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NewLead Sale & Leaseback
Not easily dissuaded, NewLead Holdings Ltd, despite disappointing efforts in the equity and Norwegian bond market, re-visited the sale and leaseback market announcing a transaction with Northern Shipping Funds. The latter acquired the Newlead Endurance, a 92,000 DWT Post-Panamax directly from a Korean shipyard at an undisclosed price. The seven-year bareboat charter-back to Newlead is at an undisclosed rate and includes a re-purchase option. NewLead has, in turn, time chartered out, on a back-to-back basis, the vessel to a third party operator, Deiulemar, at a net daily rate of $14,438/day plus a 50% profit-sharing, when the average of four BPI routes exceeds $15,454/day. The charterer also has the option to extend for one plus one additional year. For the first year, the rate is $15,400/day with the second year at a rate of $16,844. During the option period, there is also a profit sharing arrangement which comes into play when 110% of the average of four BPI routes exceeds the basic daily charter-out rate. The anticipated annual EBITDA, assuming operating expenses of $5,500/day is approximately $3.2 million or $21 million over the fixed term.
Familiarity Creates Opportunity – Northern Shipping Funds Acquires Singapore Offshore AS
Back in March, Northern Shipping Funds (“Northern”) successfully acquired 99%of the DIS (“Silent Partner”) interests in Singapore Offshore AS, a Norwegian AS established in 2006 in order to provide post-delivery financing amounting to $126.725 million, through a sale-leaseback structure, for five AHTS units for Ezra Holdings of Singapore.
Cool, Steady Heads Prevail – Genmar Restructures Liabilities
Banking on its relationship with its long-time investor, Oaktree Capital, General Maritime Corporation successfully raised $200 million in new capital, which formed the cornerstone of a restructuring of its balance sheet designed to improve liquidity largely through the reduction of its near-term debt obligations. The important side effect of the transaction was a reduction of the cash flow breakeven rate to a level commensurate with today’s weak tanker market.
Peter G was here before in the late 1990s, another weak market, but this time it was much tougher due to the large commitments resulting from the acquisition of the Metrostar fleet. As one can see from the result, this was without a doubt one difficult negotiation and we can only imagine, given Peter G’s penchant for cigars, long hours in a dark smoke-filled room. But, of course, we would have to imagine it since City ordinances prohibit smoking and Peter G gave up cigars quite a while ago. But why let facts get in the way of a good image.
Managing Liabilities
While the world looks for a long-term contracted revenue stream, in these difficult times, it also behooves companies to carefully manage their liabilities, as another means of managing their cash flow.
A Large Weight Lifted – Genmar Sale-leaseback
What began last quarter as an attempt by General Maritime (“Genmar”) to sell a VLCC to meet the terms of its $22.8 million bridge loan from DnB NOR and Nordea, ended this week with a sale of three unencumbered MR product tankers from the former Arlington fleet to affiliates of Northern Shipping Funds (“NSF”) with a concurrent charter-back. NSF is a leading alternative capital provider focusing on equity investments in the shipping and offshore oil service sectors.
Going Public
The expression going public does not only refer to companies. In this instance, our neighbor and good friend Oivind Lorentzen seeking greater challenges beyond those offered by his private interests in shipping has accepted the position of Chief Executive Officer of SEACOR Holdings Inc., where he will have the enviable position of working hand-in-hand with Executive Chairman Charles Fabrikant, his predecessor in that role and the founder of the company.
The First Deal is the Hardest
Last week, Northern Shipping Funds (“NSF”) closed what we believe to be its first transaction, assisting in the sale and leaseback of the Sichem Pace, a 19,900 DWT stainless steel chemical tanker built in 2006. The vessel was purchased from Eitzen Chemical for $34 million by a Pareto organized K/S. Senior debt was provided by Nordea, with NSF providing a $4 million mezzanine loan. The vessel was chartered back by Eitzen for five years under a bareboat charter, which the sellers characterize as an operating lease suggesting the seller may not have a purchase option or if it does it is at fair market value.
Although it is playing at a risky level in the capitalization, NSF has carefully mitigated the risks by financing a modern vessel with sub-employment for a short tenor. Moreover it benefits from the peculiarities of the K/S structure, which not only has paid in capital but also contingent uncalled capital to provide a cushion, if needed.
The deal was sourced by John Hartigan, with the rest of the team assisting in closing the transaction.
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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Not Just a Warm-up
Prior to the start of the festivities, Teekay Corporation held its successful shareholders meeting. The room was filled with over 100 spectators with another 200 viewing through the webcast. What was extremely interesting to hear from the Teekay delegation was the acknowledgement that they did not recognize many of the people in the room. Fresh blood!
The first session began under cloudy but dry skies an unusual event in New York these days. The room was packed with the audience hoping to glean insights from last year’s deal of the year winners as the architects of the transactions discussed their deals and how they fit in today’s marketplace. The discussion was led by Stephen Peepels of DLA Piper.
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Further New York Insights
In addition to being Conference Chairman of the New York Conference, Hamish Norton of Jefferies was also given the challenging assignment of commenting on the capital markets. Certainly, there are no surprises as the “subprime lending crisis is reverberating across all markets.” Current equity market conditions are at best uninspired with all major indices well down, with most of the damage done in the last eight weeks. YTD domestic equity fund flows are largely negative but less net negative recently. Not surprisingly, to the extent any equity deals were done they were largely done in the financial sector reflecting their need to recapitalize.
The Official Guide To Marine Finance Providers
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