While sitting home in the midst of a blizzard and with the knowledge that the omniscient Punxatawny Phil announced on Ground Hog Day that we still have 6 more weeks of winter, we know, nonetheless, that spring will inevitably come. Yesterday we attended the morning session of the Hellenic/Norwegian-American Chambers of Commerce 16th Annual Joint Shipping Conference and we felt similarly that the winter of ship finance may also break. While the tone wasn’t exactly upbeat, there certainly were no dirges being sung and it, in fact, appears by their comments that the bankers may be ready and able to return from their year plus long sabbatical. But as Nikolai Nachamkin of DnB and the conference co-chairman would remind me, I am getting off topic.
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carisk | Categories:
Freshly Minted,
The Week in Review | February 11th, 2010 |
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By Kevin Oates
…in the longer term shipping should correct but quality, transparency and financial strength are key to survival.
Despite the tough market and the general lack of ship finance, Marine Money’s Greek Ship Finance Forum again filled the seats in Athens. With 310 delegates and speakers and some 40 more for the TEN Ltd lunch, there was plenty gossip and exchange of views at the 11th Annual conference held on the 8th of October 2009.
The event had started with a speaker’s dinner the previous night co-hosted by Navios Maritime Holdings and was to end in the early hours of the following morning at the Capital Party co-hosted by Capital Product Partners LP at a well-known Athens nightclub. Even if the market is tough, we still know how to enjoy ourselves.
Back at the conference, our day began with Guy Verberne, a leading economist at Fortis Bank (Nederland) telling us that the economic recovery has come and it may well be sustainable. China, he says, has plenty foreign reserves to prolong it’s stimulus package for as long as it needs and he sees no meaningful cutbacks from the stimulus packages of western governments, at least through 2010. A risk is a double dip in 2011 if we get too bogged down in debt.
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carisk | Categories:
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Market Commentary | October 15th, 2009 |
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The stars are beginning to align now for a return of the IPO. The New York Times wrote on Monday that backed up companies are waiting. Investors are warming up to risk. Bankers are back out marketing and private equity is looking to exit investments.
The US, Brazil and Asia are leading the way. In Brazil US$6 billion in IPO equity was raised in the first half of 2009.
The Euro market for IPO’s in the first half of 2009 was virtually closed with just 465 mil Euros raised. Europe is focused still on secondaries. In the US, there has been well over a billion dollars raised by shipping companies in “at the market” offerings, all since the Lehman collapse.
The good news from the Times was that the supply side pipeline is slowly filling. Regulated and less cyclical businesses will have the jump.
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carisk | Categories:
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Market Commentary | July 30th, 2009 |
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Our friends at Seward & Kissel have brought to our attention a proposed devastating change in the tax law that de facto would treat all foreign shipping companies operating out of the U.S. as U.S. taxpayers. The proposal, introduced by Senator Levin, appears in the bill entitled “Stop Tax Haven Abuse Act” (S. 506). Historically, companies have been taxed as domestic or foreign based upon where the company was formed. With this proposal, we would revert to the British system of taxation based upon where the company is managed and controlled.
“Section 103 of the Levin Bill (“Section 103″) would tax foreign corporations as though they were United States domestic corporations if:
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carisk | Categories:
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The Week in Review | March 12th, 2009 |
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For the fifteenth year, the Hellenic-American and Norwegian-American Chambers of Commerce presented their Annual Joint Shipping Conference posing the question of “How Will Shipping Survive the Perfect Storm?” Whether the question was answered or not, attendees were able to garner lots of insights into what happened and what may happen in the future. Once again, the following will highlight what we found of particular interest.
Arlie Sterling of Marsoft provided insights into “what happened” and “what might happen.” The industry did well based upon an explosion in trade and demand and yard capacity limits. The chart below lays out the extraordinary growth.
