Ocean Rig’s Debt Feast – Banks and Bond Market Provide Support

It’s been a very busy and productive month for Ocean Rig UDW Inc. as it has finally fully funded its current capex program. First, the company arranged a new $800 million syndicated secured term loan facility to partially finance the construction costs of the Ocean Rig Corcovado and Ocean Rig Olympia. The facility has a five year term based upon a 12 year amortization and bears interest at LIBOR plus a margin. The facility is led by Nordea and ABN AMRO and includes in the syndicate GIEK, DVB Bank, Deutsche Bank and National Bank of Greece. A portion of the proceeds of the loan will be used to repay the $325 million bridge loan used to partially finance the Corcovado.

In addition, the company restructured its $1.1 billion secured credit facility led by Deutsche Bank which is secured by the Ocean Rig Poseidon and Ocean Rig Mykonos. The parties have agreed to reduce the maximum availability from $562 million to $495 million for each rig. Ocean Rig has also agreed to provide an unlimited recourse guarantee and will be subject to certain financial covenants. This guarantee is in addition to the existing Dryships’ guarantee. With a contract now in place, full drawdowns will be permitted for the Poseidon. For the Mykonos, the company has up to one month prior to delivery to execute an acceptable drilling contract in order to draw down on its facility.

After putting these deals to bed, the company then announced its intention to offer, through a private placement, $500 million of senior unsecured bonds in the Norwegian market. While on the roadshow, the company met some resistance from investors and had to sweeten the terms. The coupon range went from 8.25%-8.75% to 9.00%-9.50% with the call options also increasing. Year 3’s call went from 103.5% to 104.5%, while year 4’s call increased 50 bps to 102.5. The company has also undertaken to have the bonds rated by both Moodys and Standard & Poors and to list the bonds publicly on a reputable exchange.

Yesterday, DryShips announced that it had priced the $500 million of the senior secured bonds due in 2016 at 9.5%, the top end of the adjusted range. The bonds were priced at par with the proceeds to be used to fund the group’s newbuilding program and for general corporate purposes. With substantial bank debt ahead of it, these unsecured bonds had to be priced right as well as carefully structured to protect the bondholders. In addition to tight financial covenants, the company has various undertakings including a negative pledge and covenants that restrict funds flow within the group as well as dividends. More detail is provided in the Guts of the Deal attached.

Ocean Rig is a pure play ultra-deepwater driller, with a superior asset base, including two harsh environment semisubmersible drilling rigs and, by the end of the year, four premium drillships with options for four more.

In its credit analysis of the company, Nordea highlights as credit positives:

• Modern and competitive fleet of ultra-deepwater units
• Experienced deepwater driller and harsh environment operator, which has operated in 12 countries over the past nine years.
• Strong market outlook
• Modest credit profile

Credit challenges include:

• Exposure to a highly cyclical industry
• High newbuilding activity
• Limited cash flow visibility
• Significant committed capital expenditures as well as the possibility of the exercise of the options
• Risk of increased leverage.

On a preliminary basis, the company was given shadow rating of “B+” with the bonds one notch lower at “B.”

The global coordinator and lead manager was Pareto Securities and the joint lead managers were Fearnley Fonds and Nordea Markets .

A Noble Breed

Last week, our sister publication Freshly Minted reported on Maersk’s successful EUR 750 million (USD 1.3 billion) five-year bond. This was the shipping conglomerate’s first bond issuance, following a recent equity offering of USD 1.7 billion. In Asia, commodity trading house Noble Group has likewise found tremendous success in raising funds, suggesting that investors and bankers are getting warmed up to investing cash again. Continue Reading

In the Long Haul, It Is Not Just About Waivers

At times a more strategic proactive approach is required. Thus, Hellenic Carriers positioned itself to get through the next two years by renegotiating its loan agreement with its lenders.

“In February 2009, Hellenic and its subsidiaries restructured the repayment instalments due in 2009 and 2010 under the existing loan facilities with National Bank of Greece and Piraeus Bank in order to preserve liquidity. As a result, the anticipated breakeven levels during those years (defined as operating expenses plus general & administrative expenses plus management fees plus anticipated dry-docking expenses plus principal and interest repayments divided by the number of available days) have been reduced, enabling the Company and its subsidiaries to weather adverse developments in the dry bulk market and take advantage of possible acquisition opportunities.”

Defensive Acquisition with Upside

On Tuesday, just a week after Quintana‘s press release announcing the termination of the sale process, Excel and Quintana jointly announced that Excel had, over the weekend, agreed to acquire Quintana pursuant to a definitive merger agreement whereby Quintana would become a wholly owned subsidiary of Excel. The purchase price will be approximately $2.2 billion (based upon Excel’s closing price of $33.00), including net debt of Quintana and other costs.

Under the terms of the agreement, Quintana shareholders will receive a combination of cash and stock. Each Quintana share will receive $13.00 in cash and 0.4084 shares of Class A common stock in Excel. Based upon Monday’s closing price, the offer represents a total value of $26.48 per share, representing a 57% premium to Quintana’s closing price on that day of $16.89 and a 34% premium to Quintana’s 30-day average price. The agreement provides for a cap of $31.38 based upon an Excel share price of $45.00 as well as price adjustments for dividend payments. Continue Reading