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Restructuring – Continuing Progress
Global Ship Lease LTV Waiver
Last week, Global Ship Lease Inc. reached agreement with its banks to waive until November 30, 2012 the requirement to conduct loan-to-value (“LTV”) tests. Under the terms of the agreement, the ratio of outstanding borrowings under the credit facility to the charter free market value of the vessels at this time was not to exceed 75%, which could not be met. The quid pro quo for the waiver was an increase in the margin to 3.50%, a restriction on dividends and the use of cash flow to prepay borrowings under the facility. With respect to the latter, cash in excess of $20 million will be the prepayment amount in December and with payments made quarterly thereafter.
65% Leverage on Newbuild Tankers – DryShips Taps the Syndicated Loan Market
On Wednesday, DryShips Inc. announced that they entered into a $141 million syndicated secured term loan facility with Korea Eximbank and ABN AMRO Bank to partially finance the construction costs of two Aframaxes, Belmar and Calida and two Suezmaxes, Lipari and Petalidi. With this financing in place, the next four tankers scheduled for delivery in the first quarter 2011 and the first half of 2012 are fully financed, leaving five tankers from the 12 tanker newbuilding order closed in December 2011 to be financed. Martin Korsvold of Pareto suggests that the leverage ratio is approximately 56% of cost or 65% of the value of the vessels and as he notes this is highly favorable given the very difficult tanker and banking markets.
First Dropdown – Golar LNG Partners Acquires FSRU
Last Thursday, Golar LNG Parners LP announced that it had entered into its first dropdown agreeing to acquire the companies that own the FSRU Golar Freeze from Golar LNG Limited for a purchase price of $330 million. The vessel is currently operating under a 10 year term contract with Dubai Supply Authority with a remaining fixed term of approximately 8.6 years with the charterer’s option for a further five years.
The transaction will be financed 100% with debt, which will consist of two tranches. First, the partnership will assume approximately $108 million of senior bank debt, which matures in June 2015. The interest on this loan has been swapped to a fixed rate giving an all-in cost of approximately 4%. The second tranche is a seller’s credit extended by Golar LNG in the form of a 3-year bullet loan in the amount of $222 million, which will bear interest at 6.75%. It is anticipated that the latter will be re-financed prior to maturity with third party debt and/or in connection with further dropdowns from Golar LNG.
De-Leveraging – Saga Sells VLCC
Saga Tankers ASA announced Monday that it had entered into an agreement for the outright sale of its 1995-built VLCC, Saga Chelsea for $25 million net, plus the value of bunkers and lubes. While the inclusion of the latter is standard, today they have material value and are worth noting. Proceeds will be used to deleverage the company through the repayment of the related debt with any excess available to improve liquidity. The vessel will be delivered to its Buyers during September 2011. For perspective, the original prospectus valued the vessel, which was acquired a year ago, for $49 million. From another viewpoint, Pareto, in its latest comment suggests that investors may view this sale as market bottom. Despite a nine-year remaining life, the sale price is only $2-4 million above today’s estimated scrap value of a VLCC.
The Markets Knock the Wind Out of the Sails – DHT’s Acquisition of Saga a Clear Victim
On August 5th, DHT Holdings Inc. announced the withdrawal of its offer to acquire Saga Tankers ASA. With the consideration based upon an exchange of 0.25 shares of DHT for each share of Saga, the latter’s interest certainly waned as shipping shares declined at an even faster rate than the market in general. In fact, despite a number of extensions of the offering period, DHT had only received acceptances from approximately 84% of the shareholders below the 95% acceptance threshold.
The deal was certainly less attractive from DHT’s perspective as well. As Cantor Fitzgerald’s Natasha Boyden writes as a proxy: “As such, while this delays the company’s expansion plans, we suggest the deterioration in the tanker market since the deal was announced, combined with Saga Tankers’ high spot exposure, made us more lukewarm on the acquisition.”
