To facilitate the acquisition of Teekay’s interest in the Angola LNG Project, Teekay LNG Partners L.P. agreed to issue 3.7 million common units at a price of $38.88 per share, a discount of 4% from the closing price just prior to the announcement. Proceeds will be used to fund the equity purchase price of Teekay Corporation’s 33% interest in the Angola LNG Project as payment becomes due while using interim and remaining funds for the repayment of outstanding debt under one of its credit facilities, which matures in August 2018. Net of assumed debt, the total equity purchase price is approximately $73 million subject to adjustment based on actual costs incurred at the time of delivery. The company will acquire the ownership interests and pay a proportionate share of the purchase price as each vessel is delivered which is anticipated to be during the fall of 2011 and in the first quarter of 2012.
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While not close followers of the cruise business, we followed the Regent Seven Seas Cruise $200 million senior secured note offering due in 2017, because of our interest in high yield. The notes were to be issued Seven Seas Cruises S. DE R.L. in a 144A offering. The notes would be guaranteed by the subsidiaries that own the company’s three cruise ships and the notes and the guarantees would be secured by a second priority lien on the same collateral securing the existing senior secured credit facilities, including 2nd priority mortgages on the ships.
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Written by:
carisk | Categories:
Freshly Minted,
The Week in Review | February 4th, 2010 |
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On Wednesday after the market closed, Teekay Offshore Partners (“TOO”) announced plans to offer 6,500,000 common units, representing limited partnership interests in another follow-on offering. The agreement with the underwriters also includes a green shoe of 975,000 shares.
Today, the units were priced at $14.32, a discount of 6.77% to yesterday’s closing price of $15.36.
The net proceeds of the offering, approximately $100 million, will be used to repay amounts outstanding under one of their credit facilities, which bears interest at LIBOR plus 0.625% and matures in October 2014. Currently, TOO has in total 7 revolvers which provide borrowings of up to $1.45 billion of which $147.7 million is undrawn. With the availability reducing by a further $122.4 million over the reminder of 2009, this repayment will allow the partnership to be able to redraw on this credit facility in the future to fund acquisitions and for general partnership purposes.
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Written by:
carisk | Categories:
Uncategorized | July 30th, 2009 |
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In a single day, Diana Shipping withdrew an old registration statement, filed a shelf registration and announced today a public offering of 6 million new common shares. The shares were priced of $16.85, a 9% discount to yesterday’s closing price of $18.52. Gross proceeds are in the order of $111 million. UBS Investment Bank will act as the sole underwriter. The transaction is expected to close on May 12th.
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Teekay LNG Partners announced on Tuesday that it plans to offer 4 million common units in a public offering led by Citi, Morgan Stanley and UBS Investment Bank. Underwriters will be granted the option for another 600 thousand shares to cover over-allotments. Interestingly the proceeds of the offering are not to be used to cover capex but instead to repay amounts outstanding under one of its revolvers, which amounts may subsequently be re-borrowed. The shares were priced yesterday at $17.60, a premium of $0.10 over Tuesday’s closing price. Gross proceeds, including the over-allotment, will approximate $81 million.
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carisk | Categories:
Freshly Minted,
The Week in Review | March 26th, 2009 |
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TAL International Group, Inc. late Thursday evening became the latest shipping equity deal to hit the market, sort of. In a new twist, the company’s business is actually containers – the boxes themselves, not the ships, and according to the prospectus TAL holds a market share equivalent to about 11% of the world’s leased container fleet and is also active in container sales. The proposed maximum aggregate offering price is $201.25 million, and joint book-running managers on the deal are Credit Suisse First Boston, Deutsche Bank Securities and Jefferies & Company, while UBS Investment Bank is to serve as lead-manager. The company said it plans to use the net proceeds to pay the entire outstanding principal and interest due on its existing credit agreement and for working capital and general corporate purposes.
Having released phenomenal 1Q05 earnings, announced a massive $225 million stock buyback, held a swinging bank meeting in Vegas and closed a dirt cheap credit facility, Teekay is now ready to hit the road to sell a 20% interest in Teekay LNG Partners LP next week. With this confluence of events, there is little doubt that TK will be a strong performing investment. In an amended filing submitted yesterday, TK filled in a critical blank – the price range – which is $20-$22. Looking at projected EBITDA of about $100 million in 2005, the new deal will be priced at about 12x cash flow assuming middle-range pricing. There are about six shipping deals set to IPO in the coming weeks and having a blue chip deal like this kick off, even though it is an MLP and the others aren’t, will set a good tone. Here’s the line-up for the Teekay LNG deal: Citigroup; UBS Investment Bank; A.G. Edwards; Raymond James; Jefferies & Company, Inc.; Wachovia Securities and Deutsche Bank Securities.
