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.
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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.
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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.
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Learning From the Master – Part II

On the other hand, Mr. Fredriksen’s investment in Golden Ocean Group (“GOGL”) is not faring as well, but is well on its way to a cure as Messrs Fredriksen and Troim continue to work their magic. It appears that they have restructured the company’s obligations while restoring the balance sheet back to health. And there was nothing mystical about it as all the players contributed by enduring pain in the short-term, hopeful of a recovery in the long-term.

With the assistance of Fearnley Fonds, DnB Nor Markets, Nordea Markets, First Securities, Platou Securities, Arctic Securities, and ABG Sundal Collier, the company issued 180 million (upsized from 165 million due to demand) new shares at a subscription price of NOK 4.10 per share resulting in gross proceeds of approximately $110 million of new equity. The offering was underwritten by Mr. Fredriksen’s Hemen Holdings, which was allocated 72 million shares. Post-offering, Hemen’s interest will remain basically unchanged at 40%.

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Songa’s Misguided Misadventure

In a presentation on Monday, Songa Offshore sought to explain its unexpected private placement of shares the previous week, at a discount of approximately 34% to the prior day’s close. The share placement alleviated a short-term liquidity shortfall as well as a breach of covenants.

The main culprit was its historic financial strategy. Over the last few years, Songa intentionally kept cash at tight levels of around $30 to $70 million, which level was increased as rigs were added. In addition, the company entered into TRS agreements during the 12-month period until January 2008.  Both worked as planned until worlds collided. In a matter of five weeks, the company’s TRSs went from $16.7 million in the money to $26.8 million out of the money a swing of $43.5 million. In addition, during the week of September 15th, Songa expected to rollover $50 million in commercial paper and was able only to roll only $22 million leaving a $28 million shortfall.

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A.P. Moller – Maersk A/S and Brostrom AB Announce Engagement

Yesterday, Brostrom AB, one of the leading logistics companies serving the petroleum and chemical industry, announced that A.P. Moller-Maersk A/S (“APM”), through its wholly owned subsidiary, Maersk Product Tankers AB (MPT”), had made a public offer to the shareholders of Brostrom to sell their shares for cash consideration of SEK 57 per share, a premium of 23.6% relative to the volume weighted average closing price of the B-share for the three month period prior to today’s date and a premium of 10.1% relative to Tuesday’s closing price. The offer values the share capital of the company at approximately SEK 3.62 billion. The offering price will be increased by 6% per annum from the date occurring two months after the announcement until the offer is declared unconditional.
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Northern Offshore Finds Norwegian Solution

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Norwegian Bond Update

Thanks to Lars Kirkeby of Nordea Markets, we have a glimpse into what the New Year might hold in store for this important segment. The year started off in reasonable fashion with the issuance of 6 new primary corporate bonds, 2 commercial paper issues and 1 tap. Total issuance year to date amounts to NOK 0.9 billion compared to NOK 8.7 billion for the same period in 2007. However to keep this data in context one must recall the steep fall-off in issuance during the second half of last year. Other trends worth noting, although clearly early in the year, include:

•High yield rating classes account for 56% of total issuance in 2008 (2007:83%). Lower activity within the high yield rating classes is anticipated.

• Covertible bonds have increased in relative size and constituted approximately 47% of total issuance in the second half of 2007. No straight high yield bonds have been placed in 2008, only convertibles. Continue Reading