Links
Risk Off? – Frontline Closes within its Self-Imposed Deadline
While not a joyous conclusion to the year, the announcement of the successful completion of the restructuring of Frontline does at the very least bring a sigh of relief to all the parties involved. While we have covered the details of the transaction in prior issues, we would highlight the following key elements.
The newly formed “risk” tanker company, Frontline 2012 acquired five VLCC newbuilding contracts, six modern VLCCs, including one time charter and four modern Suezmax tankers from Frontline for $1.121 billion based upon fair market values. In addition, the new company assumed $666 million in debt associated with the vessels and newbuilding contracts as well as $325.5 million in remaining newbuilding commitments. Based upon a year-end book value of $1.428 billion, Frontline will incur a book loss of $307 million.
Expanding Offshore – SFL Diversifies Its Rig Portfolio
All of Norway, including its major shareholder, is doing it so why not Ship Finance International. What is it that they are all doing? Quite simply, everyone has caught the offshore bug and is expanding their investments in that sector. And, why shouldn’t they. Oil is approaching the magical $100/barrel.
Erin Go Bragh – “Irish Troubles” Impact SFL
These days this Gaelic expression takes on even greater meaning. In its Anglicized version, it means Ireland forever, however “bragh” is more often literally translated to mean “until doomsday”. While we remain certain Ireland is here forever, it would appear that economically it was pushing the latter boundary. But what does that have to do with ship finance? Quite simply the latest offering of bonds by Ship Finance International experienced the fallout of the latest “Irish Troubles.”
“The Market Is Hot” – The Theme of Yield Continues
While the action in bonds this week continued in Norway, New York joined the fray with Ship Finance’s latest offering. The beauty of Norway’s market is its speed and simplicity but Wall Street is the place for longer tenor dollar denominated deals such as Ship Finance’s ten year senior unsecured offering.
The Rich Get Richer – Liquidity Abounds for Some
The following transactions highlight the oft spoken phrase that the banks have money for their core clients, which tend naturally to be large transparent highly capitalized corporates. While we cannot quibble with the rush to safety in an effort to minimize risk, this trend is transforming the nature of the business, which was built on risk taking entrepreneurs, who not only knew ships, but understood and played the markets. By allocating capital accordingly the banks are changing the fundamental nature of the business from entrepreneurial to corporate. We are not sure if this is good or bad; time will tell.
Navios Acquisition Expands
The focus of Navios’ management attention these days appears to be on newcomer, Navios Maritime Acquisition Corporation. This likely reflects the depressed tanker market and hence the more meaningful opportunity when compared to the dry sector which chugs along profitably. But it is not so easy to find opportunities in the tanker sector as asset values remain high in comparison to earnings. The trick is to find a good asset at a reasonable price and utilize just the right amount of debt to be comfortable while achieving breakeven rates that work at today’s heavily discounted revenue levels. Or, if you are Navios, you might create an even more structured transaction, which actually shifts a portion of the risk to the seller.
For Ms. Frangou and her team this involved a return trip to a South Korea shipyard. There they found and agreed to acquire two 75,000 DWT LR1 product carrier newbuildings scheduled for delivery in Q4 2011. The purchase price of the vessels is $87 million en bloc, which will be financed with the issuance of $5.4 million of mandatorily convertible preferred stock, a new credit facility of $52.2 million (60% LTV) and $29.4 million from cash on hand. The effective acquisition price for the two vessels is $82.8 million or $41.4 million each after giving effect to the preferred stock.
The preferred stock pays a quarterly dividend 0f 2% per annum and will mandatorily convert into shares of common stock as follows: 30% of the outstanding amount will convert on June 30, 2015 and the remaining outstanding amounts will convert on June 30, 2020 at a price per share of common stock of not less than $25.00. The holder of the preferred stock shall have the right to convert the shares into common stock prior to the scheduled maturity dates at a price of $35.00 per share of common stock. The preferred stock does not have any voting rights. In terms of dilutive effect, the number of shares of common stock that may be issued upon conversion ranges from 154,286, if all preferred shares are converted at $35.00 per share of common stock, to 216,000, if all are converted at $25.00. Navios Acquisition’s shares closed yesterday at $5.80 per share.
