A Bellwether?

The bond market is getting better. As we saw with the Hornbeck bond last month, spreads and trends are improving. The economy seems to be bottoming out and with an improving economy and inflation fears increasing interest rates should follow. The timing for an offering seemed propitious then as it does now.

It was therefore no surprise that Seacor Holdings Inc. (“Seacor”) became one of the first NY-listed “shipping” companies to issue bonds this week when it priced and sold $250 million of 7.375% Senior Notes due in 2019. The issue was priced at 99.239% to yield 7.471%, reflective of the current market and at a much better rate then would have been achievable 6 months ago. This equates to 400 bps spread over like term Treasuries. The issue was well received and several times oversubscribed and despite requests to upsize the deal, Seacor was satisfied at the current level.

Written by: carisk | Categories: Freshly Minted, The Week in Review | September 24th, 2009 | Add a Comment

Clearing the Air

An astute independent observer of the Jones Act took us to task for our implication that the plaintiffs may have intentionally waited to adjudicate the case in order to cause economic harm.

In fact, the Coast Guard’s preliminary rebuild determinations are by their nature preliminary and cannot be relied on as final determinations. Competitors cannot challenge those determinations until the work is completed in the foreign yard. Therefore, the parties would not have been free to challenge the Seabulk rebuildings in 2005 when the preliminary rebuild determinations were made, but were required to wait until after May 2007 when the work was completed on the vessel and the Coast Guard actually issued its new certificate of documentation to compete in the U.S. coastwise trades. Seabulk therefore assumed the risk that the Coast Guard decision could be changed or overturned.

We apologize and stand corrected. Nevertheless we remain consistent in our view that the process, as it exists today, is flawed.

Written by: carisk | Categories: Freshly Minted, Market Commentary | May 8th, 2008 | Add a Comment

Seacor to Take Effective Ownership of Seabulk July First

Seabulk International shareholders approved the pending merger with Seacor this week. Seabulk holders will receive approximately 0.27 shares and $4 in cash for each Seabulk share they hold in a deal for $532 million in equity and the assumption of approximately $471 million in debt. In return, Seacor will take control of the company, including its U.S. Jones Act tankers, offshore supply vessels and tug division, effective July 1st.

Written by: carisk | Categories: Freshly Minted, The Week in Review | June 30th, 2005 | Add a Comment

Seacor Buys Seabulk: A Perfect Match

Since the transaction was announced last Friday, and particularly at the CMA show held in Stamford this week, quite a few people asked us what we think of Seacor’s acquisition of Seabulk. Our conclusions up front: we think it’s a perfect fit.

From a market standpoint, the timing of this business combination couldn’t be better. After several years of depressed rates in the U.S. Gulf, it appears that the market is coming back, as OPV day rates come up in the North Sea and West Africa. The driver of this increased demand appears to be strength in the jackup rig and floating rig markets, particularly in deep water. The North Sea has seen rates not witnessed since 1998. As a result, the deal gives Seacor increased financial and operating leverage at a time when the key offshore markets are strengthening and look to remain strong through 2006. Moreover, the acquisition diversifies sources of the company’s EBITDA by even further broadening Seacor’s portfolio of businesses across different cyclical drivers and behavior.

But more compelling than the market fundamentals is the fact that Seacor and Seabulk have very complementary businesses and capital structures – critical components in a successful corporate combination. From a financial standpoint, it is very clear from the valuation data shown in the accompanying charts that Seacor is the stronger company. The company is larger, has more cash, more market cap and a lower debt to cap ratio. Moreover, Seabulk pays hundreds of basis points more for its bank debt than Seacor does, excluding the Title XI bonds on Seabulk’s U.S. flag tankers.

Seacor’s acquisition of Seabulk will also raise the gearing from 33%, bringing it closer to the industry average of 51%. At the same time, Seacor will be able to sharply reduce the cost of much of that financing. What is interesting to note is that although Seabulk is much smaller and more highly leveraged, the company actually produced more EBITDA and earnings per share in 2004 than Seacor did thanks to the strong tanker market.

