Precious Shipping Acquires 4x Supramaxes

Precious Shipping has signed an agreement with Oswal Shipping of Singapore to acquire newbuilding contracts for four 57,000 dwt supramax vessels worth USD 98 million in total. The Thai dry bulk operator purchased the contracts by acquiring the entire issued share capital of four wholly-owned single purpose companies, each holding a newbuilding contract for one bulkcarrier with Wuhan Guoyu Shipbuilding and Yangzhou Guoyu Shipbuilding. The vessels are scheduled for delivery between March and August 2012.

The acquisition will be funded either by new credit facilities, excess cash flow from operations and/or utilisation of existing secondhand vessel acquisition bank facilities if the facilities are available when the vessels are delivered. Watson, Farley & Williams LLP acted as the advisor to the company.

Export-Import Banks in Action

Export finance continues to be a major source of financing for the shipowners and the momentum appears to be gaining pace. According to local reports, the Export-Import Bank of Thailand (“EXIM Thailand”) has announced plans to lend at least THB 18 billion (USD 563 million) to local shipping companies in their acquisition of new tonnage. The government hopes that the latest measures will help to expand the Thai fleet and reduce reliance on foreign carriers, and in turn generate more foreign exchange earnings for the country.

EXIM Thailand has the ability to offer direct loans or arrange syndication deals with its financial partners for the domestic shipping companies and is looking at extending loans of up to THB 18 million over the next three years. In January 2010, Precious Shipping secured a credit facility granted by EXIM Thailand and other lenders including Bank of Tokyo Mitsubishi UFJ, Bank of Ayudhya, Kasikornbank and Thanachart Bank for the acquisition of bulk carriers. Continue Reading

Precious Shipping

It may not be fresh news anymore, but we thought it would be interesting to take a closer took at Precious Shipping’s USD 250 million featured among Dealogic’s Top 15 Shipping Loans in 1Q2010. In January, Thailand’s dry bulk shipping company Precious Shipping secured a new USD 250 million secured term loan facility with a syndicate of lenders comprising Bank of Tokyo Mitsubishi UFJ (“BTMU”), Bank of Ayudhya, Kasikornbank, Export-Import Bank of Thailand and Thanachart Bank, making this possibly the second largest shipping loan in Asia in 1Q2010. This transaction was led by BTMU’s team in Singapore, which demonstrates the bank’s strategy in using Singapore as a platform to widen its geographical reach.

Precious Shipping will be making use of the loan facility to finance up to 60% of the dry bulk ships (details in the accompanying table). The company has recently concluded its plan to sell its oldest 25 ships and is in the process of rejuvenating its fleet by acquiring younger and bigger vessels. In addition to the two second-hand ship purchases, Precious Shipping has contracted 18 brand new ships at ABG Shipyard in India and signed long term charter contracts for three cement carriers. Continue Reading

Conversation with President of U-Ming Marine Transport, Mr C K Ong

Every year, Marine Money ranks the world’s public listed shipping companies and we are very pleased to see a strong Asian showing this year with U-Ming Marine Transport (“U-Ming Marine”), Mitsui O.S.K. Lines, Precious Shipping and Courage Marine in the top 10 spots. We were very fortunate to have a chance to speak to Mr C K Ong, President of U-Ming Marine Transport for this exclusive write-up when he was in New York City to receive the award.

As a new entrant to our universe of 100 public shipping companies this year, U-Marine Marine finished 2nd in overall performance and 7th in the credit rankings. The management taken to heart the main lesson of shipping, which is recognizing its volatility.” With that in mind, it manages the company to protect the downside knowing it will survive to enjoy the fruits of the cycle. Since its listing in 1990, the company has not incurred a loss, even in the most difficult markets and has throughout that period regularly paid a dividend. Continue Reading

An Explanation

The rise in the BDI has taken everyone by complete surprise. But in reality the reason for the rise is rather simple. China binge buying iron ore against all expectations with imports rising at 27+ pct higher in 2009 than for 2008, based on the annualized results of the first 4 months of this year, shows you where the big move from the demand side has come from.  This rise in iron ore imports is despite the fact that steel production in China in the first four months of 2009 has been roughly at the same levels as we had seen in 2008.  An explanation for this increased iron ore imports could be from the fact that domestically produced iron ore in China is of a rather poor quality and quite expensive when compared to spot imported prices.  Another explanation could be that of speculators getting into the import market to try and get hold of ‘cheap’ iron ore that would possibly be required under the Chinese Government’s USD 586 billion stimulus plan.  And a third could be the impending conclusion of the iron ore contract price negotiations.

