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No Hype. We Delivered!
Our Chairman’s promotions are sheer artistry and we constantly marvel at these masterful gems. Of course, there are issues with punctuation but why let that get in the way of a great pitch. The amazing thing is that despite his protests otherwise, he really does get it. Our problem is that he is rubbing off on us and we are moving from analytical and objective to the dark side where it’s all about the love as both Matt and he are fond of saying. In the case of this year’s Marine Money week, there is no doubt we got it right. The numbers speak for themselves. This year we went out on a limb denoting the theme as the Comeback or Confidence Returns to Ship Finance. Whether or not that was the case and we believe it is, 1,078 registered guest wanted to hear the answer. This was a new record surpassing 2008’s 1042 guests. Uncertainty + optimism trump a boom.
We relish the awards afternoon. We devote a great deal of energy, although far less than the dealmakers themselves, in choosing the transactions from the many submissions we receive and it is a pleasure to see the winners bask in the recognition they rightfully deserve. It is also educational as the latest structures and ideas are on display for all to see and take advantage of as appropriate. Nigel Thomas and Dan Rodgers of Watson, Farlay & Williams did a masterful job moderating the session which included presentations by Sheldon Goldman, Efthymios Bouloutas of Marfin, Ronny Bjornadal of Nordea, Sean Durkin of NSF, Gerrit Parker of Citi and Craig Fuehrer of Deutsche Bank.
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A Wisp of Spring
While sitting home in the midst of a blizzard and with the knowledge that the omniscient Punxatawny Phil announced on Ground Hog Day that we still have 6 more weeks of winter, we know, nonetheless, that spring will inevitably come. Yesterday we attended the morning session of the Hellenic/Norwegian-American Chambers of Commerce 16th Annual Joint Shipping Conference and we felt similarly that the winter of ship finance may also break. While the tone wasn’t exactly upbeat, there certainly were no dirges being sung and it, in fact, appears by their comments that the bankers may be ready and able to return from their year plus long sabbatical. But as Nikolai Nachamkin of DnB and the conference co-chairman would remind me, I am getting off topic.
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Taking the Show to Broadway
Navios’ stars Ted Petrone and Mike McClure did have Monday off but spent the rest of the week presenting their company at the Pareto, FBR, Bank of America Merrill Lynch and Capital Link conferences. We can now appreciate why you need a management team with a hundred years of experience. Someone has to be minding the store.
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Shipping High Yield – It’s Back and Just in Time
By Ethan Ram, DVB Capital Markets LLC
In light of the recent offerings by Hornbeck and Seacor, Ethan Ram’s latest capital markets offering could not be more timely, as the industry searches for alternatives to bank debt.
The tight supply of ship mortgage debt has highlighted the shipping industry’s need for alternative sources of capital, and the role the capital markets can play in ship finance. In recent months, many shipping companies, public and private, have resorted to raising equity to fund themselves, in some cases diluting shareholders in order to bring themselves into compliance with their bank facilities. For those companies that are eligible, however, an alternative to issuing dilutive equity is to tap the high yield bond market, where recent developments have made conditions highly favorable for issuers.
The high yield market got off to slow start in 2009 in a continuation of the preceding four quarters of 2008 which saw the volume of new issuance shrink to the lowest level in nearly ten years and yields for the average high yield bond expand to over 20%. In April, however, there was a surge of new issuance and since then the high yield market has not looked back. Driven by a sustained period of net capital flows into bond funds totaling $15.9 billion (31 of the past 36 weeks have registered net inflows), positive market sentiment on the back of rising equity markets (the DOW and the S&P 500 have risen 48% and 56%, respectively, since their March lows), the past five months have seen a renewed investor appetite for high yield bonds. Today yields have compressed to below 9% for the average high yield bond and, despite the slow start, 2009 is on track to be a solid year in terms of amount raised and number of transactions.
