By Hamish Norton and Harold Malone, Jefferies & Company, Inc.
Financial conditions in the shipping industry have deteriorated significantly and are expected to result in broad-based financial restructuring activity. While each situation is unique, many companies are showing early warning signs that they may be entering the restructuring waters (see the table below for a list of some of these signs). Understanding the process and players is an important part of being a proactive restructuring participant. This article discusses the current market environment, provides an introduction to the restructuring process and addresses some possible outcomes.
It is a common misconception that the term “restructuring” is equivalent to bankruptcy. In truth, many restructurings are out-of-court, consensual processes that allow companies to stabilize their business, develop a strategic plan to restore profitability and right size their capital structure. An experienced restructuring advisor with in-depth industry understanding and the ability to access the capital markets can be critical to developing and implementing a solution that maximizes value for all stakeholders. Moreover, early action is key – engaging an advisor before the start of strategic discussions allows companies to evaluate a variety of alternatives that may not be available later in the process.
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carisk | Categories:
Marine Money | January 1st, 2009 |
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On Monday, after accumulating 5.5% of the outstanding shares of International Shipholding Corporation (“ISH”), Projection LLC, a wholly owned subsidiary of Liberty Shipping Group LLC (“Liberty”) submitted its formal proposal to acquire all the shares of ISH at a purchase price of $25.75 per share, payable in cash, which represents a total enterprise value of $308 million. The price represents a 27% premium over the company’s closing stock price on August 29th of $20.25 per share. After the announcement the stock traded up to $24.31and closed at $23.73 up 17.19%. The offer was based solely upon public information and Liberty indicated a willingness to adjust the price based upon non-public information. The proposal is subject to due diligence.
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carisk | Categories:
Freshly Minted,
The Week in Review | September 4th, 2008 |
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After making 14 regular quarterly distributions, totaling $6.14, to its limited partners through the 1st quarter of this year, U.S. Shipping Partners L.P. (“USLP”) announced on Wednesday that it in light of its review of strategic alternatives and its negotiations with its lenders to amend certain financial covenants under its senior credit facility that it will not pay a distribution on its units for the quarter ended June 30, 2008. Payments to the GP and subordinated units have been suspended since the 4th quarter of 2007.
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While the shipping industry enjoys a remarkable period of prosperity, in a tiny corner of the world chaos appears to reign for the moment.
The small chaotic corner we refer to is the U.S. Flag community, where teams of lawyers are as important as a strong balance sheet, and the right shipyard, political and labor relationships are as fundamental to a CEO’s skill set as shipping market expertise.
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TAL International Group, Inc. late Thursday evening became the latest shipping equity deal to hit the market, sort of. In a new twist, the company’s business is actually containers – the boxes themselves, not the ships, and according to the prospectus TAL holds a market share equivalent to about 11% of the world’s leased container fleet and is also active in container sales. The proposed maximum aggregate offering price is $201.25 million, and joint book-running managers on the deal are Credit Suisse First Boston, Deutsche Bank Securities and Jefferies & Company, while UBS Investment Bank is to serve as lead-manager. The company said it plans to use the net proceeds to pay the entire outstanding principal and interest due on its existing credit agreement and for working capital and general corporate purposes.
Following suit with Eagle and Aries, TBS International has cut the estimated price of its initial public offering to $11-$12 per share, down from $15-$17 per share, and maintained the volume at 8.5 million shares, 7 million of which are primary shares and 1.5 million of which are secondary shares. At the midpoint of the new price range, the IPO would raise $98 million. Joint bookrunners on the deal are Merrill Lynch and Jefferies & Company.
