Pareto Places $60 Million of Fresh Equity for B+H

Using the issuer-friendly Form Reg F, which allows a foreign issuer to sell securities to foreign investors through a very simple process, Pareto Securities raised $60 million of cash for tanker company B+H this week. As we understand it, the deal was scaled back from an initial size of about $120 million and pricing was $18.50, about 5% below the trading price at the time. Although we have not done the math, the valuation is somewhere in the vicinity of net asset value. As we understand it, the newly issued shares will trade over the counter in Norway (until BHO lists there officially), and the U.S. lock-up period is only 40 days for investors. As you can see from the accompanying stock price graph, the shares have experienced notable selling pressure since the deal was announced.

Despite the reduced size and valuation that resulted from recent weakness in both the equity and shipping markets, this is an important deal for B+H for a few reasons. First off, the company now has a meaningful amount of buying power and we would be very surprised if they don’t have some specific ideas about how to use it. We would speculate that if B+H has, or will identify, a deal with some charter coverage (as they recently did with the OBO on charter to Sempra), bank financing could add another $200 million in dry powder. B+H management has proven themselves to be very experienced dealmakers with the patience required to do sensible deals in today’s market. Moreover, the new issue will reduce Michael Hudner’s stake to about 50% of the outstanding shares and thereby increase the free float by about five times.

Pareto Places $60 Million of Fresh Equity for B+HUsing the issuer-friendly Form Reg F, which allows a foreign issuer to sell securities to foreign investors through a very simple process, Pareto Securities raised $60 million of cash for tanker company B+H this week. As we understand it, the deal was scaled back from an initial size of about $120 million and pricing was $18.50, about 5% below the trading price at the time. Although we have not done the math, the valuation is somewhere in the vicinity of net asset value. As we understand it, the newly issued shares will trade over the counter in Norway (until BHO lists there officially), and the U.S. lock-up period is only 40 days for investors. As you can see from the accompanying stock price graph, the shares have experienced notable selling pressure since the deal was announced.
Despite the reduced size and valuation that resulted from recent weakness in both the equity and shipping markets, this is an important deal for B+H for a few reasons. First off, the company now has a meaningful amount of buying power and we would be very surprised if they don’t have some specific ideas about how to use it. We would speculate that if B+H has, or will identify, a deal with some charter coverage (as they recently did with the OBO on charter to Sempra), bank financing could add another $200 million in dry powder. B+H management has proven themselves to be very experienced dealmakers with the patience required to do sensible deals in today’s market. Moreover, the new issue will reduce Michael Hudner’s stake to about 50% of the outstanding shares and thereby increase the free float by about five times.

Written by: carisk | Categories: Uncategorized | February 3rd, 2010 | Add a Comment

Hudner Mandates Pareto – an Equity Raise or a Reverse Merger?

As readers of these pages know, the second quarter of 2005 was expected to be the most active 3-month period for raising shipping equity in history. The first quarter closed with the pricing of the Diana IPO, and everyone was set for lots of action – and then a funny thing happened: nothing.

March 30th rolled by and as we moved into the fabled 2Q05, no fresh deals came to market. There were a few filings made both confidentially and publicly, one as recently as this week, but no new deals have priced or gone on roadshows. At the same time, Diana stock crumbled below its offering price almost immediately, and Excel and DryShips share prices have deteriorated.

But now something really interesting has happened. News came out that B+H Ocean Carriers has hired Pareto to raise equity through an international offering, which excludes U.S. investors. The deal is not unlike the one that Pareto, which has proven itself to be the most powerful and hardest working firm of its kind in Oslo, did for Stolt Nielsen. It was Pareto, we believe, that orchestrated B+H’s recently purchase of 3 OBOs that are chartered to Sempra, one of which was done through a K/S fund.

Financial Investor – or Strategic?

So what does this mean? B+H is no stranger to Oslo. Although the company is based in Rhode Island, it has strong ties to Norway, with an office there run by Sverre Ditlev-Simonsen and most a large proportion of banking done with Nordea. But what is interesting about this deal is the fact that such an offering, using Reg F, may be a way for foreign private issuers to raise equity capital more quickly. Moreover, there are loads of capital in Europe looking for deals that are not U.S.

Another potential scenario is that B+H has found a strategic partner that wants a listing in the U.S. and seeks to accomplish this by acquiring a substantial, perhaps even a controlling, interest. If rumors of a $100 million offering are accurate, it would mean that Michael Hudner, who controls more than 75% of the company, would dilute his interest to below 50% as B+H currently has a market capitalization of about $95 million. The move has the potential to make a lot of sense for both parties, as B+H, even with more than half its EBITDA contracted for the next 12 months and beyond, has an older fleet that needs to be renewed.

Whether B+H is selling to financial or strategic investors, the increase in liquidity and dry powder for dealmaking can only be a huge positive for the company.