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In the Eyes of the Analysts – Seaspan
Amidst the flood of 2nd quarter analyst reports, we found two comments on Seaspan that we thought were intriguing. First, Justin Yagerman of Wachovia Capital Markets reported that during the quarter Seaspan looked at $3 billion of deals without coming to terms. We wonder if this reflects concerns about credit quality, an issue Seaspan has commented on previously.
“Don’t Give Up the Ship” – Marathon Acquisition Restructures Deal
This morning Marathon Acquisition Corp. (“MAQ”) announced amendments to its Agreement and Plan for Merger for its previously announced merger with Global Ship Lease Inc. (“GSL”), a subsidiary of CMA CGM. In order to allow enough time for the shareholders to consider these changes, the special meeting of the shareholders has been deferred to August 12th. As one might expect, the sponsor and GSL have taken haircuts in order to increase the returns to the prospective shareholders clearly reading the messages from the Street over the past couple of weeks. Or, as our esteemed President was explaining to me the other day they have picked up the tab for the dilution created by the carried interest.
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NATS Completes Follow-on, TBSI Goes into the Market
Following successful follow-on offerings by Seaspan, Teekay LNG, and Double Hull Tankers and a placement by Pacific Basin, Nordic American Tankers has seen it fit to raise equity to repay borrowings in the immediate future and for expansion in the longer- term, per its business model. NAT has sold 4,000,000 common shares in the offering and underwriters’ have exercised their option for a 310,000 share over-allotment, raising $173 million in gross proceeds. Morgan Stanley led the offering while Dahlman Rose acted as co-manager.
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!
Double Hull Tankers Follows On
April was certainly the month the shipping equity markets sprang back to life – at least for follow-on offerings. Seaspan (SSW) was out first on April 10 with an offering that raised nearly $240 million, followed by Teekay LNG (TGP) on April 17 with a $165 million offering. Then this week Double Hull Tankers (DHT) saw the positive trend and took the opportunity to position themselves for future acquisitions by raising $84 million with the offering of 8,000,000 shares at $10.50 per share in a deal led by Merrill Lynch and UBS with Dahlman Rose also acting as an underwriter. The offering was upsized by 1,000,000 shares on the back of strong institutional demand, though it priced at a relatively steep discount of 12% to where the shares were trading when the transaction was announced just one day before. The accompanying graph shows how the price performance of SSW, TGP and DHT post offering announcement compare. Continue Reading
Counterpoint!
At times, it is extremely difficult to portray the various perspectives of a transaction, particularly when it is in a public deal for obvious reasons. In light of our article last week, Seaspan’s management wanted to set the record straight and provide their insights into the process and in particular the timing and the rationale for being the first shipping public offering of the year despite the credit crunch.
Sentiment Turns
In a welcome turn of events, the market was resoundingly upbeat this week. The pace of transactions picked up notably across sectors, and we can’t help but view this as a positive sign for the financing market going forward.
On the M&A front Excel and Quintana successfully closed their merger. Each issued and outstanding share of Quintana common stock was converted into the right to receive $13.00 in cash and 0.3979 Excel Class A common shares. The merger creates a combined company that operates a fleet of 47 vessels with a total carrying capacity of approximately 3.7 million DWT and an average age of approximately eight years. Stamatis Molaris stepped into the role of CEO of the combined company, while Hans Mende, Corbin Robertson III and Paul Cornell joined its board of directors. We were happy to hear that the deal was executed smoothly. Moreover, Nordea and the underwriting team were successful in syndicating the debt levels required to make the deal possible – without needing to bring market flex provisions into play.
Spring Awakening (with apologies to the Broadway show)
After being in hibernation or at least in the doldrums, the finance markets are showing signs of activity this week. First out of the blocks, Seaspan gave a double barrel blast. Last Friday, Seaspan announced it had entered into a new term loan facility in the amount of $235.3 million to finance the acquisition of two of its previously acquired 13,100 TEU vessels. The facility was fully underwritten by Sumitomo Mitsui Banking Corporation at a weighted average rate of 0.70% over LIBOR. It is important to emphasize the fact that it was fully underwritten and that the rate, albeit low, was above their historic average weighted cost of below 0.60%. Moreover, Seaspan notes that they now have sufficient credit agreements, with locked-in attractive rates, to fully fund the company’s debt requirements for the entire contracted fleet of 68 vessels while leaving an incremental $550 million in immediate liquidity to capitalize on acquisition opportunities.
“Gimme Shelter”
These lyrics from the Rolling Stones may in fact be a forewarning of a storm brewing closer to home. At least for the moment, the shipping industry has been sheltered from the worldwide storm created by the credit crisis and the drying up of liquidity in the bank and public markets that began last August and culminated with the recent fire sale of Bear Stearns. Nonetheless, it is hard to fathom how shipping has apparently escaped this turmoil.
A simple explanation, according to industry pundits, may be that charter rates and asset values are at historic highs and, instead of the normal cyclical nature of the business, we have entered into a period of super cycles driven by a commodity boom, which, in turn, is the result of the insatiable demand for commodities in China and India among others. With risk thus pushed out, an ever-increasing demand seemingly overwhelms any oversupply risk, lending and investment become easier. Continue Reading
CMA-CGM Finds Public Buyers in Marathon
Private equity funds have long had a glamorous reputation as the real movers and shakers in the financial world, buying and selling companies at will and making tremendous returns for their partners and investors. While they are under some pressure now as the easy access to capital they rely upon has been hampered, this was not so in 2006. And it is the 2006 crop of SPACs that is just now coming to maturity, driving the volume of acquisitions by SPACs to $3.9 billion so far this year, more than six times the comparable period in 2007, according to Dealogic.
It was in just this time period, in August 2006 to be precise, that Marathon Acquisition Corp came to the public markets, backed by Michael Gross, a founding partner of private equity powerhouse Apollo. Fast forward to February 2008, however, and Mr. Gross’s SPAC was quickly closing in on its deadline to announce an acquisition target or risk being liquidated. Continue Reading
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