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Award Affirmed
As we prepared to make the formal presentation of Dealmaker of the Year to Angeliki Frangou and her Navios team at Marine Money Week, we learned that she concluded yet another innovative deal and one that is certainly representative of the times in which we find ourselves. In a sense, she married an opportunity to the solution of the larger financial issue facing our industry.
Last Monday, Navios announced the acquisition of four newbuilding Capesize vessels currently under construction at a South Korean shipyard. Three of the vessels were purchased from companies controlled by Commerzbank AG. The seller of the 4th was not disclosed.
Investing and Investment Banking
The market is depressed. The people are not.
The debt markets exist. But you are looking at a lot less for a short term costing a lot more. A lot of the banks will be properly back into the game by 2010. It will help to have companies based in ship finance exporting countries.
The capital markets exist. The bond market is open at very reasonable rates. The equity markets are open for existing issuers but valuations are poor.
We may have a rebound this year thanks to stimulus plans and fiscal loosening, but the underlying damage is done. Banks will eventually HAVE to account for their losses. The write-downs have to come from somewhere and government debt is hardly the answer. Unless they wait years with the balance sheets impaired.
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Ka-ching for your 401K
Although the financial press is full of articles touting corporate bonds as a great investment, we failed to pay attention. After all, it is hard to unlearn the lessons of the world’s greatest investors who promoted only of the stock market based upon fears of inflation. Well, we know where that got us.
Although recently the market has shown signs of life, a look at the Jefferies High Yield Issues, which regularly appear in this publication, highlights the opportunities for returns that might rival those in the stock market in at least the near term, if not longer. Moreover, the bonds are more secure holding a higher place in the capital structure, and some are even secured by assets.
Bigger, Better… Forever
We don’t know how they do it, but this year’s CMA’s shipping and trade conference and exposition, “Shipping 2009”, was not only the biggest ever but showed the resilience of the industry. The ladies of CMA, who run the conference like a well-oiled machine, tell us attendance exceeded 2,200. If sports arenas are named after corporations, it seems only fair that the Hilton be renamed the CMA during this annual event.
The success of this event is attributable to the fact that it reaches out to the whole industry and covers all of the issues it faces. This year the shipping markets and piracy got equal billing. While, naturally, our main focus is on the shipping markets, Professor Christopher Coker’s presentation on piracy highlighted its significance, permanence and far-reaching risks, if it becomes linked with terrorism. For us, the rude awakening was his statement that unlike the 19th century when piracy was eradicated, today the best we can hope for is to “manage risks.” And, if we are unsuccessful even in that, we will have far more serious issues. The speech is a must read for its realistic but unfortunately bleak perspective of our future.
From the extensive three day program our chairman puts together with the assistance of the CMA, we have selected the following as perhaps being of the greatest interest to our readers.
TMI?
What a week for investors! Starting with CMA’s annual event, continuing with JPMorgan’s Conference and concluding with the Capital Link Forum, it is conceivable that even the most interested observer of the industry may have suffered from information overload. Thankfully, with Good Friday, many of us had the opportunity to recover with a long-weekend.
Despite the early start, the Capital Link Forum played to a full house. There were company presentations galore interspersed with lively and informative panel discussions. With far too much information to distill, here is a highly selected compendium of our outtakes.
CMA’s Irish Feis
CMA’s 2008 Shipping Conference got off to a brilliant start on St. Patrick’s Day. It was not only bigger, 2,000 attendees by latest count, but if possible was one of the best ever in terms of content. Understanding that everyone is Irish on St. Patrick’s Day, the organizers brought Ireland to the conference much to the chagrin of the local pubs, Tiernan’s and Tigin. Bob Kunkel of Seacoast Electronics was serving Guinness and Harps at the Seacoast booth and then brought in the pipes and drums from the Rockland County Emerald Society for entertainment.
It is grossly unfair to gloss over the program, which is dedicated to every part of shipping, but it would also be impossible to describe it all. So instead we will exhibit our prejudice and focus on the market sessions.
The Official Guide To Marine Finance Providers
Shipping Index
