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Funding on Call – Navios Acquisition Taps DVB
Earlier this month, Navios struck again. Utilizing its financial prowess, the Navios team again accessed the bank market for the funding of two newbuilding LR1 product tankers, under construction at Sungdong Shipbuilding, with delivery in Q4 2012 and Q1 2013. The new term facility for up to $51 million, to be drawn in two advances, was provided by DVB Bank to Navios Maritime Acquisition Corporation.
Navios Family Investor Day
Four companies represented in 83 slides were on view to a packed room of over 100 investors all interested in hearing the Navios’ story from the management team, which shared the duties. Not only has management got their presentation down to a science, they keep getting better. Clearly, it worked well with the entire presentation completed in just over an hour and with few questions asked at the end.
A comment by Ted Petrone summed up the day for us. “We can’t control the market, but we can control costs and manage risks.” Nor, unfortunately, can they control the share price, much to their dismay, but that should hopefully take care of itself based upon management’s efforts and a hoped for market turn.
Busy Week in the Capital Markets
Congratulations to a Whole Host of Principals and Professionals!
If there is one clear trend that is emerging in the evolution of shipping in the capital markets these days, it is the increasing role of experienced, serial issuers who control multiple companies in different market sectors. This week alone we have Ms. Frangou’s Navios on the road with a high yield bond, Mr. Fredriksen’s Golar on the road with an IPO and Mr. Georgiopoulos’ General Maritime recapitalizing its balance sheet with offerings of both debt and equity. Danaos and DryShips rounded out the week’s activities.
Skillfully blending fresh equity and debt with a generous term out of its current debt facilities, the team at General Maritime announced two transactions this week that successfully achieved the desired result; raising ample liquidity to ensure the company’s financial health with minimal dilution to its existing common shareholders. A transaction of this sensitivity, scale and complexity requires the skill and cooperation of a broad team of people.
The same can be said for any one of this week’s deals, so we would like to extend our congratulations to the key players: Nordea, DnB, Jefferies, Dahlman Rose, Citi, BoA Merrill Lynch, Morgan Stanley, Deutsche, Evercore, S. Goldman, Credit Suisse and, of course, long time General Maritime supporter Oak Tree, who all worked hard to make this one week a week to remember.
Marine Money upcoming conferences, please visit www.marinemoney.com for more details:
Houston, May 4
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Marine Money Week, New York City, June 21-23
A Rude Wake-up Call
Market hearsays turned into wide-spread panic as news of Korea Line’s bankruptcy filing hit the industry on Tuesday. The South Korea’s second largest bulk carrying line filed for a court receivership after its failure to renegotiate a number of loss-making charter arrangements concluded prior to the financial crisis. Alarm bells were also ringing as far away in the United States where several public listed companies have their ships chartered to the beleaguered company.
Among them, probably the most exposed was New York listed Eagle Bulk Shipping. The company has 13 out of its 48 ships on time charter to Korea Line, lasting between six to ten years. In a statement to the stock exchange, the company described its exposure to Korea Line as modest because the vast majority of the charters were fixed at close to current market rates. “To date, none of our charters with Korea Line have been restructured,” it added. In his latest report, DnB NOR’s analyst Glenn Lodden expects many of these time-charter contracts will be renegotiated and the most expensive might be breached. However, he believes that it is unlikely that Korea Line will be liquidated because the company remains “an important part of South Korean infrastructure (iron ore, coal, LNG imports).” Continue Reading
The Rich Get Richer – Liquidity Abounds for Some
The following transactions highlight the oft spoken phrase that the banks have money for their core clients, which tend naturally to be large transparent highly capitalized corporates. While we cannot quibble with the rush to safety in an effort to minimize risk, this trend is transforming the nature of the business, which was built on risk taking entrepreneurs, who not only knew ships, but understood and played the markets. By allocating capital accordingly the banks are changing the fundamental nature of the business from entrepreneurial to corporate. We are not sure if this is good or bad; time will tell.
Navios Acquisition Expands
The focus of Navios’ management attention these days appears to be on newcomer, Navios Maritime Acquisition Corporation. This likely reflects the depressed tanker market and hence the more meaningful opportunity when compared to the dry sector which chugs along profitably. But it is not so easy to find opportunities in the tanker sector as asset values remain high in comparison to earnings. The trick is to find a good asset at a reasonable price and utilize just the right amount of debt to be comfortable while achieving breakeven rates that work at today’s heavily discounted revenue levels. Or, if you are Navios, you might create an even more structured transaction, which actually shifts a portion of the risk to the seller.