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carisk | Categories:
Equity,
Freshly Minted | April 24th, 2005 |
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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.
Written by:
carisk | Categories:
Equity,
Freshly Minted | April 7th, 2005 |
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It appears as if the equity in Horizon Lines will be turned over yet again – for the third time in as many years. Leading Jones Act container shipping and logistics company Horizon Lines has filed an S-1 with the U.S. SEC in its bid to raise up to $287.5 million through its initial public offering. The company is looking to be listed on the NYSE under the symbol HRZ. Joint bookrunning lead managers on the deal are Goldman, Sachs & Co. and UBS Investment Bank, while co-managers are Bear, Stearns & Co., Deutsche Bank Securities and JP Morgan. The deal comes as private equity firm Castle Harlan, which purchased Horizon Lines in July 2004, seeks to cash out on some of its massive $663.3 million investment while maintaining a controlling stake in the company, which is well-positioned strategically in all three of the non-contiguous U.S. Jones Act markets as well as Guam. Castle Harlan extracted about $80 million of its original investment in the company through the issuance of a zero coupon bond in late 2004, and this deal will likely represent a total return of invested equity.
A Little Something for Everyone
By way of review, the Carlyle Group of Washington, D.C. had bought Horizon from CSX Lines for around $375 million in 2002 before selling the company to Castle Harlan for over $650 million in 2004. While the trade press reported that Carlyle nearly double its money, that statistic refers to the enterprise value of the company and assumes the firm used its own money. In actual fact, assuming Carlyle put up 20% of the equity on the original deal, then the private equity firm would have turned its $75 million initial investment into $350 million, or a return of about 460% on its equity.
On the surface, the deal looked reasonably priced even from Castle Harlan’s perspective at 7.3x. However, significant deductions for drydocking expenditures brought the multiple to 11-13x, placing the purchase at the upper end of the reasonable range, but still not shocking considering how sacrosanct the Jones Act is. But then, using the metrics behind the $140 million price Kvaerner Philadelphia newbuildings fetched from Matson with a 40-year amortization period, Horizon Lines’ vessels can be valued at about $35 million each, reasonably closer to what Castle Harlan paid for them before even considering the steady stream of earnings the vessels bring. Less than a year later, Castle Harlan has already extracted $80 million from Horizon through a bond offering and stands ready to issue almost $290 million worth of shares.
Horizon –a Cash Cow for Goldman Sachs
But when you look at risk adjusted returns, the sure winner is the investment bank that has been involved every step of the way, Goldman Sachs. Horizon has been a true cash-cow for the firm as they bought the company for Carlyle, then sold the company to Castle, then did two bond offerings for the company for Castle and are now bookrunner on the equity offering.
What’s Left?
Like most deals, there are “pros and cons” to the Horizon transaction. The “pros” are that the company has a privileged position in a U.S. Jones Act trade, which limits competition to companies that have U.S. built ships that are owned at least 75% by Americans, fly the U.S. flag and have U.S. crews. Horizon is one of only two providers of its services in the Hawaii and Guam markets and the largest such provider in Guam – two stable and growing, albeit slowly, markets.
And then there are the “cons”, Horizon has been bounced between two private equity firms who have extracted a lot of equity over the last three years and have not replaced any of the company’s 28-year-old vessels. The proceeds of this deal will pay back the founders and reduce debt, which will theoretically create buying power assuming they can arrange like kind debt facilities, but at some point there will be some major capital expenditures to be made even though the company states that each of its ships has a 45-year useful life.
The story is not exciting, but it is solid. So long as the sacrosanct U.S. Jones Act is not altered and the maintenance and replacement of the company’s fleet does not prove to be a problem. And it certainly makes sense for Castle Harlan, who has no particular need to maintain much more than a controlling stake in the company, and who also can hardly hope to follow in the footsteps of Carlyle and watch the company double in value once again over the next two years.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 10th, 2005 |
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Diana Shipping –
Sailing Toward a Successful IPO
Simeon Palios and Fortis-owned Diana Shipping began its roadshow in London this week to raise $241 million through the sale of 14.2 million shares of common stock, which will trade on the New York Stock Exchange under the ticker “DSX”. Bear Stearns is sole bookrunner on the deal, and co-managers include Jefferies & Company, UBS Investment Bank and Fortis Securities, which immediately prior to the offering will own 25% of Diana through its private equity fund Maas Capital Investments.
A Dry Bulk Version of Nordic American Shipping
We see absolutely no reason why this offering will not be wildly successful. As we’ve seen in the last 12 months, every new shipping deal that comes to market brings with it a slightly different structure, fleet and philosophy that suits both the selling shareholders and, ideally, investors – and Diana is no exception.
