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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Arne Blystad Schedules Listing of New Rig Company in Oslo