Links
Songa Bond – Offshore Services Has the Ticket to Norwegian Bond Market
Last week, Songa Offshore SE successfully concluded a five year senior unsecured bond issue of NOK 1,400 million, at the high end of the proposed range. Led by First Securities, Nordea Markets and Pareto Securities, the offering was priced at par with a floating rate of six month NIBOR + 10%. With the impetus from a commitment in excess of the minimum amount underwritten by a consortium of investors, the deal was oversubscribed and sold mainly to institutional investors. Although the deal saw demand from the US and UK, the deal was largely placed in the Nordic market, which demand has proved vital in most sizeable deals in the Norwegian market this year. Proceeds of the offering will be used for general corporate purposes, including the initial installment of $113 million on the 2nd Cat-D rig. The company used a credit facility to finance the initial payment on the first rig. See the Guts of the Deal below for more details on the terms of the financing.
Established in 2005, Songa operates an aging fleet of 5 mid-water semi-submersibles to which they have recently added the Songa Eclipse, a new UDW semi-submersible delivered in August and on contract to Total for 18 months. While the average age of the on the water fleet is 25 years, this does not take into account the multiple upgrades to the rigs the company has undertaken, most of which occurred in the last seven years. And while the rigs may be perceived as old they have performed ably with an average quarterly fleet utilization of 93% since 2007. The majority of the rigs are contracted long-term with a total contract backlog of $4.45 billion. According to Nordea’s estimates, annual contract revenue for the balance of 2011 is 100%, 87% in 2012 and 65% in 2013. Counterparty risk is low as the rigs are contracted to major oil companies. Lastly, reflecting the capital intensive nature of the business, the company’s financial risk profile is somewhat aggressive, according to Nadia Bendriss of Nordea who points to net debt/EBITDA of 2.4x, FFO/debt of 26% and EBITDA/interest coverage of 6.4x. On the other hand, the company has improved its debt maturities and liquidity with the addition of the new 8.5 year $420 million facility as well as the $100 million facility.
Stress in financial markets and implications for interest rates
Contributed by Claus Jahn Paulsen, Chief Sales Manager, Nordea Markets Singapore
Uncertainty – the new normal
The world looks more uncertain than ever, from an economic and not least a political perspective, at this moment in time. The US economy itself is providing mixed signals. Hard data still show sluggish growth, but several forward-looking economic indicators are signalling increased danger of the US economy falling back into recession. In addition, political uncertainty is high, demonstrated in the US by the ongoing fight between Democrats and Republicans over the budget and the debt ceiling debate and the subsequent downgrade of US debt by S&P.
Ongoing debt crisis in Europe
Financial markets tend not to like the combination of economic and political uncertainty. This is clearly the case in Europe right now, where a Greek tragedy is unfolding. Austerity measures are the new normal, not only in Greece, but across the whole Euro zone, as politicians struggle to contain the European debt crisis and prevent the crisis from spreading to the core of Europe.
Archer Finances Great White Energy Services Acquisition
Last month, Archer Limited agreed to acquire Great White Energy Services (“GWES”), a company which provides horizontal and directional drilling services, pressure control and pressure pumping for $742 million. The acquisition gives Archer an entry point into the rapidly expanding “frac” market in the US as well as effectively doubling Archer’s US coil tubing and directional drilling capacity.
Soon thereafter, the financial markets collapsed and the company renegotiated the purchase price with the seller obtaining a price reduction of $112 million to $630 million. Initially, the company planned to issue 12.7 million new shares at a price of NOK 35 in a private placement directed towards its two largest shareholders, Seadrill Limited and Lime Rock Partners V.L.P to partially finance the purchase. The offering would have raised $82 million in proceeds to Archer. In fact, due to increased demand the offering was oversubscribed with the company issuing 30 million shares at NOK 30 raising gross proceeds of NOK 900 million. Allocated 14.5 million shares, Seadrill will own approximately 145.8 million shares corresponding to a 39.81% of the issued and outstanding shares.
