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Paying Their Due
Second only to the eternal question of where the freight markets will head these days is the question of whether the existing orderbook will be built and financed. Therefore we thought it worth a look at some recent newbuilding finance deals and some recent order cancellations to allow readers a chance to observe emerging trends firsthand – we welcome your feedback and input as well, so please feel free to drop us an email or give us a call if you have other views or deals you would like to discuss.
Written by: carisk | Categories: Freshly Minted, The Week in Review | August 7th, 2008 | Add a Comment
The Editor is High
Whilst we know its summer in Surfers’ Paradise, Buenos Aires and Cape Town, the winter of 2003 has been particularly memorable at our headquarters near New York for the weather. Snow and cold and then even more snow in an unrelenting attack.
Equally unrelenting is our little corner of the world in ship finance. Since December 15, 2002, NYSE listed tanker companies have raised $1 .64b in new funds to finance what is largely consolidation in the industry and not for new tonnage. But others, like OMI, are refinancing and sandbagging the balance sheet to get stronger in a market that looks as if it cannot last, instead of getting bigger and more leveraged. Which strategy will win? Well, there are lot of theories out there and all are right in some respects but the best answer is that no one really knows. The world is just too uncertain. Activity has not just been in tankers. Sinotrans, the Chinese version of United Parcel Service and the old Sea-Land combined, hit the market with a $450m IPO with Credit Suisse and BOC International. It’s oversubscribed and up on the issue date. RCCL is out to replace their $1 bn revolver with a ‘best efforts’ of the same size with Citibank, Nordea and Dnb.
Indeed many bankers have indicated to this editor it’s the best in a while in terms of opportunities. Said one, “Last year you (the bank) had to grab onto whatever you could get and hope that you did not lose it, because if you did you would have a bad year. This year the bulls-eye is much easier to discern and the chance for many to have a good year, is not only excellent, its downright likely.”
The Week in Review
The week has been relatively quiet from a transaction standpoint, but sentiment by and large is upbeat. The shipping markets as a whole continue to perform above expectations, and the credit and equity markets functioning smoothly, if not lavishly.
For example, Caterpillar Financial Services this week entered into an agreement to increase Aker Philadelphia Shipyard’s credit line by $150 million. Under the agreement, Caterpillar will fund up to $80 million in construction costs for seven consecutive product tankers, valuing the full agreement at $560 million. Interest payments will be required only during the construction period, and Aker may apply the funding to up to three ships simultaneously. The deal takes care of financing for the remainder of the 12 Jones Act tankers under construction at the yard, which are to be sold to Aker American Shipping for bareboat charter to OSG America. Four these tankers have been delivered, three are currently under construction, and the remainder are to be completed by 2011. Continue Reading
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.
Written by: carisk | Categories: Freshly Minted, The Week in Review | April 28th, 2005 | Add a Comment
Shipowners Present at Deutsche Small Cap Equity Conference
Shipowners Present at Deutsche Small Cap Equity Conference
It’s no coincidence that investor conferences are being held in closer to the equator during these chilly months. This week, Deutsche Bank, which recently hired investment banker Craig Fuehrer from JP Morgan and veteran transportation analyst Jordan Alliger from Lazard (formerly with Goldman Sachs), held an event at the Ritz Carlton on the beach in Naples, Florida. Shipping companies that presented include: Kirby Corporation (NYSE: KEX), OMI (NYSE: OMM), General Maritime (NYSE: GMR), TEN (NYSE: TNP), Stolt Nielsen, S.A. (NASDAQ: SNSA) and Maritrans (NYSE: TUG). As you can see from the share price graphs for the last five days, with fundamentals as good as the shipping industry, it’s always a good idea for companies to get out on the road and tell their story to investors.
It’s no coincidence that investor conferences are being held in closer to the equator during these chilly months. This week, Deutsche Bank, which recently hired investment banker Craig Fuehrer from JP Morgan and veteran transportation analyst Jordan Alliger from Lazard (formerly with Goldman Sachs), held an event at the Ritz Carlton on the beach in Naples, Florida. Shipping companies that presented include: Kirby Corporation (NYSE: KEX), OMI (NYSE: OMM), General Maritime (NYSE: GMR), TEN (NYSE: TNP), Stolt Nielsen, S.A. (NASDAQ: SNSA) and Maritrans (NYSE: TUG). As you can see from the share price graphs for the last five days, with fundamentals as good as the shipping industry, it’s always a good idea for companies to get out on the road and tell their story to investors.