Cross Border to Oslo – Asia Offshore Drilling Finds Capital
A subsidiary of Thoresen Thai Agencies Public Company Limited, Mermaid Maritime Public Company Limited (“Mermaid”) was incorporated in 1983 and operates in two specialized niches within the offshore oil and gas sector. Mermaid Drilling Services provides drilling services while Mermaid Offshore Services Limited provides sub-sea engineering services. The former was the owner and operator of two tender drilling rigs, which business management had targeted for expansion by earmarking over $70 million for future investments.
Batten Down the Hatches – Hoegh LNG Finds It Isn’t that Easy
Despite being the hottest sector in shipping, Hoegh LNG Holdings Limited encountered headwinds in its initial public offering. The company hoped initially to sell 15-25 million shares at a price range of NOK 38 to 54 in order to raise gross proceeds of approximately NOK 810 million to NOK 945 million ($198-282 million). As part of the offering, which consisted of an institutional tranche, a retail piece in Norway and an employee offering in Norway, Leif Hoegh & Co. Ltd, the parent agreed to subscribe for up to $20 million worth of shares to maintain a minimum 55% interest post-IPO and over-allotment option. For further details, see the Guts of the Deal below.
More Gas – Hoegh LNG files IPO
Last week, Hoegh LNG Holdings Ltd. (“HLNG”) began the IPO process. The company intends to sell 15-25 million shares with a 10% green shoe. Using the targeted price range of NOK 38 to 54, gross proceeds of NOK 810 million to 945 million ($198-282 million) are anticipated. In Norwegian fashion, the offering will consist of an institutional offering, a retail offering in Norway and an employee offering in Norway. In order to maintain an ownership position of a minimum of 55% post-IPO and overallotment, the company’s parent, Leif Hoegh will subscribe for $20 million in the aggregate of shares. Proceeds of the offering will be used to partially finance two 170,000 cbm Floating Storage and Regasification Units (“FSRU”) which will be delivered in 4Q 2013 and 1Q 2014 at an estimated delivered cost of $550 million. In addition the company has arranged a loan to daughter company, Hoegh LNG Limited, which it will guarantee, in the amount of the lesser of $272 million or 50% of the contract price of each FSRU, plus project costs of $25 million. Financial covenants include minimum equity of $200 million, minimum combined cash of $20 million before delivery of the first vessel declining to $15 million thereafter, positive working capital at the guarantor and minimum value clause equal of not less than 135% of the outstanding. After delivery, the loan term is three years based upon a 15 year amortization to a balloon. In terms of cost, there is an upfront fee of 130 bps, a margin of 300 bps and a commitment fee equal to 40% of the margin. This is just the beginning. The company also has options for 1 + 1 + 2 additional FSRUs. More details on the offering are shown below in the Guts of the Deal.
Just Being Cautious – Genmar ATM
Last week, General Maritime Corporation entered into Open Market Sales Agreements with Jefferies & Company, Inc. and Dahlman Rose & Company LLC, to facilitate the sale of up to $50 million of its shares in the aggregate through “at-the-market offerings”. As is the case in transactions of this type, sales may be made through ordinary brokers’ transactions at market prices prevailing at the time of sale, at prices related to the prevailing market prices, or at negotiated prices. In addition, Genmar may also sell its shares to either Jefferies or Dahlman Rose, its sales agents, at a price agreed at the time. Commissions on the sale of securities are payable at the rate of 2.5% of the gross sales price of the shares sold in which such Sales Agent is a party, and are reduced to 2% in those instances where shares are sold to parties named in the sales agreement.
Marriage at Haakon VII’s Gate 1 – DHT to Acquire Saga Tankers
There are certainly many reasons for a merger, but the fact that the two companies’ offices are separated by two floors, while not meaningful, does make the logistics of the transaction easier, even though there are only two employees involved. On a less frivolous note, the proposed acquisition of Saga Tankers ASA by DHT Holdings, Inc. makes perfect sense for both parties. For DHT, it clearly was a means to continue the growth trajectory that began under the new management team and without additional leverage. For Saga shareholders, it can be viewed simplistically as a swift and timely exit. But, in fact, Saga shareholders now have a far better platform to participate in the tanker market.
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