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carisk | Categories:
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The Week in Review | February 12th, 2009 |
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In addition to being Conference Chairman of the New York Conference, Hamish Norton of Jefferies was also given the challenging assignment of commenting on the capital markets. Certainly, there are no surprises as the “subprime lending crisis is reverberating across all markets.” Current equity market conditions are at best uninspired with all major indices well down, with most of the damage done in the last eight weeks. YTD domestic equity fund flows are largely negative but less net negative recently. Not surprisingly, to the extent any equity deals were done they were largely done in the financial sector reflecting their need to recapitalize.
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carisk | Categories:
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The Week in Review | October 23rd, 2008 |
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The October 9, 2008, Federal Register carries the first set of implementing rules for the Energy and Security Act of 2007 (2007 Act) short sea transportation (SST) program. The interim rules published will enable the Maritime Administration (MarAd) to initiate its America’s Marine Highway (AMH) Program by the solicitation of recommendations for SST routes, and of applications from parties interested in participating in SST projects. It provides rules that will be available in 30 days to govern these and other immediate matters, while allowing 120 days for interested party review and comment on these rules, and to offer suggestions for improvements, prior to the publication of final rules. See, Fed. Reg. volume 73, number 197, pages 59530-59537.
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carisk | Categories:
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The Week in Review | October 16th, 2008 |
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In a brilliant transaction for all parties, Heidmar Inc. announced Wednesday that Shipping Pool Investors Inc, (SPII), a company affiliated with the Cardiff Group whose founder is Mr. George Economou (DRYS), has entered into a definitive agreement to pur chase a 49% stake in the company. In a related transaction, senior members of Heidmar’s management will purchase a 2% equity stake in the company. Morgan Stanley, through its subsidiary Morgan Stanley Capital Group Inc. will retain a 49% ownership stake in the company.
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carisk | Categories:
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The Week in Review | April 17th, 2008 |
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Thankfully we knew the 7th Annual German Ship Finance Forum was going to be busier than the empty Emirates flight that brought us here. In our effort to save our favorite direct flight, which is being cancelled next month, we were thinking of lending Emirates Mike McCleery, based upon his tireless and successful efforts, to do their sales promotion. Unfortunately our principals demanded he remain focused on his job.
But we could not imagine how big is big and how supportive of our efforts the German shipping community would be. We had an inkling on Monday as we drove to our first meeting. Mike’s Blackberry did not stop buzzing as registration after registration poured in. The final count is not in but we think we are approaching 500 delegates.
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carisk | Categories:
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German Focus | February 28th, 2008 |
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It’s all about the arbitrage these days.
What we mean by this, of course, is the fact that ships have a higher value on Wall Street than they do in the shipping markets – and not surprisingly there is a steady stream of people looking to capture the difference.
For proof of this, one need only to look at our Cash Flow Multiples by Vessel Type valuation table and compare it to the “Fair Value” table showing the valuation of shipping companies that trade on the stock exchange. It depends on the age of the vessels, of course, but on average a shipowner can buy a middle-aged vessel at about 4x cash flow and sell it to Wall Street investors at about 6x cash flow – much more if the company is valued based on its dividend yield.
Here’s where the rubber meets the road: by valuing shipping companies using a multiple of their cash flow generation, issuers of equity can effectively sell their vessels for 1.5-2.0x their value in the sale and purchase market. It is a truly remarkable moment in the evolution of shipping and the capital markets – and not surprisingly the Delta flight between Athens and New York is once again being seen as a direct journey to wealth and early retirement for shipping dealmakers.
A Growing Party – Private Equity Funds Enter
In the early stages of this “multiple expansion” (or “bubble” for cynics) process on Wall Street, issuers of equity were largely financially savvy shipping companies that realized that by selling ships, and leasing them back as Stena did with Arlington Tankers, they could extract the premium value of their ships while at the same time maintain commercial control and chartering “upside.”
However, as we move into year three of the shipping bull market, we are beginning to see private equity funds hire some shipping professionals and form new companies for the purpose of buying ships at 4x cash flow and selling them to Wall Street for 6x cash flow – capturing the arbitrage along the way.
