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Why Do One Deal When You Can Do Two – Teekay Teams with Marubeni to Purchase Maersk LNG
Following closely on the heels of last week’s announced transaction with Sevan, a joint venture of Teekay LNG Partners LP and Marubeni Corporation, announced the acquisition of Maersk LNG Carriers. Also thin on detail, the parties disclosed that the joint venture would acquire the ownership interests in eight LNG carriers from A.P. Moller-Maersk A/S for an aggregate purchase price of approximately $1.402 billion, which will be paid in cash with no assumption of debt. The average age of the fleet is 3.25 years making it the second youngest in the industry and the youngest among all independent owners. As far as responsibilities, Teekay LNG will provide the technical management upon turnover.
Of the eight vessels acquired, the joint venture will acquire 100% interests in six vessels and 26% interests in the remaining two (Maersk Qatar and the Maersk Ras Laffan), which are owned by limited partnerships. The limited partners will have the right to put their interests to the buyer. Of the eight vessels, five are currently operating under long-term fixed rate time charters with an average remaining term of 17 years, exclusive of extension options. The remaining three vessels are employed under short-term fixed rate time charters, however one of these includes an option which if exercised would put it in the long-term category. Based upon the current employment, the transaction will be accretive to Teekay LNG’s distributable cash flow. Although dated, the below chart describes the vessels and identifies those likely to be on long-term charter. Although not identified on the chart, known customers include Total, Yemen LNG, Woodside Petroleum, RasGas, Qatar Gas Transportation Company, Repsol YPF and the BG Group.
Separating the Wheat from the Chaff
Having worked in the sector, we are clearly prejudiced. However, it is obvious to us that investor interest in the container leasing sector has grown. Within the last year (i) one company has gone public (SeaCube); (ii) two companies have been sold to private equity funds (Cronos, Triton); and (iii) the stock prices of the two established public companies (TAL, Textainer) rose almost 50% before retreating in the recent market downturn. The interest of the private equity funds is not surprising. Unlike strategic buyers whose sole interest is in the assets, private equity offers going concern valuations taking into account the essential infrastructure which forms the backbone of the business, but which is extraneous to the strategic buyer. Adding further credence to the sector is the fact that two shipping analysts, Greg Lewis of Credit Suisse and Justin Yagerman of Deutsche Bank, follow the public companies engaged in the sector.
Better than Equity? – SeaCube Raises $50 Million from Unexpected Source
Last week, SeaCube Container Leasing Ltd. announced the successful closing of a $50 million unsecured term loan with Wells Fargo, as administrative agent, and Apollo Investment Corporation, as sole lead arranger. The loan matures on April 28, 2016 and bears interest at 11%. Proceeds will be used to purchase containers and for other general corporate purposes. The loan will be guaranteed by all of its subsidiaries, including Container Leasing International LLC, the main operating company.
EZ Pass – Navios Maritime Partners Returns for More
On Thursday, after the market closed, Navios Maritime Partners L.P. announced and the next morning it priced it latest follow-on offering. If only everyone found it so easy. It is not simply just the fact of being public. Performance, story and reputation are also crucial and make the process smooth and simple or so it appears. The partnership has already raised $134.6 million thus far this year and with the latest offering will bring the year to date total to $231.7 million.
In this instance, Navios Maritime Partners intends to issue 5.5 million common units at a price of $17.65 per unit, a 5.1% discount from the prior close. In addition, it will offer a green shoe of 0.825 million shares. Exclusive of the green shoe, gross proceeds will be approximately $97.1 million. Upon the closing of the offering, Navios Maritime Holding will own approximately 28% interest in the partnership, after giving effect to the 2% general partnership contribution.
First Bank of Teekay
As Justin Yagerman aptly put in his piece about this deal “Teekay Tankers or Teekay Bankers?”, providing further evidence that the reduced availability of shipping debt is affecting the cost of capital, the structure through which it is lent and, as result, who provides it, Teekay Tankers (TNK) announced this week that, in a deal structured by Deutsche Bank , it has drawn down $115m of its revolving credit facility and used the funds to provide what is effectively a first preferred ship mortgage bond secured by 2x 2010-built VLCCs owned by a Far Eastern shipowner.
