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Believe the Story or Bet on the Come
Yesterday, Jefferies held its Annual Shipping Conference and, according to Hamish Norton it was a record turnout with over 400 delegates and 40 companies represented. When we were queried about the mood, we hard pressed to provide an answer. There was neither excitement nor was their panic. The closest comparison we could come up with was window shopping. The presentations for the most part were excellent, but the audience appeared detached. Had they seen it all before or was the action taking place behind the scenes in the break outs and one-on-ones? Nonetheless, in line with our thesis, the tanker presentations seemed the most crowded. Genmar, for example, was sold out while the non-U.S. listed companies and service industries garnered the least attention. But then again this was a NY shipping crowd.
The state of the sectors was irrelevant, as all presenters found reason for optimism, well placed or not. Dry has clearly been on the rise, with speakers touting 40% non-deliveries and record scrapping. While on the wet side, consensus suggests 2012 will also be difficult, but the glass is half full with opportunities expected to arise as a result. Lastly, the container ship lessors seem to have blinders on banking on the liners’ liquidity and ability to access capital as losses compound even as they try to get rate increases.
We provide some of our favorite vignettes below.
Fall Outlook – Somber
Like the cycles it lives with, shipping constantly re-cycles itself. When the shipping markets are good, equity investors are all over it and when they turn bad, the opportunists come out. Despite their different perspectives, both somehow make money. It is the nature of the beast. But the current state of shipping cannot be solely attributed to the shipping markets themselves, there is another culprit.
This week, Jefferies is holding its 2011 Global Shipping Conference. Unlike last year, the greater demand for this hot ticket, we understand, is coming from their credit clients rather than the equity side as in years past. Many may believe the vultures are circling carrion but they lack understanding of the resilience of this industry. Shipping has historically survived bad markets but, in this instance, it has to overcome the hangover of the virtually free and easy capital which contributed to unprecedented supply growth. Easy money is hopefully no more, but cheap money remains, as the world’s bankers continue to fight recession with monetary policy. And it is this cheap money which is singlehandedly keeping the industry afloat.
Sign of the Times
The latest edition of Jefferies Market Update points out that “U.S. hay, the country’s third-largest crop by value, is now cheaper to ship to China from southern California than to central California as ocean freight costs about $30 per short ton while the same cost for trucks is $53 per short ton. It ain’t just hay.
Into these Volatile Markets Goes Star Bulk
In its first follow-on offering since it began operations in December 2007, Star Bulk Carriers Corp. announced on Monday an underwritten overnight offering of 16.5 million shares based upon its previously filed $250 million shelf registration. The next day the offering was upsized to 16.7 million shares and priced at $1.80 per share, a discount of 10.4% from Monday’s closing price. While the file to offer discount is somewhat higher than the average year to date of 7.2% indicated by Jefferies, recall this is shipping and the markets remain volatile. Net proceeds were approximately $28 million. In addition, the company is allocating the usual 15% of the offering or 2.51 million shares to cover over-allotments.
An Ode to Magicians
At showtime, it all looks easy, but the weeks preceding Marine Money Week are a whirlwind. It’s interesting being an insider and a somewhat dispassionate observer. You hear the plans beginning in March. The phone calls and emails begin soon after as the agenda takes form and speaker requests are sent. Worry and frustration sets in. Is the agenda good? Will we get the speakers we need? Has anyone signed up? What can we do that will make this better than last year’s? Conference calls between Guilford and Stamford are many. Then the artist of promotion sits down at his computer and starts to whip out one promotion after another, each one better than the preceding. The trickle of registrations begins. Companies plan their events around the week. First Morgan Stanley announces its investor conference, and then a newcomer, Ship Finance follows suit with an investor/analyst meeting. As if a party planner was involved, the social events begin to fall into place as DnB Citi/Watson Farley, Jefferies, BNP, Dahlman Rose and HSH Nordbank all do their thing. Still we worry. It’s hard to get the moderators and speaker’s attention. As envelopes are stuffed and badges made, the numbers creep up and begin to approach last year’s. Jim still worries and runs into the city to help some moderators and calm their nerves. Then there’s MOMA, something new and therefore worrisome, but not to worry Lorraine’s taken charge. And then suddenly its Tuesday and as always is the case it all falls into place. Jim will remain nervous till the end but it is all under control and no one knows differently. The Marine Money magicians have pulled it off again. Kudos to Jim, Matt, Mike, the irrepressible Lorraine, Julia, Elisa, Cari, Margareta, Mike, Andrea Sarah, Adam and this year’s summer interns, Maren and Florian for a job well done.
Partial Spin-Off to Follow-on – Diana Container Raises Equity
Back in December, Diana Shipping Inc. spun off 80% of its 55% interest in Diana Containerships Inc. by distributing to its shareholders 2,667,066 shares. The shares began to trade on NASDAQ in January of this year.
