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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Back in the Saddle

After what we perceived to be a long absence, we were pleased to see the return of Justin Yagerman at his new desk in Deutsche Bank. Mr. Yagerman leads the transportation and shipping team that includes Robert Salmon and Michael Webber. Coverage includes trucking, airfreight, logistics, railroads and, of course shipping.

On Wednesday, Mr. Yagerman initiated coverage of the sector. His main takeaway on shipping was: “near-term fundamentals challenging across the board, but high quality names should continue to outperform.”

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Rashomon – As We See It

It began with the movie “Rashomon” and evolved into a concept. “The Rashomon effect is the effect of the subjectivity of perception on recollection, by which observers of an event are able to produce substantially different but equally plausible accounts of it.” Or as the movie asks, who is telling the truth and what is the truth?

Our version of the script calls for a look at Seaspan’s first quarter earnings announcement to elicit the main takeaways. We then turned to our favorite shipping analysts, including Natasha Boyden of Cantor Fitzgerald, Gregory Lewis of Credit Suisse, Omar Nokta of Dahlman Rose, Douglas Mavrinac of Jefferies, Urs Dür of Lazard and Justin Yagerman of Wachovia, for their views and calls. This becomes a very interesting exercise because, as the analyts tell us, there is no company that is easier to model given their strategy to lock-in costs and fix revenues for the long-term.

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Pure Greek

Sticking to its roots, Euroseas Ltd., on Monday, announced the continuation of its fleet renewal and expansion program. The company acquired the 1997 built Panamax bulkcarrier, M/V Glorious Wind, on a charter-free basis, for $18.4 million. In addition, Euroseas disclosed the simultaneous sale of the M/V Nikolaos P, a 34,780 DWT bulkcarrier built in 1984 for $2.4 million. The new Panamax will be employed in the spot market and according to Justin Yagerman of Wachovia Capital will be likely be funded from internally generated cash flow including, the sales proceeds. He further suggests that the company will obtain 50% financing at a later date.
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Seaspan Supporters Step Up

The most recent illustration of this phenomenon has come from Seaspan (NYSE:SSW)’s backers. Co-founder Dennis Washington issued a statement saying: “I believe strongly in the financial model of Seaspan Corporation. The Company has a very modern fleet, prestigious customers and a strong management team. The Company is well-positioned to take advantage of opportunities that may arise in the future.” Then he put his money where his mouth is with the announcement of a $200 million issue of preferred equity.

The company last week announced an agreement to issue and sell Series A Preferred Stock to Dennis, Kevin and Kyle Washington and Graham Porter through respective affiliates. Dennis Washington will be investing $140 million and the others an aggregate of $60 million. Continue Reading