Stolt Restructuring Results in Promotions at Miller Buckfire
Stolt Restructuring Results in Promotions at
Miller Buckfire
One of the most impressive restructurings of all time also appears to have resulted in some promotions. Miller Buckfire Ying & Co., restructuring advisors to Stolt Nielsen, announced last week that Mark Hootnick has been promoted to Managing Director and John Bosacco has been promoted to Principal – and all four of them were involved in the Stolt deal. “With these promotions we are pleased to recognize the accomplishments of these senior bankers,” said Henry Miller, Chairman of Miller Buckfire Ying. “Mark,… John… consistently have shown their commitment to the firm and its goal of delivering independent, thoughtful and creative advice to the firm’s restructuring and strategic advisory clients.” Miller Buckfire Ying was formed in July 2002 when the financial restructuring group at Dresdner Kleinwort Wasserstein spun off as an independent entity. In addition to Stolt Nielsen and Group TMM, MBY is currently engaged by: Kmart Corporation, Level (3) Communications, Spiegel, Inc., Eddie Bauer, Inc, Horizon Natural Resources, Aurora Foods Inc., Citation Corporation, Interstate Bakeries, Pegasus Satellite Communications and Vulcan Inc. concerning its investment in Charter Communications.
One of the most impressive restructurings of all time also appears to have resulted in some promotions. Miller Buckfire Ying & Co., restructuring advisors to Stolt Nielsen, announced last week that Mark Hootnick has been promoted to Managing Director and John Bosacco has been promoted to Principal – and all four of them were involved in the Stolt deal. “With these promotions we are pleased to recognize the accomplishments of these senior bankers,” said Henry Miller, Chairman of Miller Buckfire Ying. “Mark,… John… consistently have shown their commitment to the firm and its goal of delivering independent, thoughtful and creative advice to the firm’s restructuring and strategic advisory clients.” Miller Buckfire Ying was formed in July 2002 when the financial restructuring group at Dresdner Kleinwort Wasserstein spun off as an independent entity. In addition to Stolt Nielsen and Group TMM, MBY is currently engaged by: Kmart Corporation, Level (3) Communications, Spiegel, Inc., Eddie Bauer, Inc, Horizon Natural Resources, Aurora Foods Inc., Citation Corporation, Interstate Bakeries, Pegasus Satellite Communications and Vulcan Inc. concerning its investment in Charter Communications.
Written by: carisk | Categories: Freshly Minted, People & Places | February 3rd, 2005 | Add a Comment
Stolt Nielsen Can’t Wait to Celebrate Hard-earned Success
It’s remarkable what happens when momentum shifts. This week Stolt Nielsen released certain unaudited financial information regarding its anticipated results for the fourth quarter and full year ended November 30, 2004. SNSA expects to report income before tax provision and minority interest for the fourth quarter of $48 million to $54 million. For the full year, SNSA expects to report income before tax provision and minority interest of $83 million to $89 million, about $60 million of which comes in from the transportation group which includes the parcel tankers. The outlook for 2005 also looks good with contracts of affreightment being renewed at “significantly higher rates.”
Moreover, the tank container division (which Jefferies was mandated to sell but was subsequently taken off the market when Stolt realized it would not need the cash) saw further improvements in margins as the business is benefiting from a strong market.
Here are a few highlights of Stolt’s major presence on the Oslo Stock Exchange:
• SNSA is the 3rd largest non-Norwegian company (as measured by market cap) listed on the OSE after RCCL and Frontline, and just ahead of SOSA.
• SNSA had the best return of all of the companies in 2004 in the OBX (172%)
• SNSA was number 14 of all companies in terms of trading volume.
Why Bankers, Investors Should Look to Chemicals
Why Bankers, Investors Should Look to Chemicals
It has often been said that the chemical tanker market is a lagging indicator of economic expansion, and that theory appears to hold true for the shipping companies that serve the business. If that is the case, the chemical tanker sector, comprised of companies such as Stolt Nielsen, Odfjell and Berlian Laju Tankers, may be the next place for both equity investors and lenders to put capital to work at this point in the cycle. Although we have said it before, we will say it again: we would very much like to see Odfjell and BLT come to the U.S. markets and, along with recently renewed Stolt Nielsen, create some critical mass and institutional awareness of the sector. Hopefully, we will all be able to discuss this at Marine Money Week.
