative, Mr. Umut reminded us that this is certainly not the first crisis in shipping, though the total scope of this crisis, incorporating the financial sector as well, is different and more far reaching than past crises. Mr. Umut closed by suggesting an age limit on trading dry bulk carriers, as in tanker shipping, may go some way to protect the long-term interests of the industry.
TOPS Turvy
In its 4th quarter and year-end report, Top Ships (“Top”) disclosed the uncertain state of its debt obligations due to a breach of certain loan covenants. It is currently in discussions with all its lenders to obtain waivers extending to March 2010. Without waivers, the company must classify its debt as short-term, since it is due and payable within the year. As a consequence of cross-default provisions, it requires agreement from all of its banks, a tough position to bargain oneself out of as the last holdout effectively cuts the deal. The company’s lenders include: RBS, HSH Nordbank, DVB, Alpha Bank, and Emporiki Bank.
Gleanings from Capital Link
Following the CMA, Capital Link held its 3rd Annual Invest in International Shipping Forum at the Metropolitan Club, which was overflowing for much of the day. There were general presentations, panels as well as company presentations. The following were our main takeaways from this forum.
The container sector has been the hardest hit and so we listened with great interest to that panel led by Ken Hoexter of Banc of America Securities-Merrill Lynch. The panelists included Gerry Wang of Seaspan, Aristides Pittas of Euroseas and Dimitiri Andritsoyiannis of Danaos. The collapse of the market is attributable to simple supply and demand. Overbuilding joined with reduced demand resulting from a slowdown in consumer buying. Mr. Wang believes this is a 12 to 18 month problem with 2012 to 2014 being good years. The lines will survive as they exercise self-help by utilizing alliances, like the airlines. Slot sharing is not as effective as filling a single ship instead of having two partially filled. Mr. Andritsoyiannis espoused the certainty that globalization will continue and that the containership is the only way to efficiently move finished goods. Mr. Pittas reminded everyone that it is a cyclical business and the good market will return. He plays the market more than his fellow panelists. He operates his smaller ships on shorter-term charters taking advantage of good markets and laying up vessels when the market is bad. He currently has three ships in lay-up and is relying on his solid balance sheet to get his company through the downturn.
Let the Bankers Speak
Marine Money hosted its 2nd Annual Hong Kong Ship Finance and Investment forum yesterday with the theme “Navigating Rough Waters: Survival Today, Success Tomorrow”. The seminar brought together over 140 participants to discuss the critical issues faced by the shipping industry today. We will be providing more coverage in the next edition but in the meantime, we bring you the highlights from the bankers’ roundtable.
Panel participants:
Nora Huvane, Director, Marine Money Asia
Mr. Charles Reineke, SVP, Global Shipping Finance Group, SMBC
Mr. Terence Yiu, Managing Director, Asia Shipping Division, BNP Paribas
Mr. Felix Ulbricht, Head of Deutsche Shipping Asia, Deutsche Bank
Mr. Paul Chang, Head of Shipping Asia, HSH Nordbank Continue Reading
Navigating Rough Waters: Survival Today, Success Tomorrow
Did you know…
· Half of shipping bankers answering a survey last week would be comfortable financing a newbuild tanker…but 0% would be comfortable with a newbuild containership,
· 70% of these bankers expect shipping loan spreads to average over 300 basis points going forward…more than a third of these expect spreads to average over 400 basis points,
· 88% typically rely on LTV covenants – and half anticipate taking write-offs in 2009? Continue Reading
OMG, There Is Actually New Business to Report
While not exactly ship finance, the newly committed Aegean Marine Petroleum Network $300 million dollar senior secured revolving and letter of credit facility does deal with one of the more pressing issues these days, trade credit. The new two-year facility was underwritten by HSH Nordbank and The Royal Bank of Scotland.
Under the terms of the commitment, the facility will bear interest at LIBOR plus a margin of 0.50% for documentary letters of credit, 1.50% for standby letters of credit and guarantee, and 2.50% for direct borrowings. The facility also has an accordion feature by which Aegean can increase the availability subject to lender commitments. Upon closing of the new facility, Aegean will have a total of $320 million in senior secured revolving credit facilities.
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