“Simplicity is a Good Thing” – Stolt Issues Norwegian Bond
With summer just around the corner, Stolt-Nielsen Limited decided to take advantage of the long daylight hours in Oslo and went into the market to issue, in a private placement, new 5-year senior unsecured bonds. Initially, the transaction contemplated an equivalent amount of $200-300 million, split between a Dollar tranche and a Norwegian Kroner tranche, in order to attract a broader range of investors. The NOK tranche was expected to bear interest at NIBOR + 450-475 bps, with the Dollar tranche interest rate expected to be in the range of 6.50%-6.75% fixed. The proposed pricing reflects an issuer rating of BB+/BB with the bonds a notch lower at BB/BB-. The bonds are non-callable for life. Proceeds of the offering will be used for funding expansion opportunities and general corporate purposes.
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 .
Pacific Drilling’s $500 Million Private Placement
Pacific Drilling S.A. announced last week its intention to offer 50,000,000 common shares in a private placement to qualified investors. The share price is expected to range between $9.20 and $10.50, raising proceeds of approximately $500 million. The proceeds of the offering will be used to finance the Pacific Khamsin and Pacific Sharav, two new advanced capability, ultra-deepwater drillships which were contracted this month at Samsung Heavy Industries (“SHI”) for delivery in the 2nd and 3rd quarter of 2013 respectively. Similar to the four drillships previously ordered at the yard, the latest new orders are capable of drilling in water depths of 12,000 feet to a depth of 40,000 feet. The aggregate contract price for the two rigs is $1 billion, with the total cost of each vessel, including commissioning and testing and other costs, to be approximately $600 million, excluding capitalized interest.
Lots of Moving Parts, But a Pure Play at the End – BW Offshore to Merge and Divest
The on-going saga of the merger between BW Offshore (“BWO”) and Prosafe Production may have reached its denouement. Back in July, BWO made a voluntary exchange offer for all the shares of Prosafe it did not own. The offer was conditioned on the outcome of the sale of Prosafe’s turret and swivel business to National Oilwell Varco (“NOV”) for $165 million. If the business were unsold the BWO would offer 1.2 shares in BWO plus NOK 2 in cash for each share of Prosafe. However if the business were sold, the cash portion of the consideration increased to NOK 5.25. Prosafe’s management was unexcited by the offer and stated, using the term of art, that it was evaluating strategic and financial alternatives, as the offer did not reflect the fair value of the company. As a consequence of being in play, the sale of Prosafe’s turret business was put on hold pending the outcome of the BW offer and its disposition remains uncertain today.
Norway Awakens
Although there remain strong expectations for strong growth in the Norwegian bond market, in fact, issuance is down on a year-to-year comparison thus far, although high yield makes up a goodly portion of what has been issued.
Despite the lull, this week STX Europe AS, one of the world’s largest shipbuilders with 15 shipyards located in Norway, Finland, France, Romania, Brazil and Vietnam went to market. The group’s activities are niche focused and concentrated around cruise & ferries, and offshore & specialized vessels. STX Europe is wholly owned by STX Norway AS and is now a private company majority controlled by the Korean STX Group.
Continue Reading
Seadrill Taps Bond Market
Last week, Seadrill successfully completed the offering for a five year $500 million senior unsecured convertible bond. Although the books were oversubscribed beyond the original $600 million offering, Seadrill opted to cap the sale at $500 million.
The bond was priced at par to yield 4.875% and will mature in September 2014. The conversion price is $25.18, a 35% premium to the VWAP of the shares on the date of pricing. Given the run-up of the share price (94% YTD), the bankers balanced the two by pricing the offering at the high end of the yield while providing a lower conversion premium.
Continue Reading
DOF Bond
Despite increasing default rates, corporate issuance of bonds in the primary market has been increasing in Norway and this activity has been extended to high yield, which now represents about 5% of total corporate issuance. For perspective, total issuance of corporates year to date amounts to NOK 19.2 billion compared to NOK 14.6 billion for the full year 2008.
This week Nordea Markets and Pareto Securities brought to market a 2-year senior secured floating rate note for DOF ASA, a leading offshore company, which operates 70 vessels. The notes bear interest at NIBOR + 9% and are secured by a first priority pledge in the shares of Norskan AS, DOF’s Brazilian subsidiary. Norskan owns 12 vessels all of which operate in Brazil with top-rated blue chip counterparties. The pledge provides strong collateral coverage as the outstanding amount under the issuance represents less than 50% of the NAV of the pledged assets. More details on the structure are contained here in the Guts of the Deal table.
Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