In a very encouraging pre-announcement made this week, Odfjell said that gross revenue reached USD 1 billion and daily timecharter earnings in fourth quarter 2004 were 24% higher than fourth quarter 2003. Although EBIT in 2004 was up 36% over last year, the company’s net result was lower in the fourth quarter due to higher bunker prices, bonuses and “antitrust expenses.” Odfjell’s consolidated net result after tax was USD 86 million in 2004, compared to USD 22 million in 2003. EBITDA for 2004 was $194 million, up from $170 million last year. Odfjell’s return on equity was 15.5% and return on total assets was 6.6%. Return on capital employed (ROCE) was 8.0% in 2004. “As per 31 December 2004, the Price/Earnings ratio (P/E) was 17.8 and the Price/Cash flow ratio was 8.3. Based on book value, the Enterprise Value (EV)/EBITDA multiple is 7.0 while, based upon market value as per 31 December 2004, the EV/EBITDA multiple is 11.9. Interest coverage ratio (EBITDA/Net interest expenses) stays high in 2004 at 7.4, compared to 7.5 last year.
Stolt Nielsen Can’t Wait to Celebrate
Hard-earned Success
It’s remarkable what happens when momentum shifts. This week Stolt Nielsen released certain unaudited financial information regarding its anticipated results for the fourth quarter and full year ended November 30, 2004. SNSA expects to report income before tax provision and minority interest for the fourth quarter of $48 million to $54 million. For the full year, SNSA expects to report income before tax provision and minority interest of $83 million to $89 million, about $60 million of which comes in from the transportation group which includes the parcel tankers. The outlook for 2005 also looks good with contracts of affreightment being renewed at “significantly higher rates.”
Moreover, the tank container division (which Jefferies was mandated to sell but was subsequently taken off the market when Stolt realized it would not need the cash) saw further improvements in margins as the business is benefiting from a strong market.
Here are a few highlights of Stolt’s major presence on the Oslo Stock Exchange:
• SNSA is the 3rd largest non-Norwegian company (as measured by market cap) listed on the OSE after RCCL and Frontline, and just ahead of SOSA.
• SNSA had the best return of all of the companies in 2004 in the OBX (172%)
• SNSA was number 14 of all companies in terms of trading volume.
It has often been said that the chemical tanker market is a lagging indicator of economic expansion, and that theory appears to hold true for the shipping companies that serve the business. If that is the case, the chemical tanker sector, comprised of companies such as Stolt Nielsen, Odfjell and Berlian Laju Tankers, may be the next place for both equity investors and lenders to put capital to work at this point in the cycle. Although we have said it before, we will say it again: we would very much like to see Odfjell and BLT come to the U.S. markets and, along with recently renewed Stolt Nielsen, create some critical mass and institutional awareness of the sector. Hopefully, we will all be able to discuss this at Marine Money Week.
In a very encouraging pre-announcement made this week, Odfjell said that gross revenue reached USD 1 billion and daily timecharter earnings in fourth quarter 2004 were 24% higher than fourth quarter 2003. Although EBIT in 2004 was up 36% over last year, the company’s net result was lower in the fourth quarter due to higher bunker prices, bonuses and “antitrust expenses.” Odfjell’s consolidated net result after tax was USD 86 million in 2004, compared to USD 22 million in 2003. EBITDA for 2004 was $194 million, up from $170 million last year. Odfjell’s return on equity was 15.5% and return on total assets was 6.6%. Return on capital employed (ROCE) was 8.0% in 2004. “As per 31 December 2004, the Price/Earnings ratio (P/E) was 17.8 and the Price/Cash flow ratio was 8.3. Based on book value, the Enterprise Value (EV)/EBITDA multiple is 7.0 while, based upon market value as per 31 December 2004, the EV/EBITDA multiple is 11.9. Interest coverage ratio (EBITDA/Net interest expenses) stays high in 2004 at 7.4, compared to 7.5 last year.
Frontline and Jinhui: the Most Liquid Shares on the OSE in 2004
Frontline and Jinhui: the Most Liquid Shares on the OSE in 2004
Looking at trading volume on the Oslo Stock Exchange in 2004, we are not surprised to see Frontline on top as the second most traded stock of all companies listed on the exchange last year, with over 173,000 trades, or about 5% of the total for all companies listed on the OSE. In volume, the company ranks 5th of all listed companies, with over NOK 53.4 billion, which is about 6% of total volume on the exchange. This is illustrated in the charts on page 2 & 3.
What we where surprised to see was that Jinhui was the 2nd most traded shipping company and 2nd largest in volume among the shipping companies. This company has been the favorite share for the day traders in Oslo, and the fact that is the 6th most traded stock of all listed companies is a testament to this. The company is way ahead of such large companies as RCL, Wilhelmsen and Stolt-Nielsen. As seen from the table below, the company had close to 134,000 trades with a volume of NOK 15.2 billion. This demonstrates that the OSE can still be an attractive exchange for shipping companies, boasting what is perhaps the most experienced shipping investment community, with the advantage of being able to take a long term perspective.