Although at first glance this might look like a bloodletting, we think the deal is still attractive to both the issuer and the investors. Here’s why: for the issuer, using a blend of the company 2004 and 1Q2005 EBITDA of $51 million on an annualized basis, a price of $11 per share values TBS at an attractive 5.2 times top-of-the-market EBITDA. For investors, from a cashflow valuation standpoint TBS’s planned vessel acquisitions amount to a purchase of more EBITDA that would nearly half the relevant valuation multiple. In the resulting neighborhood of 2-3x EBITDA, TBS post-acquisitions is set to represent a very good value vis-à-vis its shipping comparables, particularly considering the added value of the company’s established franchise, an item that many of the pure dry bulk plays making their foray into the U.S. equity markets do not offer.
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carisk | Categories:
Equity,
Freshly Minted | June 23rd, 2005 |
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Last week it was dry bulk. This week, all the fuss seems to be revolving around the tanker market. A Wall Street Journal “Money & Investing” section cover story on the popularity of shorting tanker stocks drew some attention. As did a bearish report from R.S. Platou, a much-talked-about, products-focused IPO from Aries Maritime, positive reports form Jefferies and Banc of America and tanker stock coverage initiations from First Albany. So what, exactly, are the arguments going around, and of what should tanker market players and their financiers be aware? It’s still impossible to predict the future, but we can tell you what some of the competing arguments are.
R.S. Platou analyst Erik Andersen drew a lot of attention with his bearish report on shipping, particularly tankers. According to Mr. Andersen, the seasonality justification for low spot rates – which brokers say have dropped into the upper teens for VLCCs on some routes – is badly overblown. He notes that from 1997-2004, the average second quarter rate was about 37.5% lower than the average fourth quarter rate, completely out of order with the drop in rates from $147,000 in the fourth quarter of 2004 to $41,000 so far in the second quarter of 2005. However, this is still above the 8-year average second quarter rate of $35,000 – albeit with higher bunker prices – suggesting that perhaps the $147,000 was more of an anomaly than the $41,000 is a sign of a crash. Still, tanker fleet annualized growth figures of 6-7% compared to a comparable rate of 1% annually over the decade from 1993-2003 are somewhat ominous. Citigroup Smith Barney analyst Charles de Trenck noted how the current weak rates are making the tanker market the first among the shipping sectors to experience the pricing pressures derived from growing capacity. But on the bright side, Mr. Andersen did write that he does not believe tanker markets will weaken so much as to create a weak year for owners.
Analysts Magnus Fyhr and Douglas Mavrinac at Jefferies & Company have a much different take on the current market situation. They said in a report issued to reiterate their buy rating on Ship Finance International that they expect tanker demand to be firm on increasing OPEC production. Importantly, the analysts believe that incremental fleet growth of 21 MMdwt scheduled through the end of the year is likely to be absorbed by increased tanker demand.
Evincing similarly positive sentiments, analysts Daniel Barcelo, Philippe Lanier and Pierre Sargeant of Banc of America Securities issued a report on oil tankers optimistically titled “Hold On for the Summer Heat.” They note that a 5% tanker stock pullback over the past two weeks has been related more to Arabian Gulf VLCC market conditions than to the tanker industry as a whole, much of which has remained fairly strong. Additionally, they point out that the 450 vessel global VLCC fleet has grown by only two vessels so far in 2005, implying that softened rates could not be explained by supply buildup, but rather are a product of a reduction in Arabian Gulf export volume and a temporary buildup of available tonnage in the gulf. Analyst Craig Irwin of First Albany appears to agree, having this week initiated coverage on General Maritime, OMI and Arlington Tankers with a Buy rating. And a group of Asian investors that market sources say recently put their money into a very expensive $140 million VLCC newbuilding have put their money where their mouth is when it comes to predicting a strong VLCC market for years to come.
Much of Wall Street, however, seems to have sided with R.S. Platou on the more bearish side of the debate, as a widely disseminated article titled “Shorts Expect Tankers to Take On More Water” strongly suggests. Teekay, OMI, Knightsbridge and General Maritime are all being subjected to this phenomenon, with Frontline leading the pack. Investors are brazenly betting that tanker stocks will keep falling. Whether or not this will happen is hard to tell, though the practice certainly is not encouraging for those hoping to see their tanker investments appreciate.