Subsequently, on May 9th, Diana Containerships filed an F-1 registration statement for a follow-on offering of common shares. The shares closed that day at $12.64 per share. On May 31st, the company filed a press release announcing a follow-on offering of 14 million shares and a concurrent $20 million private placement of common shares to Diana Shipping. The offering, which was upsized to 14.25 million shares due to investor interest, was priced on June 10th at $7.50/share, a 27% discount from the closing price the day of the public announcement. While substantial, it needs to be put in context. On May 2nd the Dow Jones Industrial Index hit a recent high of 12,807.36, which began a steady six week market decline, its longest slump since 2002. This was certainly not a propitious moment for an equity offering. In fact from the date of filing to the date of pricing the market as measured by the DJI fell 5.8%. If in fact the window for equity offerings was open it must have been barely a crack with investors clamoring for a substantial discount given the falling market and only being receptive, in this instance, because of the good name attached to the deal.
Funding Opportunities
Last week, Goldenport Holdings Inc. announced a share issue by way of a “placing and open offer” to raise approximately STG 23.5 million or $35 million. The company intends to issue ~18.5 million shares at 127 pence per share, a discount of 1.55% from the prior day’s closing price. In order to demonstrate their commitment as well as to maintain their share position, Captain Paris Dragnis, the founder and CEO of Goldenport, along with certain directors have irrevocably undertaken to acquire approximately 7.5 million shares or approximately 40.7% of the offering. Seeing opportunities based upon the economic recovery and improving shipping fundamentals, the company intends to use the proceeds to fund future acquisitions. Assuming a conservative 50% leverage, the company will have at least $70 million of capacity to go shopping. Jefferies and Panmure Gordon are the joint bookrunners and underwriters with HSBC acting as Sponsor and Financial Adviser. The deal is expected to close on July 20th.
Cool, Steady Heads Prevail – Genmar Restructures Liabilities
Banking on its relationship with its long-time investor, Oaktree Capital, General Maritime Corporation successfully raised $200 million in new capital, which formed the cornerstone of a restructuring of its balance sheet designed to improve liquidity largely through the reduction of its near-term debt obligations. The important side effect of the transaction was a reduction of the cash flow breakeven rate to a level commensurate with today’s weak tanker market.
Peter G was here before in the late 1990s, another weak market, but this time it was much tougher due to the large commitments resulting from the acquisition of the Metrostar fleet. As one can see from the result, this was without a doubt one difficult negotiation and we can only imagine, given Peter G’s penchant for cigars, long hours in a dark smoke-filled room. But, of course, we would have to imagine it since City ordinances prohibit smoking and Peter G gave up cigars quite a while ago. But why let facts get in the way of a good image.
Busy Week in the Capital Markets
Congratulations to a Whole Host of Principals and Professionals!
If there is one clear trend that is emerging in the evolution of shipping in the capital markets these days, it is the increasing role of experienced, serial issuers who control multiple companies in different market sectors. This week alone we have Ms. Frangou’s Navios on the road with a high yield bond, Mr. Fredriksen’s Golar on the road with an IPO and Mr. Georgiopoulos’ General Maritime recapitalizing its balance sheet with offerings of both debt and equity. Danaos and DryShips rounded out the week’s activities.
Skillfully blending fresh equity and debt with a generous term out of its current debt facilities, the team at General Maritime announced two transactions this week that successfully achieved the desired result; raising ample liquidity to ensure the company’s financial health with minimal dilution to its existing common shareholders. A transaction of this sensitivity, scale and complexity requires the skill and cooperation of a broad team of people.
The same can be said for any one of this week’s deals, so we would like to extend our congratulations to the key players: Nordea, DnB, Jefferies, Dahlman Rose, Citi, BoA Merrill Lynch, Morgan Stanley, Deutsche, Evercore, S. Goldman, Credit Suisse and, of course, long time General Maritime supporter Oak Tree, who all worked hard to make this one week a week to remember.
Marine Money upcoming conferences, please visit www.marinemoney.com for more details:
Houston, May 4
Istanbul, May 11
Oslo, May 26
Marine Money Week, New York City, June 21-23
Ultrapetrol’s Stealth Convertible
Just before the Christmas break, Ultrapetrol (Bahamas) Limited announced the offering of $60 million of its 5-year convertible senior notes, with a green shoe of $10 million. The private placement priced the next day at a coupon of 7.25% and, due to investor interest, was upsized to $70 million. With the over-allotment option exercised, total gross proceeds equaled $80 million. The initial conversion rate will be 133.1691 shares of common stock per $1,000 principal amount of notes, which is equivalent to a conversion price of $7.51 per share, representing a 22.5% conversion premium over the closing pricing just prior to the announcement. Proceeds will be used to expand its PSV operations in Brazil, support the development of its river container trade, accelerate the construction of additional river barges in its Argentine shipyard and for general corporate purposes. For more details, see the Guts of the Deal below.
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