From a valuation standpoint, the transaction will be dilutive to Seacor on a price to book ratio with the company using stock valued at 1.4x book value to buy a company at 2.6x book value, but it is important to remember that the Seabulk U.S. flag tankers are likely carried at book values that are substantially below their market value. Although we generally provide a Price/NAV metric for M&A transactions, the vast and diverse amount of equipment owned by both of these companies makes the exercise less meaningful than for more traditional shipowning companies.

Written by: carisk | Categories: Freshly Minted, Mergers & Acquisitions | March 24th, 2005 | Add a Comment

SEABULK PURSUES ARBITRAGE IN THE CREDIT MARKETS

By Matt McCleery

Seabulk International, which is controlled by lead underwriter Credit Suisse First Boston Private Equity (5 1%) and Carlyle/Riverstone (25%), headed back into the bond market in early August and issued $150 million of 10- year unsecured high yield bonds. In addition to Credit Suisse First Boston, which was sole lead book-running manager, Banc of America Securities LLC and RBC Capital Markets were co- lead managers and Merrill Lynch & Co had a piece of the economics as well. As the pricing table indicates, Seabulk achieved outstanding execution on the deal, especially in light of its single B rating.

Why did they do it? The deal is a refinancing. Seabulk used proceeds of the offering to repay $144.2 million of its five-year $180 million term loan (LIBOR + 500bps) /revolver (LIBOR + 450bps) arranged by Fortis and NIB Capital in September 2002. The company used the remaining $200,000 to pay fees and expenses associated with amending that credit agreement. Concurrent with the offering, Fortis, NIB and Bank of Scotland issued a commitment letter to Seabulk to provide the company with an $80 million five-year revolver of which $30 million was deemed drawn, as that is the amount that remaining outstanding after the offering. The $18 million sale/leaseback that Seabulk concluded with Transamerica and Nordea in April 2003 for a UT 755 was not be involved in these transactions. The projections in the offering memorandum assumed that the deal would price at 9%, which was 50 basis points low.

So what is this really all about? One school of thought was that Seabulk and its private equity-led board of directors simply arbitraged the capital markets to capture better terms at a time when the company needs free cash to renew its fleet. Seabulk’s bank debt was priced at about 500 basis points over LIBOR and its bonds were just slightly pricer. While it is true that in today’s low base-rate environment the all-in floating rate is only 6% versus the 9.5% the company will pay in the bond market, Seabulk’s new bonds are fixed for 10 years. Who knows, since the Federal Reserve recently said short rates will stay low, perhaps CSFB put together a swap arrangement to bring the notes back to floating, or at least shorter in term, as Citibank did when CP Ships issued bonds last summer. Another perspective came from some market observers who said things like “the banks are feeding this company to the dogs once again.”

Written by: carisk | Categories: Marine Money, Uncategorized | September 1st, 2003 | Add a Comment

The Jones Act Ripple Effect: The Matson Project

The introduction of new tonnage into a Jones Act trade almost always creates a ripple effect that impacts other US-flag markets and sectors. The stone that caused the most recent ripple was thrown when Kvaerner Philadelphia Shipyard decided to build containerships without a buyer. This move resulted in Matson’s announcement last week that they had agreed to adopt the orphan ships, which, in turn, caused Seabulk to breathe a sigh of relief because Kvaerner didn’t build product tankers for competitors such as American Heavy Lift or Keystone.

Financing is never far from new ships, and the most recent ripple resulted in Caterpillar Financial Services closing a lucrative bridge loan for Kvaerner and either JP Morgan or Citibank probably being awarded a mandate to sell another $200 millions worth of Title XI bonds.

Written by: carisk | Categories: Marine Money | June 1st, 2002 | Add a Comment