So what does this deal mean? Maybe it means that TNK’s Peter Evensen, a former commercial banker at JPMorganChase and predecessors, missed the documentation of a ship mortgage loan. More likely, what it means is that those with the combination of liquidity and flexibility the understanding that there are a lot of different ways to make money in shipping (think Denis Washington providing preferred stock to Seaspan and Seacor forming Sea Tiger) are finding that they can achieve ROCE’s that compare favorably with the historical financial performance of shipping assets, without taking market risk that is outside their commercial comfort zone.
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Dream Team in the Making
After 20+ years at Citi, Simon Booth has decamped and moves to Deutsche Bank effective September 1st, where he will serve as a Managing Director and Co-head of Deutsche Shipping, Deutsche Bank’s lending arm to the shipping sector. Simon will be based in London and head up Deutsche Shipping alongside Ralf Bedranowsky, who is based in Hamburg where Deutsche Shipping is based.
This move further strengthens Deutsche Bank’s overall shipping sector coverage platform, which includes Craig Fuehrer in New York as the Head of Deutsche Bank’s Investment Banking platform offering capital markets and advisory product experience as well as Justin Yagerman’s equity research platform with approximately 15 shipping companies currently under coverage. For borrowers, Deutsche Shipping’s global presence makes it a one-stop place to shop for financing solutions in both the loan and capital markets. Through it careful focus on long-standing client relationships, consistent risk management and continuously diversified shipping portfolio, Deutsche has not only survived the credit crisis but continues to thrive in these illiquid markets.
Bite the Bullet?
Showing the resilience of its model, Seaspan Corporation last week reported its 4th quarter and year-end results, which were generally in line with consensus and given the unprecedented conditions in container shipping, the credit markets and the economy quite good in our estimation. But our focus is on capital and, as of year-end, the estimated remaining installments of the 26 remaining contracted vessels that have not been delivered amounts to approximately $1.7 billion. While the company has successfully reduced its equity capital needs through deferral of vessel deliveries, it was temporary and now it must now face the issue of raising approximately $180 to $240 million in equity or other forms of capital to finance the remaining portion of the purchase price of vessels on order. In terms of timing, it is likely that the need will commence in Q1 2011and extend through Q2 2012 as deferrals remain a possibility. However, the good news is that Seaspan has secured long-term credit facilities to fund the vessels and has no facilities maturing until 2015.
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Another Slick Deal
On Wednesday, DryShips announced the latest iteration of its fleet renewal program and it was done with the usual Mr. Economou élan. Two middle age (circa 1995) Panamax bulkers, the Iguana and Delray were sold generating proceeds of $43.5 million and a total book gain of $9.2 million. Although the related debt was repaid, the banks have agreed to keep it available for the replacement vessels.
To replace these vessels, the company has ordered two newbuilding 76,000 DWT Panamax dry bulk vessels at a Chinese shipyard for a price of $32.25 million each, versus the Clarkson estimated price of $33.8 million, reflecting the discount offered by Chinese yards. Delivery is expected to take place in 4Q 2011 and 1Q 2012. Given Mr. Economou’s recent propensity to fix long-term, the impact on EBITDA in the interim is minimal, according to Justin Yagerman of Deutsche Bank and Natasha Boyden of Cantor Fitzgerald. In fact, Ms Boyden noted that one of the vessels was on a below market time charter of $13,456/ day.
Cash in hand, debt funding available and the ships on the way. Next!
Why is Navios Moving from Norwalk to New York City?
The simple answer is that they were spending too much time in New York raising capital and the commutation costs were becoming excessive. In the latest iteration, Navios Maritime Partners announced on Tuesday a follow-on offering of 3.5 million common units. This is its first offering of this year and follows three such offerings done last year that raised approximately $135 million.
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Structuring Upside while Minimizing the Downside
Last week, Diana Shipping announced its intention to co-invest in a new company expected to invest in containerships over the next 12 to 18 months. Diana intends to invest $50 million for a minority stake, with the balance, as yet undisclosed, being raised in a private offering to institutional and accredited investors. Diana would further benefit from providing administrative and vessel management.
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