In addition, the company entered into a loan agreement with EFG Eurobank Ergasias S.A. to borrow up to $52.2 million in two tranches in order to partially finance the acquisition cost of the new vessels. Each tranche of the facility is repayable in 32 equal quarterly installments of $0.35 million each with a final balloon payment of $15.1 million, which equates to an amortization profile of approximately 19 years. The loan bears interest at LIBOR + 2.50% prior to the delivery date, with the spread increasing to 2.75% thereafter. Among the normal and customary financial covenants is the requirement that Navios Maritime Holdings Inc., Angeliki Frangou and their respective affiliates, in the aggregate, control at least 20% of the then outstanding shares of common stock. With that group currently controlling approximately 62.4%, there is sufficient room for the company to sell down its position.
The More the Merrier – Ship Finance Adds Two Supramaxes
Ship Finance International announced this week that it had agreed to acquire two additional 57,000 DWT Supramax vessels, which are sisters to the three purchased in China earlier this year, for an en bloc price of approximately $61 million, which is in line with the earlier purchase. Delivery is expected to occur in the 2nd and 3rd quarters of 2011. The vessels will be time chartered to the same Asian-based logistics company for a term of 10 years at a daily net charter rate of approximately $16,000 per vessel, lower than the $17,000 done in the earlier transaction.
While detail on the financing is scarce, the company says it has received indications from the banks for 80% financing. Based upon the recently concluded financing for two of the earlier vessels, it appears likely that the company will be able to achieve eight year financing with limited recourse to the company.
These appear to be aggressive terms for limited recourse asset-based bilateral loan. The signature matters.
Also On the Bandwagon – Ship Finance Issues a Bond
Earlier today, Ship Finance International announced it had successfully placed a new senior unsecured bond loan in the Norwegian credit market. The total loan amount is NOK 500 million, which is equivalent to approximately $85 million. The bonds will mature in April 2014 (3.5 years) with loan proceeds to be used for general corporate purposes. Pareto was the arranger of the bond.
The Rich Get Richer
It was certainly obvious that when the banks decided to re-engage in their main activity of lending, they would be even more discriminating. A stronger credit with higher pricing translates to higher returns with less risk, a no brainer. Last week, Ship Finance International found itself the beneficiary of this thinking. While negotiating the refinancing of the loan on the Frontline fleet, Ship Finance found itself in the midst of hungry bankers clamoring for a piece of the loan, this led to a significant oversubscription problem (sic). Given the conservative leverage on the fleet, it agreed with the banking syndicate to upsize the loan by $50 million to $725 million providing even further capacity to take advantage of opportunities that might arise.
Continue Reading
Making a Silk Purse Out of a Sow’s Ear
It can be done as Ship Finance International (“SFL”) demonstrated this week. The company had ordered two Suezmax tankers without cover. It subsequently sold them to North China Shipping Holdings (“NCSH”) for $109 million each, which outright sale apparently failed. Accordingly, SFL went back and restructured the transaction as a bareboat hire purchase agreement or conditional sale.
Continue Reading
Renegotiation Success
Ship Finance International has amended the sale agreement of two Suezmax newbuilds with North China Shipping Holdings to a hire/purchase transaction. The two tankers were previously sold to North China Shipping for USD 109 million a piece and under the new agreement, Ship Finance will accept USD 40.5 million upfront per ship, and bareboat hire of USD 16,700 daily subsequently for 5 years. North China Shipping is obliged to purchase the vessels at USD 40.7 million each after 5 years.
Earnings Season – Bask in the Glory!
As the global economy lurches from shaky economic measure to even shakier economic indicators and the public markets collectively hold their breaths prior to any major earnings release, shipping square in the middle of its own earnings season is proving to be a stellar financial performer. Who would ever have thought that?!
While Diana was punished for missing analyst estimates by 2 cents, the more important fact is that the direction of earnings is still upwards with year on year improvements, dividends are being increased and the forward book of business seems likely to assure that 2008 will be another hugely successful financial year.
Some representative quotes may say it best:
Continue Reading
The Official Guide To Marine Finance Providers
Shipping Index
