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Norwegian Bond Market Reopens with a Rush
Mark the date – November 4th – on your calendar. After a hiatus, the oil service companies returned to the Norwegian bond market en masse or so it seemed. On Friday, Petroleum Geo-Services ASA announced a $300 million offering of 7-year notes. This was quickly followed by a $150 million offering of 5-year 2nd lien callable bonds by Chloe Marine Corporation. We then awoke on Monday to the announcement that Songa Offshore was in the market with a 5-year senior unsecured bond issue in the range of NOK 1,150 to 1,400 million. For this week’s issue, we will provide in-depth look at the project bond issued by Chloe Marine.
Deep Star Metro Ltd, a joint venture of Metro Exploration Holding Corp. (controlled by Theodore Angelopoulos’ Metrostar Group) and Odfjell Offshore Ltd. (a subsidiary of Odfjell Drilling) came to market this week to finance its second drillship, the Deepsea Metro II (“DSM II”), a Gusto P10000 6th generation UDW drillship owned by Chloe Marine and under construction at Hyundai with delivery scheduled for November 30th. The vessel has been chartered to Petrobras (rated A3/BBB-) for 3-years at a rate of approximately $438,000/day plus a bonus of up to 10% of day rate based upon efficiency. Metro Exploration was established by Metrostar to expand into the offshore energy sector through the building of two UDW drillships. Given Mr. Angelopoulos superb timing and track record we expect the assets will be sold to the larger operators contributing to Mr. Angelopoulos’ wealth.
Oh to Be in the Offshore – Songa Offshore Gets Financing
This week Songa Offshore announced that it finalized a new $420 million credit facility, which will be used to finance the delivery of the ultra-deepwater semi-submersible, Songa Eclipse, which is ready for delivery from Jurong. While few loan terms are available, the company did disclose that the repayment profile is 8.5 years.
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
Offshore Drilling Interest Unabated
If you want to market an offshore drilling transaction, particularly a start-up, Oslo must be one of the first stops, if not the only, on your itinerary. This is clearly evident from the following two deals which closed last month. The appetite for offshore appears to be nearly insatiable.
Prospector Offshore Drilling S.A.
In early December, Prospector Offshore Drilling S.A. successfully closed it private placement of 35 million shares at a subscription price of $2/share. Total gross proceeds amounted to $70 million. As part of the offering the Skeie Group and the management team agreed to subscribe for a minimum of$15 million, of which the latter on its own agreed to subscribe for $1.6 million. Post-issue there will be 35.445 million shares outstanding, with new investors owning 98.74%. Proceeds will be used for the initial down payments for the construction of two high specification harsh environment (“HS/HE”) jack-up drilling rigs as well as project management costs and SG&A until delivery of the first rig. While the rigs are classed as HS/HE, they can operate in the North Sea but are not suitable for Norway and the Arctic, where the delivery cost of a compliant rig is in excess of $500 million, more than double the cost of the Prospector rigs.
A Specialist Investment Banking Model for Sourcing Capital and Giving Advice – Pareto Carves Out a Niche and Creates a Gateway in New York
For Pareto, it all starts with what you know and being Norwegian they are experts on industries such as shipping, oil services and E&P. In fact, their knowledge starts at the grassroots level through company and industry research and extends to asset brokerage for both ships and offshore drilling rigs. They know the players, understand industries and have global access to market intelligence. These factors together with a focused investment banking team and dedicated institutional sales force, both equity and fixed income, underlie their strength in deal origination and execution. As they say, they are “in the market” which is evidenced by three very different recent transactions. They played an important role in the Vantage Drilling bond and equity offerings and are advising Rowan on its acquisition of Skeie Drilling.
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What Does this Say About Risk Appetite?
While we understand that investors want equity type returns for equity risk, we are unsure what that means these days. Over the past two weeks, we have reported on Songa Offshore’s recent capital raising exercises. Initially, over a period of 6 weeks, the company tried to do a $200 million bond offering, which was eventually deferred due to market conditions and a timing issue related to the aging of the financial results incorporated in the prospectus.
The company then turned to the equity markets and with what seems to be minimal effort sold $100 million in equity in 60 minutes in an issue that was 6.5 times oversubscribed. Effectively, as they point out, they could have sold the whole company.
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Norwegian Bonds Come & Go
Songa Offshore, Wilh. Wilhelmsen and Aker Solutions were a few of the companies, involved in the Norwegian bond market this week. Aker Solution’s NOK 2.1 billion 5 year FRN priced at NIBOR + 4.75% was the largest offering in the domestic market this year, although its parent, Aker ASA, has subscribed to NOK 1 billion of the total issuance. Pricing was highly favorable as the new issue is trading at a spread to swaps 100 bps below the existing 2013 maturity. The company maintained its BBB- rating from Fitch but the outlook was changed to negative.
Wilh. Wilhelmsen ASA successfully pushed out its redemption profile by completing a placement of its own bonds in WWI13 and by “tapping” the same loan, in aggregate, placed a total amount of NOK 560.5 million. The amount issued increased from NOK 800 million to NOK 1 billion and WW’s holdings decreased from NOK 489 million to NOK 129 million. This issue matures in November 2012. With the proceeds, Wilhelmsen bought back bonds amounting to NOK 65 million in WWI11 (July 2010), NOK 75 million in WWI16 (March 2011) and NOK 80 million in WWI06 (May 2011). Pareto Securities managed the transaction.
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Songa’s Misguided Misadventure
In a presentation on Monday, Songa Offshore sought to explain its unexpected private placement of shares the previous week, at a discount of approximately 34% to the prior day’s close. The share placement alleviated a short-term liquidity shortfall as well as a breach of covenants.
The main culprit was its historic financial strategy. Over the last few years, Songa intentionally kept cash at tight levels of around $30 to $70 million, which level was increased as rigs were added. In addition, the company entered into TRS agreements during the 12-month period until January 2008. Both worked as planned until worlds collided. In a matter of five weeks, the company’s TRSs went from $16.7 million in the money to $26.8 million out of the money a swing of $43.5 million. In addition, during the week of September 15th, Songa expected to rollover $50 million in commercial paper and was able only to roll only $22 million leaving a $28 million shortfall.
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