Not surprisingly, most of these private equity investors are focusing on the dry bulk sector where the fundamentals are rosy, and more importantly, the valuations are higher, even in situations with external management companies with older vessels.
There are several deals presently preparing or considering coming to market in which the issuer is a private equity fund, or “sponsor” as they are called, looking to capture the value arbitrage, but the first has finally reached the starting line – a newly-formed entity called Eagle Bulk Shipping owned by a private equity fund in New York called Kelso and comprised of former Credit Suisse investment bankers.
We’d like to take a moment to discuss why this deal has filed. For those readers less familiar with the S.E.C, there are two kinds of registration forms used for equity – the F-1 and the S-1 – the former of which is used by foreign-based filers and the latter by U.S.-based filers. The documents are virtually the same except for one critical difference: foreign filers using form F-1 are permitted to submit their initial prospectus filing confidentially while U.S. filers are not. That is why companies such as TBS Shipping, Horizon Lines and now Eagle Bulk Shipping have documents accessible to the public while foreign filers such as DryShips and Diana do not have their registration statements made public until they have finished with the SEC comment period and are ready to print red herrings and go out on the road. But we digress…
The first financial sponsor deal, Eagle Bulk, is hoping to raise up to $250 million through a listing on the Nasdaq under the ticker symbol EGLE. Start-up companies use the NASDAQ because it does not have the same requirements for previous years of existence and profitability that the NYSE imposes. Joint bookrunners on the deal are UBS Investment Bank and Bear, Stearns & Co. – a pair of that seems to have either officially or unofficially teamed up to underwrite shipping deals. Legal advice is being provided by Simpson, Thacher & Bartlett for the underwriter and Seward & Kissel for the issuer.
What is unique about this IPO is that the company did not actually own any vessels at the time it filed its S-1 with the SEC. A quick look at the balance sheet shows that virtually all of the company’s net worth is associated with the deposits paid to secure vessels delivering in April to June 2005. We’re sure that some of the vessels have been delivered by now and there is nothing inherently wrong with this, but it is clear that the issuer has been formed for the express purpose of the IPO.
Although we will refrain from getting into valuation issues, Eagle’s fleet will consist of 11 modern handymax dry bulk vessels, nine of which have been acquired and two of which are to be delivered in June 2005, as shown in the accompanying chart. The vessels range in size from 40,000 to 60,000 dwt and have an average age of six years, as compared to the global handymax fleet average age of 15 years. In a small industry where nothing is secret, management did a good job hiding their purchases from the market and industry publications such as Tradewinds. It is still true that if the sellers know you have plans or money, the price goes up.
Management
The management team is lead by 39-year old Sophocles Zoullas, and Alan Ginsberg, a former editor of Marine Money, will serve as CFO. The rest of the directors are drawn from private equity fund Kelso, which is sponsoring the deal, and Norlands Shipping. This team will focus on strategic and commercial management, while technical management will be done by V. Ships.
The company’s pitch is that by focusing on handymax dry bulk vessels, they will have advantages that include reduced volatility in charter rates, a smaller newbuilding orderbook, increased operating flexibility, the ability to access more ports, the ability to carry a more diverse range of cargoes, and a broader customer base.
Strategy: Buy With Debt, Backfill with Equity
There’s a whiff of Diana Shipping and Nordic American to the Eagle deal, thanks to the fact that Bear Stearns is involved in all three. The company is planning to use the proceeds of the IPO to paying off existing debt and will enter into a new 10-year $330 million credit facility to refinance other existing debt, acquire additional vessels and fund general corporate purposes. Eagle plans to keep lower than industry average levels of debt. The company has not committed to a specific dividend and will leave the decision to the discretion of the company’s board of directors.
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carisk | Categories:
Equity,
Freshly Minted | April 7th, 2005 |
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