Genco Shipping & Trading Ltd filed for its Nasdaq IPO with the U.S. SEC on Monday. The company is looking to raise up to $350 million with the offering. It is 100% owned by Fleet Acquisition LLC, a limited liability company organized in September of 2004 that is 66.53% owned by Oaktree Capital Management, 26.63% owned by Peter Georgiopoulos and 6.84% owned by others. Jefferies & Company and Morgan Stanley are serving as the underwriters; notably Jefferies, certainly the smaller of the two firms, is listed first in the prospectus. As Genco is a U.S.-issuer whole filing indicates only the early stages of the company’s comment period with the SEC, we consider it safe to wait until a later date to take a more detailed look into the prospectus. But stay tuned!
Having released phenomenal 1Q05 earnings, announced a massive $225 million stock buyback, held a swinging bank meeting in Vegas and closed a dirt cheap credit facility, Teekay is now ready to hit the road to sell a 20% interest in Teekay LNG Partners LP next week. With this confluence of events, there is little doubt that TK will be a strong performing investment. In an amended filing submitted yesterday, TK filled in a critical blank – the price range – which is $20-$22. Looking at projected EBITDA of about $100 million in 2005, the new deal will be priced at about 12x cash flow assuming middle-range pricing. There are about six shipping deals set to IPO in the coming weeks and having a blue chip deal like this kick off, even though it is an MLP and the others aren’t, will set a good tone. Here’s the line-up for the Teekay LNG deal: Citigroup; UBS Investment Bank; A.G. Edwards; Raymond James; Jefferies & Company, Inc.; Wachovia Securities and Deutsche Bank Securities.
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carisk | Categories:
Equity,
Freshly Minted | April 24th, 2005 |
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Last week we were delighted to see that TBS International Limited filed an S-1 with the U.S. SEC for an initial public offering on the NYSE under the ticker symbol TSI. The company seeks to raise up to $125 million through underwriters Merrill Lynch & Co. (who recently financed some of their ships and brought ex-Goldman Banker Mark Friedman on board in February to build a shipping practice) and Jefferies & Company. For those of you who aren’t familiar with the company, TBS is based in Yonkers, New York and provides liner, parcel, bulk and vessel chartering services on a select group of international routes, particularly between Latin America and China and Japan and South Korea. The company currently operates a fleet of 30 vessels, 13 of which are owned, nine of which are under charters with purchase options, and eight of which are under charters without such options.
TBS International’s strategy is and has been to stay away from the vagaries of the tramp market and instead target niche markets, where the necessity of local knowledge and strong customer relationships creates high barriers to entry. The company considers it important to tailor its scheduling to customers like Honeywell in hard-to-reach ports and with unusual carrying needs. Smaller vessels with flexible capabilities allow the vessels access to a variety of smaller ports that the more popular and economical larger vessels cannot reach. Proceeds from the offering are to allow the company to focus on increasing its market share in key routes while developing new trade routes through selected fleet expansion. As far as make-up, TBS intends to maintain its combination dry bulk and multipurpose tweendeckers focus. If suitable vessels are not available to purchase, then proceeds in the meantime will be used to repay debt and for working capital. Memoranda of agreement have, however, been completed for the purchase of three additional dry bulk vessels, as can be seen in the fleet list.
In the “Risk Factors” section, TBS International cites the extent to which its fate is linked with both the Chinese and global economies. The company notes that it has a history of losses – namely five loss-making years since 1997 – and that it filed for bankruptcy in 2000. A large part of this misfortune can be attributed, the company attests, to the sharp decline in the South American and Asian economies from which TBS derives much of its business. Unlike U.S.-flag Horizon Lines, TBS is fully subject to the volatility associated with international shipping; the hope, of course, is that this will also allow investors greater access to upside potential.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 17th, 2005 |
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