Obviously, when you binge buy and compress imports of a single commodity, carried mainly by Cape size ships, into a very short space in time, you tend to create two issues at the same time. Firstly, you tend to push up freight rates due to the time-compressed/explosive demand growth for that ship-sector. And more significantly, you create queues at loading and discharging ports which tend to reduce availability of spot ships driving prices even higher. Combine this with delayed delivery schedules of dry bulk ships during Q4 08 and Q1 09 and you have the ingredients of a perfect storm especially when you take the number of Cape size ships that have been sent to the scrap-yard during the last 6/9 months. Continue Reading

Precious Money

Shipowners continue to face difficulties in securing financing, but for the fortunate few there exist some pockets of liquidity, albeit at smaller amounts. Thailand’s Precious Shipping has successfully negotiated for an extension of its credit facility from Krung Thai Bank and two other local banks for the baht equivalent of USD 250 million. This follows closely its earlier announcement that it had renewed its secured revolving loan facility agreement with DnB NOR Bank, Singapore branch and two undisclosed lenders. The two facilities will provide Precious Shipping with up to USD 350 million for the acquisition of second hand vessels.   

In the latest transaction, Krung Thai Bank, Bank of Ayudhya and Siam City Bank have extended its facility till 18^th January 2010 but not without some amendments. The facility amount was lowered from USD 300 million to Thai Baht equivalent of USD 250 million (Baht 8,750 million) and the currency of the facility was changed from US dollar to Thai Baht. This seems to suggest the local banks are still facing difficulties in financing long positions in US dollars. Precious Shipping will therefore have to assume the risk of an appreciating US dollar against Thai Baht at the time of the drawdown. The facility is priced at the minimum lending rate minus 1% with a commitment fee of 1% per annum on undrawn loan amount. Continue Reading

BUY! BUY! BUY! Results to Please Just About Anyone

It’s been earnings season the past two weeks and if there were ever a question about whether shipping could avoid a hit due to the sub- prime crisis, well, this should answer it.

For fun, here are a few analyst comments on recent returns… From Dahlman Rose:

Dahlman/Eagle Bulk Shipping – 1Q Operating Results Stronger Than Expected; In Solid Position to Re-Charter Vessels as Rates Continue Pushing Higher

We believe Eagle’s aggressive approach to re-chartering its vessels will payoff as the market has exceeded our expectations. During the past few weeks we have seen several long-term time fixtures as char­terers look to secure vessels in the face of a rising market. We main­tain our Buy rating and $33/share target, based on a 10% 2009 CF yield, ahead of the earnings call this morning.

Eagle’s share price jumped more than 10% following their confer­ence call!

Continue Reading

Deal of the Year – 2002 Restructuring

You got to know when to hold ‘em, know when to fold ‘em, know when to walk away, know when to run.” These words, sung by the legendary Kenny Rogers and written by Lionel Ritchie, are a startlingly accurate description of restructuring shipping deals. As the country ballad suggests, there is no single blueprint for achieving a successful restructuring. What you do depends on cards you’ve been dealt.

This year’s Restructuring Award goes American Marine Advisors of New York for their role in two very different deals– deals that we think typify AMA’s ability to engage in a dirtunder-the-fingernails dogfight and also execute the disposal of a business franchise. In our view, it is this combination of skills that has allowed the merchant bank to earn its dominant role in this critical niche. So long as the maritime industry remains highly leveraged and volatile, restructurings will occur and AMA has proven itself to be a “first call” for stakeholders in deals that go bad.

In the first broken deal, AMA represented the bondholders in their action against reefer turned containership owner/operator Enterprises Shipholding. The Enterprises deal was, without a doubt, the most contentious of all the maritime high yield restructurings we have seen in recent years. More than just a case of the Asian Crisis pushing over leveraged bond-issuing companies into financial restructuring, Enterprises bondholders began preparing for battle 18 months before the company actually missed its coupon payment, decrying that the company “stole” bondholder value by fraudulently selling new- building container ships to affiliated companies at bargain prices. Adding insult to injury, Enterprises management offered to assist the bondholders by selling the vessels, for a fee of $20m after they had defaulted.

What impressed us about this deal was that AMA was able to use its understanding of how shipping and shipowners operate to put commercial pressure on Enterprises shareholders. From understanding the disposal of the newbuildings, to managing the media, to piercing the veil of ostensibly unaffiliated companies, to affecting arrest of the containerships in the ports around the world even though they represented unsecured creditors, AMA was able to make trading partners and vendors so nervous that Enterprises reached into its pocket for a $0.50 settlement. If there was any disappointing element of the deal to AMA and its bondholders, it was that during the nine months that it took to conclude the deal, the container market had a precipitous drop and values plunged making the financial recovery lower than it might have been.h The second transaction includes AMA’s work on selling the Delta Queen steamboat business owned by bankrupt American Classic Voyages.

For those of you for whom the details are fuzzy, AMA was mandated for this assignment by the US Maritime Administration when Sam Zell controlled American Classic Voyages defaulted on about $800m of Title XI bonds. After canvassing the market, AMA developed a list of about 100 potential buyers. When the day of the auction finally came, seven interested parties spent an entire day bidding in an open outcry fashion led by AMA’s Paul Leand; the auction commenced with a stalking horse bid of $3.75m and moved in $150,000 increments to its final price of about $80m.

The winning bidder was a company called Delaware North, a global leader in hospitality, retail and food service, whose holdings include the Fleet Center in Boston. Delaware North paid $80m, 4x 2000 EBITDA, for the business. To put this in context, Morgan Stanley indicated that financing for LBOs fell to 3.8x at the time AMA sold the company. How AMA was able to take a company that had ceased operations (very damaging for a company that depends on confidence of consumers, credit cards companies, travel agents, etc.) and sell it to a substantial company for the kind of healthy valuation generally assigned to a going concern, is nothing short of astounding.

