Doesn’t Get Better – Hapag Lloyd Offering Upsized and Trades Up at the BreakImproving Leverage While Increasing Liquidity – Teekay Tanker Follow-On

Initially targeting $500 million in a two tranche offering of Euro and Dollar bonds, Hapag Lloyd benefited from strong investor appetite and upsized it’s offering by EUR 145 million ($200 million) an increase of 40%. In terms of final numbers, Hapag issued EUR 330 million of 9.5% 5-year Euro notes and $250 million of 9.75% 7-year Dollar notes.

The Euro notes and Dollar notes were issued at 99.5% and 99.37% respectively to yield 9.55% and 9.875%. At the break, both senior notes traded up at around 103.5%.

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A Rising Tide Not Only Lifts All Boats, But Also Allows a Recapitalization and Perhaps Even an Exit

Last week, Hapag-Lloyd began marketing a $500 million bond issue in Europe and the U.S. to qualified investors, as part of a debt re-structuring, which will most importantly, stabilize the company’s balance sheet. The company intends to issue $500 million in the aggregate of senior unsecured notes, which will consist of a combination of dollar denominated notes due in 2017 and Euro denominated notes due in 2015. The notes will be guaranteed on a senior basis by “Albert Ballin” Holding, the shareholding entity. Initially, the proceeds of the notes will be escrowed and released only upon the receipt by the company of a minimum of $290 million of proceeds from the K-sure financing (Ex-Im financing, guaranteed by the Korea Trade Insurance Company, for the acquisition of 6 x 8,749 TEU containerships to be built at Hyundai).  More details, based upon the preliminary prospectus and market talk, are provided in our Guts of the Deal herein.

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World Fuel Taps the Equity Market for Growth

On Tuesday, World Fuel Services closed of its previously announced public offering of 8 million shares of its common stock. The shares were offered under its effective shelf registration, which provides solely for the issuance of common equity, filed just prior to the announced offering. Due to demand, the offering was upsized from 7.57 million shares, an increase of 5.7%, and the underwriters exercised in full the green shoe of 1.2 million shares. Net proceeds of the offering amounted to approximately $219 million. Proceeds of the offering will be used for general corporate purposes including potential acquisitions. More details are contained in the Guts of the Deal enclosed herein.

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J.P.Morgan Predicts Tanker Sector Recovery

J.P.Morgan forecasts a tanker market recovery that should begin in the 4th Quarter of 2010 and continue through 2011. The firm reports that current low tanker stock price levels will result in favorable risk/reward outcomes for investors as the market recovers. Thus, J.P.Morgan has shifted their ratings preference to Beta. According to the firm, the companies with the highest forecasted returns are those with the most earnings leverage to spot rates, notably General Maritime and Frontline, which have been upgraded to “Overweight” ratings. Their ratings were previously Neutral and Underweight, respectively.

J.P.Morgan predicts that an increase in demand for OPEC petroleum and an increase in fleet utilization will be the likely causes for increases in tanker stock prices. Further, an expected materially active hurricane season and recent incidents in the Gulf of Mexico and Port of Dalian could also result in increased prices, yet the impact of these types of events on market prices is difficult to predict.

J.F. Lehman Sells Ship Repair Unit for $325 Million

Great instances of opportunity exist, its just locating them. Even in the sleepy backwater maritime industry in the US.

J.F. Lehman & Company completed the sale this week of Atlantic Marine Holding Company to a subsidiary of BAE Systems, Inc. for an estimated $325 million. J.P. Morgan provided M&A advisory services for Lehman and Blank Rome the legal advice.

That’s the news this week….here is what we said about Lehman’s original acquisition of the yard – at a price of $190 million in the fall of 2006.
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Volatility and Uncertainty? Where?

Any concerns the market or we had with respect to volatility and uncertainty in the markets were put to rest last Thursday when General Maritime priced its follow-on offering.  While being an established company was key, we also noted the positive trend in the share price as both the vessel acquisition and follow-on offering were announced. The result was in our estimation remarkable. Described as a blowout, the deal was over 2 times oversubscribed with all the shares purchased by institutional buyers Due to demand, the deal was upsized by 20% and yet no one received their full allocation.  Moreover, from a pricing perspective, the shares were discounted by the typical 4.5% from the day’s closing price. While the transaction was accretive and positive in the long run, the results were a strong vote of confidence in Peter G. and his entire team.

Like the earlier high yield offering, it had to be done and the whole world knew it (the downside of transparency), not a favorable position for any seller. Yet Genmar’s team of bankers together with management clearly overcame that problem raising net proceeds of $195.6 million (exclusive of the green shoe), which when combined with the proceeds of the credit facility provided available financing totaling $567.6 million and therefore a funding gap of $52.4 million based upon the agreed purchase price of $620 million. However given the demand for the shares it is a near certainty that the green shoe will be exercised generating further gross proceeds of ~$31million making the gap easily manageable.
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No Pressure Just a Must Deal

General Maritime pulled out all the stops retaining a litany of Wall Street’s bankers to assist in the sale of its common stock needed to complete the financing of five VLCCS and two newbuilding Suezmax tankers from Metrostar. Debt financing is in the process of being arranged, with Nordea and DnB NOR, in the amount of $372 million, representing 60% of the purchase price. The facility is conditioned upon a successful equity offering to make up the remaining balance of $248 million plus any working capital needed. In this period of volatility in the markets, this is no simple deal. Adding further complications was S&P’s recent downgrade of the company’s debt to a B rating. This rating however needs to be put in the context of S&P’s overall view of shipping, which considers Teekay and OSG as BB and BB- rated respectively a few notches above Genmar’s.
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Another Dropdown Coming?

Last Thursday as we reported Navios Maritime Partners announced the follow-on offering of a further 4.5 million common units with a green shoe of 675 thousand units. On the following day the transaction was priced at $17.84 per unit a 5.26% discount from Thursday’s closing price of $18.83. Proceeds from the offering will be used to fund its fleet expansion and for general partnership purposes. Greater detail is shown in our Guts of the Deal below.
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With 2 Months to Spare

Today, Navios Maritime Acquisition Corporation, the SPAC formed by Navios Maritime Holdings (“Navios”) back in June 2008, announced that it had agreed to acquire a 13 vessel fleet, consisting of 11 product tankers (4 LR1s and 7 MR2s) and 2 chemical tankers for an aggregate purchase price of $457.7 million. The company also has options to purchase two additional LR1s for $40.5 million each. The purchase price will be paid from cash ($123.4 million) and $343 million of bank financing consisting of a three term loans aggregating $277 million and a $57 million revolving credit facility. The high leverage also leaves excess cash remaining for growth from the original $220 million raised. The company’s rationale for the purchase is its belief that the assets are being acquired near their inflation adjusted historic low prices and the anticipated increased demand for products as the global recession eases.
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Insatiable!

Investors cannot seem to be able to get enough of the shares and bonds of Teekay and its subsidiaries. In the latest iteration, Teekay Tankers announced Monday, after market close, its intention to offer 7 million shares of Class “A” common stock of the company in a public offering. But even before the market opened the next day, the company announced that the offering had been increased to 7.7 million shares, following the trend of Teekay’s previous offerings.

With the joint bookrunners, UBS, Citi, J.P. Morgan and Deutsche Bank opening up their retail systems, the bulk (75% to 80%) was covered by retail with the balance covered by institutions. In a world of low interest rates, a consistent dividend payer is a star.
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