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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.
A Friendly Banker – Navios Amends Note
Earlier this week Navios Maritime Acquisition Corporation and its parent, Navios Maritime Holdings Inc. (“Navios”) entered into a letter agreement amending the $40 million credit facility provided by Navios. Under the terms of the agreement, Navios agreed to extend the maturity date of the loan from April 1, 2012 to December 31, 2014 with consideration being a fee of $400,000.
Navios Prices New Issue
With Moody’s maintaining its B2 rating on these add-on senior secured notes, Navios Maritime Acquisition Corporation last week priced this latest issue, totaling $105 million, of its 8 5/8% first priority ship mortgage notes due in 2017. Trading earlier in the week at 104% to yield approximately 7.3%, the notes were priced at 102.25% to yield approximately 8.44% in line with price talk at 102%. Proceeds of the notes will be used to finance the acquisition of the VLCC due in June.
BofA Merrill Lynch and J.P. Morgan who led the original offering also receive credit for this one.
Pareto and Odin Products Confab
Last week, Pareto Securities and Odin Group hosted a seminar on the product market and the news was generally good. In the introductory presentation on the market, Pareto’s Martin Korsvold, highlighted the “Positive Delta”, the fact that rates are at an historic low levels and upside is likely as market balance recovers. This outlook is supported by:
• A manageable orderbook compared to other shipping sectors
• Demand to outstrip supply going forward
• The larger trend of more oil being refined closer to production areas
• Limited investor knowledge of products compared to crude shipping, thereby creating opportunities
• Oil demand trend gives a bullish backdrop as the oil market has tightened significantly in 2010 driven by strong demand growth, as evidenced by declining inventories.
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Secondary Offerings
Recently, two companies filed registration statements allowing for the registration and the sale of shares granted as partial consideration to sellers in recent acquisitions.
First, Teekay LNG registered 1,052,749 common units, representing 1.9% of the outstanding units, on behalf of Exmar NV. Exmar received these shares as partial payment for the sale of a 50% interest in two LNG carriers for an equity purchase price of $70 million, of which $35 million was paid in cash and the balance in these common units.
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Yes, There Was Equity Too
China’s inflation and Ireland’s banking crisis triggered this week’s market volatility. Nevertheless, Scorpio Tankers Inc. and Navios Maritime Acquisition Corporation (“NMA”) moved ahead with equity follow-on offerings. Scorpio’s registration was for a one-off transaction, whereas Navios’ was a supplement to its recently filed broad shelf registration.
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.
As Predicted, Warrant Program a Success
Today, Navios Maritime Acquisition Corporation announced the successful completion of its warrant program. Of the total public warrants, 76.13% were exercised, exceeding the minimum threshold of 75%, thereby allowing the exercise of the private warrants. The final tally showed 19,262,006 public warrants were exercised of which 19,246,056 were exercised on a cashless basis and 15,950 were exercised by payment of the $5.65 cash exercise price.
As a result of the successful conclusion of the program, Navios Maritime Holdings (“Navios”) and Angeliki Frangou will exercise 13,835,000 of the privately issue warrants for cash. The remaining 90,000 private warrants will also be exercised of which 75,000 will be done on a cashless basis.
Cool Reception – Navios Extends Offer
With only 38% of the outstanding public warrants tendered (2% for cash) as of the close of business Monday, Navios Maritime Acquisition Corporation announced a five day extension of the program and amended its terms to waive the condition that at least 15% of the outstanding warrants be exercised for cash. The requirement that at least 75% of the 25.3 million outstanding public warrants be exercised remains in place.
This threshold is also condition to the exercise of the warrants held by Navios Maritime Holdings (“Navios”) and Ms. Angeliki Frangou, who agreed to exercise on a cash basis a combined 13.84 million warrants with an aggregate cash exercise price of approximately $78.2 million. These proceeds together with those from the exercise of the public warrants on a cash basis were to be used to fund the acquisition of the seven VLCCs. In the event there is a cash shortfall as a result of the waiver of the 15% cash exercise condition, the parent company has agreed to provide additional financing to Navios Acquisition in the form of short-term debt priced at Navios’ average unsecured borrowing rate.
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Paying the Bill
Ms. Angeliki Frangou and her team will search everywhere for funding, leaving no opportunity unturned. And certainly no one is more creative. To pay for Navios Maritime Acquisition Corporation’s recent purchase of VLCCs, the company announced, last week, that it would give the holders of the 25.3 million outstanding warrants issued in the initial public offering (“Public Warrants”) a limited opportunity to acquire shares at a reduced price. The offer is coupled with a consent solicitation accelerating Navios Maritime Holdings ability to exercise certain warrants on identical terms.
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