Looking at trading volume on the Oslo Stock Exchange in 2004, we are not surprised to see Frontline on top as the second most traded stock of all companies listed on the exchange last year, with over 173,000 trades, or about 5% of the total for all companies listed on the OSE. In volume, the company ranks 5th of all listed companies, with over NOK 53.4 billion, which is about 6% of total volume on the exchange. This is illustrated in the charts on page 2 & 3.
What we where surprised to see was that Jinhui was the 2nd most traded shipping company and 2nd largest in volume among the shipping companies. This company has been the favorite share for the day traders in Oslo, and the fact that is the 6th most traded stock of all listed companies is a testament to this. The company is way ahead of such large companies as RCL, Wilhelmsen and Stolt-Nielsen. As seen from the table below, the company had close to 134,000 trades with a volume of NOK 15.2 billion. This demonstrates that the OSE can still be an attractive exchange for shipping companies, boasting what is perhaps the most experienced shipping investment community, with the advantage of being able to take a long term perspective.
Stolt Liquefies, Readies to Negotiate with Bondholders
Stolt Liquefies, Readies to Negotiate with Bondholders
This week marked another triumph in the restructuring of Stolt-Nielsen. Stolt-Nielsen SA announced this week plans to sell its 79,414,260 common shares, or entire 42% stake, in Stolt Offshore. The sale was executed through Fearnley, Lehman Brothers and Pareto Securities and will result in a liquidity event of $504 million at $6.35 per share, of which Stolt-Nielsen expects to book net profits of $360 million in 1Q05. One year ago Stolt had three business issues – Stolt Offshore, the fish farm and the Department of Justice investigation. Now it has just one.
Turning Three Problems into One
This transaction constitutes yet another step forward in the company’s multi-faceted restructuring process outlined in the accompanying table. This is, of course, a step forward in the particular process begun with the deconsolidation of the problematic Stolt Offshore group. Combined with the merging of much of Stolt Seafarm with Nutreco and its planned sale, this leaves the company, so badly tangled just one year ago, facing only the legal issues surrounding accusations of price fixing that have plagued its historically successful core business.
This deal is good news for both Stolt investors and lenders, many of whom have not given Stolt full credit for the value of its stake in Offshore. But the question is: what will Stolt do with the money? As readers may recall, Stolt gave bondholders a silent, or “hands off” lien over the stake in Offshore (along with a 1% bump up in interest rate) in exchange for waiving defaulted covenants. Under the terms of then negotiated deal, bondholders did not have to give consent for the sale, but Stolt is required to use a minimum of 70% of the proceeds to tender for the bonds at par. But here’s the rub: the Stolt bonds are now trading OVER par, which means holders will be very unlikely to tender in their bonds.
Capturing the Interest Arbitrage
So Stolt keeps the cash, buys T-bills and everything is fine, right? Right, unless Stolt wants to pay a dividend, engage in joint ventures or spend money on new business, although investment into existing core business is allowed. And lest anyone forget, it is the dividend paying shipping stocks that are commanding the highest valuation.
In order to be relieved of this liability, Stolt-Nielsen would have to call the bonds and pay its bondholders a make whole premium of about $20 million. This tends to imply that the company would have to be pretty well set on either wanting to pay dividends or invest in new business in order to pay the make whole. But there’s another variable: Stolt is looking at an annual extra cost of capital in the realm of 400 basis points if it does not buy back the existing bonds. So the company still has some important post-sale determinations to make about its financing. What will happen? The company and its bondholders have proven that they can negotiate with each other, so look for a deal that’s somewhere in between the make whole and par.
Another interesting aspect of the deal is speculating on the identity of the buyers. According to press releases, the shares were sold through Lehman, Fearnley and Pareto to qualified institutional investors. The sale, however, still echoes the company’s legal issues. It was not registered in the US, as is true of many international transactions, but it was also not registered in the UK, Sweden, or Norway, which leads us to conclude that the Stolt Offshore shares most likely have gone, somewhat appropriately, to offshore interests.
