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A Book Review
While it will never be a best seller, Navios Maritime Acquisition Corporation’s (“NMAC”) proxy statement makes a cogent argument for shareholder approval of the pending transaction for the acquisition of 11 newbuilding product tankers (four LR1s and seven MR2s) and two chemical tankers with an option to acquire two further LR1 product tankers. The acquisition cost is $457.7 million of which $334.3 million will be financed with debt. Included in the $344.3 million in debt facilities is a $52 million loan facility, which is in advance stages of negotiation, but, unlike the rest, not yet committed. The balance of the purchase price will be funded from the $250.8 million of proceeds of the initial public offering of 25.3 million units, including 3.3 million units issued upon the exercise of the over-allotment option. Invested in Treasuries, the cash position of the trust account stood at $251.5 as of year-end. The actual cash availability is uncertain however as unit holders can vote against the acquisition and exercise their conversion rights.
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It’s Not All About Equity
This week, Stena AB, a family owned company with diversified interests in international passenger and freight services, drilling rigs, Roll-on/Roll-off vessels, and crude oil and product tankers, issued privately EUR 200 million in 7.875% senior notes due in 2020. With its strong credit and regular presence in the bond market, Stena was able to access the capital markets as soon as a market window presented itself. The original deal was upsized from EUR 150 million to EUR 200 million due to strong appetite. The bond was priced to yield 8.125%, a 10 bps premium to the pre-announcement level of the existing 2019 bonds and was placed with a mixture of traditional high yield investors, together with some crossover accounts. Further details on the transaction are shown in the Guts of the Deal.
The bookrunners on the transaction were Deutsche Bank, for the third consecutive issuance, and JPMorgan.
Not to Be Outdone
Navios Maritime Partners announced after the market closed Wednesday that it intended to issue 4 million common units with a green shoe of 600 thousand units. Proceeds would be used for fleet expansion and/or general partnership purposes. The deal was priced today at $14.90 per unit, a discount of 5.8% from the prior close.
Joint book running managers were Citi and JPMorgan with S. Goldman Advisors, DVB and Cantor Fitzgerald serving as co-managers.
Can’t See the Forest for the Trees
Late Friday, the news came out that General Maritime had successfully priced its 144a private placement of $300 million of senior unsecured notes due in 2017. Like the NCL deal that was competing with it, the Genmar bonds were priced in a soft and volatile stock market. Rated B3/B, the notes, with a 12% coupon, were priced at 97.512% to yield 12.5%, a spread of 922 bps over like term Treasuries.
Market noise suggested it was a hard sell, that buyers had issues with the dividend and covenants and, finally that it was expensive. But was it really? While it does look expensive when compared to the NCL and Navios’ offerings, one must not forget that this was done on an unsecured basis. And, although the premium for unsecured was perhaps higher than they anticipated, the company got what it wanted – quasi-equity. The bond provides the cushion that the banks were looking for. And while the $36 million in interest cost is expensive, the impact of that amount, if it had instead been income, appears less costly on an EPS basis based upon a new hypothetical share count (currently 57.9 million shares) which would have included an incremental +/- 33 million shares at $7, that would have had to been issued to meet the minimum requirement of its banks.
All Eyes Are On Genmar
We know that General Maritime’s dynamic duo, Messrs Georgiopoulos and Pribor are on the road marketing their $300 million senior unsecured notes offering due in 2017 and so, while they are busy selling we thought we would take a read of the high yield market.
Earlier this week, Navios Maritime Holdings closed its successful $400 million private offering of first priority ship mortgage notes due in 2017. Rated BB-/Ba3, the coupon on the notes was 8.875% and was priced to yield 9.125%. The company escrowed $105 million of the proceeds to provide additional financing to complete the purchase of two new vessels with the balance used to repay existing credit facilities.
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Whither the Banks?
While we, in shipping, focus daily on the macro picture, primarily the world economy and micro data, such as commodity prices, steel production, oil prices, charter rates, etc, in order to gauge what is happening, it may well be that the health of our industry is, for the moment, more directly correlated to the condition of the banking industry, particularly in light of the supply side issue. While the capital markets have filled a void in the availability of capital in the interim, the question remains as to whether the banks will be back and if so when?
In his excellent report, What We Have Learned from the Large Financial’s Results, Paul Miller of FBR Capital Markets provides insights into the earnings and the credit and financial condition of a select group of the largest U.S. banks including Bank of America, JPMorgan, Citigroup and Goldman Sachs based upon their most recent quarterly reports. We believe the results of these company’s are indicative of the general condition of the banking world. His key takeaways are as follows:
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On the Road Again
On Monday, Navios Maritime Holdings (“Navios”) announced that it and, its wholly-owned finance subsidiary, Navios Maritime Finance (US) Inc. intend to offer, through a 144A private placement, $375 million of first priority ship mortgage notes due in 2017, subject to market conditions.
This marks Navios’ second entry into the high yield market having issued previously 9 1/2% Senior Notes due in 2014 in December 2006. The new notes will in fact be guaranteed by all of the subsidiaries that guarantee the existing notes, so, in fact, the new notes will be secured by first mortgages on 15 drybulk vessels aggregating approximately 1.1 million DWT.
Net proceeds will be used to repay borrowings under Navios’ existing credit facilities as well as to provide financing to complete the acquisition of two new vessels expected to be delivered in late 2009 and early 2010. Both of these vessels will then become part of the collateral package.
Deal or No Deal?
Rumors in the market are rife about a new massive financing arranged for A.P. Moller Maersk (“APM”). According to Dealogic, the banks involved, as is customary, have reported to them that APM has entered into a $6.5 billion 7 year credit facility. In fact, as an industry source suggests, and Dealogic confirms, this is an old deal in the same amount that has been amended. And, as such, there is no new money involved.
In a precautionary move, given the uncertain credit markets, the amended transaction has been structured as a forward start facility. Upon expiry of the existing facility, the new one commences. In this instance, the start date is in 2012. The mandated lead arrangers on both include Citi, Danske Bank, HSBC, JPMorgan, Mitsubishi UFJ and Nordea.
De-leveraging
In its 1Q earnings release last week, Navios Maritime Partners (“Navios Partners”) announced that it had amended the terms of its existing $235 million credit facility with Commerzbank in January. The company prepaid $40 million during the first quarter resulting in an approximate $1.5 million in interest expense savings for 2009 and a commensurate reduction in leverage. Throughout 2009, the partnership will additionally have to fund into a pledged account a further $37.5 million. The interest rate on the remaining facility of $195 million now bears a spread of 2.25%, giving an estimated interest rate of 3.98% for 2009 including the margin (versus 4.17% the effective rate in 2008), and no further installments are due until the 1Q 2010.
JPMorgan Enters Shipping Fund Arena as the 500-Pound Gorilla
The formal announcement this week of the Andy Dacy led JPMorgan shipping fund provides a fine opportunity to survey the field. But it must be said at the outset that JPM’s entrance is important for its size, ambition, confirmation of the concept and for the industry whose mantra is Marine Money Week’s title: Liquidity, Liquidity, Liquidity.
It is also probably a challenging development for those funds not yet up and running, as JPMorgan is a powerful brand, US banking woes not withstanding.
It was interesting that Reuters in writing about the effort described JP Morgan Asset Management executive Joe Azelby, who made the formal announcement of the Fund, as a former US Football player rather than a Harvard grad. No doubt, success in investing does come down to blocking and tackling well, in other words, paying strict attention to detail.
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