Links
Transocean goes All-In Raising $1.08 billion in Equity and $2.5 billion in Debt
During the last days of November, Transocean Ltd re-jiggered its balance sheet through an equity follow-on offering and the issuance of serial bonds. First up was the follow-on offering for 26 million shares with a green shoe of a further 3.9 million shares. The offering was priced, through an accelerated bookbuilding process, at $40.50/share (based upon an exchange rate of CHF 0.9215/USD), a discount of 11.8% from the prior day’s closing price when the offering was announced. Proceeds of the share offering will be used to partially re-finance the company’s acquisition of Aker Drilling ASA, which was originally financed from cash and assumption of Aker’s outstanding debt. The replenished cash will be applied to the expected repurchase of approximately $1.7 billion of its 1.5% Series B Convertible Senior Notes due 2037 that holders may require it to re-purchase in December 2011. Barclays Capital and Credit Suisse acted as joint book-running managers of the offering.
Name Change Needed – DRYS Goes Wet
It should come as no surprise that George Economou’s DryShips was in the news. First, there was the announcement that the private placement of shares in Ocean Rig UDW was successfully closed with total gross proceeds of $500 million raised. Not only was it a success from the perspective of the capital raise, the company achieved a superior market valuation, both in terms of the rigs themselves as well as in relation to its peers, according to Scott Burk of Oppenheimer. But perhaps more importantly, the company now has a balance sheet which is self-sustaining.
This news was immediately followed by the company’s announcement that the Board of Directors had approved a share purchase program for up to $25 million of common stock of Ocean Rig for the first quarter of 2011. The maximum share purchase price is capped at $17.50, the offering price of the shares.
But why stop there? In furtherance of its diversification strategy, the company announced that it had entered into agreements with Samsung to purchase twelve high specification newbuilding tankers at a cost of $770 million. The order consists of six Aframax tankers, of which four will deliver in 2011 and two in 2012, and six Suezmax tankers, of which one will deliver in 2011, two in 2012 and three in 2013. Given the delivery dates involved, the majority of these were clearly re-sales, which is further affirmed by the favorable payment terms of approximately 70% of the contract price per vessel due at delivery. On the other hand, as Erik Nikolai Stavseth of Arctic Securities points out Samsung is involved in the construction of its drillships and the tanker order must be viewed in the context of the total relationship with the shipyard. The company has paid in $120 million from its cash as the down payment on the tankers and intends to finance the balance from cash on hand and bank debt. Ultimately, the intention is to position the company for a spin-off or IPO.
The deal has engendered much discussion among the analysts, particularly with respect to the price paid and the original contracting party. DryShips tried to head off discussion of the former by describing the vessels as having high specification and over $3 million in extras per vessel. Nevertheless, Pareto, Oppenheimer and Morgan Stanley suggest that the company paid a premium of $11 million, $38 million and $50 million respectively for the entire package based upon their analyses. The bigger question arose when the observant analysts noted that Mr. Economou’s private company, Cardiff Marine, had a similar order in place, raising the question as to whether the vessels were in fact purchased from Cardiff or were purchased directly from Samsung. Management made it clear that the transaction was done directly with the shipyard.
While speculation on such a move initially centered on containers, DryShips’ need to resolve Ocean Rig’s financing and the speedy recovery in the container space foreclosed that opportunity. While near-term prospects for tankers do not look bright, most analysts believe, as does Mr. Economou, in an improving medium and long-term outlook. In the interim, DryShips is a diversified holding company with interests in dry bulk, crude oil tankers and offshore drilling.
At Long Last, the Spin-off (Partial and Private) of Ocean Rig
After announcing the successful completion of its $350 million ATM offering on Friday, DryShips announced that its wholly owned subsidiary, Ocean Rig UDW, intends to offer through a private placement approximately $500 million worth of Ocean Rig’s common shares in exchange for a 20% to 22% stake. The transaction has an extremely short time-line with the deal expected to close this month. The offering will be made to Norwegian private investors, and other qualified investors outside of the U.S. In addition there will be a concurrent private placement in the U.S. under 144A to qualified institutional buyers. Nevertheless, based upon the choice of managers, DnB NOR, Fearnley Fonds and Pareto, and the tight time frame, we expect the focus to largely be in Norway, where the “offshore” is part of investors’ DNA. The net proceeds of the offering are expected to be used to finance the construction costs of the four drillships under construction in Samsung, to exercise the recently announced options to construct a further four UDW drillships, and general corporate purposes.