Stolt Stolt-Nielsen Proves itself to Oslo Analysts –
How about New York
Whatever the details of the deal, it seems that Stolt-Nielsen’s ability to overcome daunting obstacles and move forward for a solid year in its reconstruction has won the hearts and minds of a number of analysts. Norwegian analysts expect the company’s share price to rise rapidly, with Enskilda pointing out that the sale of Stolt Offshore shares increases the possibility of an extraordinary dividend (if they pay off bondholders). DnB NOR Markets expects a strong chemical tanker market going forward and believes both Stolt-Nielsen and Odfjell’s share prices will continue to rise, also commenting that the sale has the potential to release about $480 million in cash for Stolt-Nielsen and reduce its debt by 40%. Enskilda has maintained its target price of NOK 210 per share while DnB NOR predicts Stolt shares will hit NOK 250 in the next three months. The future looks rosier now for the long-suffering company, which has officially become a pure chemical tanker operator with promising markets ahead. All the company needs now is research coverage from New York.
This week marked another triumph in the restructuring of Stolt-Nielsen. Stolt-Nielsen SA announced this week plans to sell its 79,414,260 common shares, or entire 42% stake, in Stolt Offshore. The sale was executed through Fearnley, Lehman Brothers and Pareto Securities and will result in a liquidity event of $504 million at $6.35 per share, of which Stolt-Nielsen expects to book net profits of $360 million in 1Q05. One year ago Stolt had three business issues – Stolt Offshore, the fish farm and the Department of Justice investigation. Now it has just one.
Turning Three Problems into One
This transaction constitutes yet another step forward in the company’s multi-faceted restructuring process outlined in the accompanying table. This is, of course, a step forward in the particular process begun with the deconsolidation of the problematic Stolt Offshore group. Combined with the merging of much of Stolt Seafarm with Nutreco and its planned sale, this leaves the company, so badly tangled just one year ago, facing only the legal issues surrounding accusations of price fixing that have plagued its historically successful core business.
This deal is good news for both Stolt investors and lenders, many of whom have not given Stolt full credit for the value of its stake in Offshore. But the question is: what will Stolt do with the money? As readers may recall, Stolt gave bondholders a silent, or “hands off” lien over the stake in Offshore (along with a 1% bump up in interest rate) in exchange for waiving defaulted covenants. Under the terms of then negotiated deal, bondholders did not have to give consent for the sale, but Stolt is required to use a minimum of 70% of the proceeds to tender for the bonds at par. But here’s the rub: the Stolt bonds are now trading OVER par, which means holders will be very unlikely to tender in their bonds.
Capturing the Interest Arbitrage
So Stolt keeps the cash, buys T-bills and everything is fine, right? Right, unless Stolt wants to pay a dividend, engage in joint ventures or spend money on new business, although investment into existing core business is allowed. And lest anyone forget, it is the dividend paying shipping stocks that are commanding the highest valuation.
In order to be relieved of this liability, Stolt-Nielsen would have to call the bonds and pay its bondholders a make whole premium of about $20 million. This tends to imply that the company would have to be pretty well set on either wanting to pay dividends or invest in new business in order to pay the make whole. But there’s another variable: Stolt is looking at an annual extra cost of capital in the realm of 400 basis points if it does not buy back the existing bonds. So the company still has some important post-sale determinations to make about its financing. What will happen? The company and its bondholders have proven that they can negotiate with each other, so look for a deal that’s somewhere in between the make whole and par.
Another interesting aspect of the deal is speculating on the identity of the buyers. According to press releases, the shares were sold through Lehman, Fearnley and Pareto to qualified institutional investors. The sale, however, still echoes the company’s legal issues. It was not registered in the US, as is true of many international transactions, but it was also not registered in the UK, Sweden, or Norway, which leads us to conclude that the Stolt Offshore shares most likely have gone, somewhat appropriately, to offshore interests.
Stolt-Nielsen Proves itself to Oslo Analysts –
How about New York
Whatever the details of the deal, it seems that Stolt-Nielsen’s ability to overcome daunting obstacles and move forward for a solid year in its reconstruction has won the hearts and minds of a number of analysts. Norwegian analysts expect the company’s share price to rise rapidly, with Enskilda pointing out that the sale of Stolt Offshore shares increases the possibility of an extraordinary dividend (if they pay off bondholders). DnB NOR Markets expects a strong chemical tanker market going forward and believes both Stolt-Nielsen and Odfjell’s share prices will continue to rise, also commenting that the sale has the potential to release about $480 million in cash for Stolt-Nielsen and reduce its debt by 40%. Enskilda has maintained its target price of NOK 210 per share while DnB NOR predicts Stolt shares will hit NOK 250 in the next three months. The future looks rosier now for the long-suffering company, which has officially become a pure chemical tanker operator with promising markets ahead. All the company needs now is research coverage from New York.
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