Honorable Mention

Amer

What do you get when you combine Coco Vroon, Kristian Siem, Ravi Mehrotra, Alan Ginsberg, Gary Wolfe, Jim Lawrence, Greg Petrick and Judge Arthur Gonzales of the US bankruptcy court? A heck of a good holiday party, for one thing, but also one of the most mutually beneficial of all the shipping high yield restructurings. This entire restructuring, while certainly acrimonious, was a bit like “the gang that couldn’t shoot straight,” with both sides making one tactical and procedural gaff after the next. But in the end, the final deal was negotiated principal to principal and with very good results for both sides.

We estimate that the circa 30% return achieved by Vroon/Siem (they bought their 68% slug of the Amer for $0.52 and sold it for $0.68 one year later) bonds was the highest since CSFB and Alpha Shipping – a friendly deal between David Matlin and George. The result was equally good for the company; commercial and technical operations of Amer Reefer went uninterrupted at all and the company’s major shareholder, Mr. Ravi Mehrotra, retained 100% ownership, thanks to a loan facility from Nordea, some credit support from Lauritzen’s Cool Pool and the cash that accumulated in the company during the 18 months that the bonds didn’t pay interest – a win/win for the final parties involved.

The other element of this deal that we found noteworthy was the approach taken by the bankruptcy judge. Although many speculated that Siem and Vroon initially bought into the Amer deal to take over the company, Judge Gonzales (who is currently handling the Enron bankruptcy) maintained a staunch company- friendly approach during the year in bankruptcy, encourageing the parties to settle and keep the company intact.

The Cost of Restructuring

New York law firm Thatcher Profitt and Wood filed a motion for payment of their legal bills associated with their defense of Millenium Seacarriers during the handysize bulk owner’s bankruptcy. The documents filed in the Southern District of New

York covered only the period January 15 to April 30, 2002. The total amount of compensation sought was $914,079.70 and the document also requested $71,599.09 in reimbursable expenses. Deirdre Dillon at the firm was the top biller at $181,150. She was closely followed by Chris Graham who billed $178,165, Jonathan Forstot at $120,911, Nicole Reninger who billed $117,928 and Louis Curcio who billed $103,235.

Interestingly, Mr. Curcio worked the most hours 540.7 and had the lowest blended hourly billing rate at $190.93. Chris Graham took the high honors on the Blended rate at $555.73. Chris and Jonathan were the partners on the case.

Low biller was Gary Silverstein who charged $167.50, for half an hour’s work. Brendan Zahner billed a total of $95,559 and his admission to the Bar was pending at the time. Overtime meals cost $5,496.

Save the Date! Restructurings for 2003

American Commercial Barge Line

A quick perusal of the American Commercial Barge Lines 3Q02 filing shows a company that’s heading back under the knife for some more restructuring in the coming months. In fact, restructuring advisors out there might be interested to know that ACBL has agreed to propose a restructuring plan to its senior lenders prior to December 28, 2002. ACBL was already restructured once this year in a deal whereby Sam Zell-controlled Danielson Holdings (AMEX: DHC) contributed $58.5 million of their bonds as equity and crammed down the company’s equity holders in exchange for $9m worth of DHC stock and then paid down $25m in bank debt.

Precious Shipping

The dry bulk owner looks set for another restructuring in early 2003 when the company’s redeemable convertible debentures are converted into PSL shares at a price equivalent to 95% of PSL’s closing market price in the month preceding the conversion. According to our calculations, RCD holders may be entitled to about 56m shares unless someone runs up the stock between now and then – which is likely. Since the current capital of Precious is 52m shares, the various European and Asia financial institutions that own the bonds may gain control of the company through the conversion –but then what?

Northern Offshore

In November 2002, John Fredriksen controlled Northern Offshore appointed US investment bank Houlihan Lokey Howard & Zukin to advise it in restructuring talks with bondholders, after warning it will again miss its interest-payment deadline and default on its $340m, 10% notes. Northern has some

$ 57m in short-term debt coming due but very little cash.

Navigator

“The more the merrier,” is an expression that is generally not used in the context of debt restructurings. That’s why the long awaited reorganization of this deal, which was dead on arrival but has been surviving on the life support of escrowed funds and a CSFB credit line, is going to be so messy.

Cenargo

According to Cenargo’s most recent 6k filing, the company will not make it’s 12/31/02 coupon payment. Wayland Advisors, which now controls the former Millennium Seacarriers fleet, is one of Cenargo’s biggest bondholders. Based on the speed with which Wayland Investments skinned the equity interests at Millenium Seacarriers, Cenargo should be getting fit for armor right about now.

Restructuring Quotables

Victor Restis ” I will do everything to protect myself from.. .these vultures which have destroyed my company.” Lloyd’s List

Kostas Koutsoubelis “The buyers were two French companies and the shareholders in those two companies will fight, I am sure. But we don’t know who was the buyer…we just spoke to the broker and the lawyers.” Reuters