For Ms. Frangou and her team this involved a return trip to a South Korea shipyard. There they found and agreed to acquire two 75,000 DWT LR1 product carrier newbuildings scheduled for delivery in Q4 2011. The purchase price of the vessels is $87 million en bloc, which will be financed with the issuance of $5.4 million of mandatorily convertible preferred stock, a new credit facility of $52.2 million (60% LTV) and $29.4 million from cash on hand. The effective acquisition price for the two vessels is $82.8 million or $41.4 million each after giving effect to the preferred stock.
The preferred stock pays a quarterly dividend 0f 2% per annum and will mandatorily convert into shares of common stock as follows: 30% of the outstanding amount will convert on June 30, 2015 and the remaining outstanding amounts will convert on June 30, 2020 at a price per share of common stock of not less than $25.00. The holder of the preferred stock shall have the right to convert the shares into common stock prior to the scheduled maturity dates at a price of $35.00 per share of common stock. The preferred stock does not have any voting rights. In terms of dilutive effect, the number of shares of common stock that may be issued upon conversion ranges from 154,286, if all preferred shares are converted at $35.00 per share of common stock, to 216,000, if all are converted at $25.00. Navios Acquisition’s shares closed yesterday at $5.80 per share.
In addition, the company entered into a loan agreement with EFG Eurobank Ergasias S.A. to borrow up to $52.2 million in two tranches in order to partially finance the acquisition cost of the new vessels. Each tranche of the facility is repayable in 32 equal quarterly installments of $0.35 million each with a final balloon payment of $15.1 million, which equates to an amortization profile of approximately 19 years. The loan bears interest at LIBOR + 2.50% prior to the delivery date, with the spread increasing to 2.75% thereafter. Among the normal and customary financial covenants is the requirement that Navios Maritime Holdings Inc., Angeliki Frangou and their respective affiliates, in the aggregate, control at least 20% of the then outstanding shares of common stock. With that group currently controlling approximately 62.4%, there is sufficient room for the company to sell down its position.
The More the Merrier – Ship Finance Adds Two Supramaxes
Ship Finance International announced this week that it had agreed to acquire two additional 57,000 DWT Supramax vessels, which are sisters to the three purchased in China earlier this year, for an en bloc price of approximately $61 million, which is in line with the earlier purchase. Delivery is expected to occur in the 2nd and 3rd quarters of 2011. The vessels will be time chartered to the same Asian-based logistics company for a term of 10 years at a daily net charter rate of approximately $16,000 per vessel, lower than the $17,000 done in the earlier transaction.
While detail on the financing is scarce, the company says it has received indications from the banks for 80% financing. Based upon the recently concluded financing for two of the earlier vessels, it appears likely that the company will be able to achieve eight year financing with limited recourse to the company.
These appear to be aggressive terms for limited recourse asset-based bilateral loan. The signature matters.
No Affiliate Left Behind – Navios Acquisition Prepares
While things are never quiet at Navios in general, the recent activity at Navios Maritime Acquisition may have exceeded Navios’ normal warp speed. The SPAC closed in June and then in July the company acquired Shinyo’s seven VLCCs. After taking them on, they had to be paid for. Warrants were converted and ship mortgage notes are in the process of being sold to repay the assumed bank debt.
As the curtain closes on the first act, the stage had to be set for the second. On Tuesday, the company filed a shelf registration to sell up to $500 million of common stock, preferred stock, warrants and/or debt securities.
Of the total shares outstanding of 41.9 million, only 15.8 million shares, or 37.6%, are owned by non-affiliates, suggesting that of all the alternatives equity issuance will likely be on the table front and center.
Navios Navy Adds Battleships
Irrepressible, the navy known as Navios last week acquired through its tanker subsidiary, Navios Maritime Acquisition (“Acquisition”), a fleet of seven VLCCs from Fred Cheng’s Shinyo International Group Limited. The aggregate purchase price was $587 million and the acquisition was done as a securities purchase agreement primarily to allow for the assumption of debt. The transaction will be financed with bank debt of $453 million, representing approximately 78% of the purchase price, with cash of $123 million (21%) and through the issuance of $11 million of Acquisition’s shares to the seller. In effect, third parties are funding approximately 80% of the purchase price, a remarkable achievement these days.
The seven vessels to be acquired include six on the water and one newbuilding to be delivered in a year’s time. The fleet has an average age of 8.6 years and a remaining charter term of 8.8 years with an average charter rate of $40,440 net per day. Most importantly, the newbuilding and the recently delivered vessel, the most expensive, are chartered for 15 years. There is also upside with five of the seven charters including profit sharing.
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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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