Continue Reading
Open House in the Equity Markets
Having previously done a follow-on offering of 3 million shares back in January, which raised net proceeds of approximately $107.5 million, including the over allotment, Nordic American Tanker Shipping (“NATS”) again seized the opportunity and initially announced on Tuesday, after the market closed, an underwritten public offering of another 3.5 million common shares, pursuant to its effective shelf registration. The company also granted the underwriters a 30-day option to purchase an additional 525,000 shares to cover over allotments. The shares closed at $36.08 on Tuesday. Subsequently, due to investor demand, the offering was increased to 4 million shares with the greenshoe option increased to 600,000 shares. The price was set at $32.00 per share, which reflects an 11.31% discount to the closing price on Tuesday.
Even the Analysts Wonder
We arrived at work last Friday morning to the rather surprising news that DryShips, clearly seeing the opportunity, had once again gone out into the equity market. The company announced its second ATM Equity Offering through Merrill Lynch for up to $475 million of the company’s common shares. Back in January, DryShips had entered into an earlier agreement to sell up to $500 million, which it completed last month selling a total of approximately 95.7 million shares, generating net proceeds of ~$487.5 million after commissions. An ATM equity offering allows the company to issue common shares at any time and at the company’s discretion.
Dribbling Dilution
In a short commentary on DryShips, Scott Burk of Oppenheimer noted that the near-term upside, derived from the cash flow benefits of the newly announced Petrobras contract on the drilling rig Leiv Eriksson, would likely be dampened. He surmises that management would likely “…sell stock into strength from this announcement under its ATM offering.” What we found more sobering was Mr. Burk’s estimate that while this $500 million offering could be completed by mid-April, DryShips would likely need additional equity to comply with LTV covenants by August 2009. The analogy that comes to mind is the Chinese water torture.
WKSI No More
Perhaps one of the least painful but aggravating aspects of the share price collapse of the shipping stocks is the loss of one’s “well-known seasoned issuer” or WKSI qualification. When the company’s market cap falls below $700 million, the company no longer is a universal filer but must register as you go. For perspective, as of Tuesday, only Teekay, Teekay LNG, Nordic American Tankers, Diana Shipping and Alexander & Baldwin were qualified. OSG just missed at $641 million.
Poor Uncle Needs Cash. What’s a Good Nephew to Do?
Our thanks to Oppenheimer’s Scott Burk for highlighting OceanFreight’s plan to issue up to $147.9 million of common shares as part of an Standby Equity Purchase Agreement with YA Global Master SPV (“YA Global”) arranged by DVB Capital Markets.
The transaction would be extremely dilutive to shareholders. If all $147.9 million of shares were sold at $3.83, the last reported price prior to the announcement, the company would have approximately 57.2 million shares outstanding which represents an increase of 208% in issued and outstanding shares.
Continue Reading
Hard Numbers
Moving from the theoretical to the concrete, the following examples illustrate the real cost of today’s crises:
Genco Bites the Bullet
On Tuesday, Genco Shipping & Trading (“Genco”) made the correct but painful decision to cancel the previously announced acquisition of six dry bulk newbuildings, including three Capesize and three handysize vessels, from Lambert Navigation et.al., at an aggregate purchase price of $530 million. As part of the agreement, the sellers will retain the deposits totaling $53 million. The three Capesize vessels and three Handysize vessels are being constructed in the Daehan and Jinse shipyards in South Korea, with deliveries commencing in the 4th quarter 2008 (two Handysize) through 2009.
A Bargain?
The following sales of dry bulk vessels were reported last week in Cleaves Shipbroking’s S&P Market Report:
“ARETHOUSA DWT 171,779, BLT 9/1999 AT HYUNDAI HEAVY ULSAN, SOUTH KOREA, M/E B&W HYUNDAI HEAVY SOLD FOR USD 90 MILL (AFTER BEING RENEGOTIATED FROM USD 133 MILL).
PILION DWT 48,218, BLT 9/1994 AT SHENAVEH, DENMARK, 4 X 25T CRANES, M/E B&W MITSUI TAMANO, B&W SOLD FOR USD 33 MILL (AFTER BEING RENEGOTIATED FROM USD 51.5 MILL).
OCEAN GLOBE DWT 43,246, BLT 8/1995 AT HYUNDAI HEAVY ULSAN, SOUTH KOREA, 4 X 25T CRANES, M/E B&W HYUNDAI HEAVY SOLD FOR USD37 MILL (AFTER BEING RENEGOTIATED FROM USD 53 MILL).”
Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