For example, proceeds from the Diana IPO will be used to reduce the net debt on the company’s post-IPO fleet of 10 bulk carriers to zero while the company has pledged to pay out all of its free cash. Sound familiar? It should; this technique is reminiscent of Nordic American Tankers, which not coincidentally is the brainchild of underwriter Bear Stearns – NATS enjoys the strongest valuation in its peer group.
According to our own 2004 pro forma of the company’s financial performance (and assuming no reserve), Diana would have been able to pay a dividend of $1.94, which equates to a whopping 11% yield based on the anticipated offering price, although this is before whatever amount the management feels it should keep on hand for working capital and growth. When the opportunities arise, the unleveraged Diana will simply borrow against its unpledged assets and go shopping. The prospectus notes that “in times when we have debt outstanding, we intend to limit our dividends per share to the amount that we would have been able to pay if we were financed entirely with equity.”
As the fleet list indicates, Diana owns a fleet of seven modern panamax vessels with an average age of just 3.1 years, which should make the fleet very attractive to investors so long as the price can be justified. As the fleet is indeed focused, it is not diversified, meaning investors will be exposed to one of the most volatile segments of the dry bulk business. According to the Form F-1 filed with the SEC, during the nine month period ended September 30, 2004, the company’s vessels achieved daily time charter equivalent rates of $25,269. To give you a sense of just how volatile this business is, the company also said that “during 2001, 2002 and 2003 and the nine months ended September 30, 2004, we recorded net income (loss) of ($0.4) million, $0.1 million, $9.5 million and $28.5 million, respectively.”
Diana’s plan is to grow the business with modern units, and the company recently entered into newbuilding contracts with a Chinese shipyard for the construction of two additional 73,000dwt panamaxes. The company also signed an MOA with Louis Dreyfus Armateurs to purchase a secondhand capesize vessel. All of the new ships should be in the fleet and earning money by the first half of 2005.
Use of Proceeds
As mentioned above, one of the novel features of the Diana transaction is the fact that the company will use the proceeds of the offering to eliminate debt. Of the $182 million proceeds, after fees and expenses, the company will use $15.0 million to fund the final installment due on the new panamax dry bulk carrier that it expects to be delivered to the company in April 2005 and the remaining $166.4 million to repay all of seven of its outstanding credit facilities that mature between June 2013 and November 2015 and bear interest at LIBOR plus 1.125% to LIBOR plus 1.3%.
Although the company’s ships are managed by an affiliate, another interesting feature of this deal is the fact that Diana has agreed to buy the ship management company, Diana Shipping Services (DSS), in the future. According to the filing, “We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of this offering for $20.0 million in cash. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one-year anniversary of this offering, we may purchase the DSS shares from them for the same consideration at any time prior to the second anniversary of this offering. We expect the DSS stockholders to sell their outstanding shares of DSS to us during the 12 months following the offering and intend to exercise our option if they do not do so. We intend to finance our expected acquisition of our fleet manager with borrowings under our new credit facility and to refinance the acquisition related debt with the net proceeds of future equity issuances. Upon our acquisition of DSS, DSS will become our wholly-owned subsidiary and we will conduct the strategic, commercial and technical management of our fleet in-house.”
According to the filing, DSS charges Diana $15,000 per month to manage its soon to be 10 ships – giving DSS revenue of $1.8 million. DSS also charges Diana a 2% commission on all revenue generated by the company’s ships. Using the figure of $25,000 per day, each of the 10 vessels will generate $9.1 million, or $91 million on a fleet basis. Using the 2% commission structure, DSS will earn another $1.8 million on the revenue, lifting DSS’ gross revenue, from Diana alone, to $3.6 million. Although we have no idea what sort of overhead the company will have, we would estimate that running 10 ships from Greece would cost in the order of $1 million – leaving net income of $2.6 million. Therefore, according to the purchase price to be paid by the public company, DSS will fetch 13x earnings.
Dilution
Any shipping deal that comes to market with assets on its balance sheet that are less than current market values plus the premium to NAV currently assigned to shipping companies will result in dilution to the new shareholders – and Diana is no exception. Moreover, as we saw in the case of DryShips, this dilution is increased when the selling shareholders extract cash from retained earnings from the balance sheet prior to the offering. In this case, here is how it works: “As of November 30, 2004, on an adjusted basis giving effect to the payment of a $34.0 million cash dividend in December 2004, the declaration of a $14.0 million dividend in February 2005 (payable in April 2005 to stockholders of record in February 2005) and a $19.5 million preferential deemed dividend (representing the portion of the consideration to purchase our fleet manager that exceeds the carrying value of our fleet manager’s net assets as of September 30, 2004) that we expect to record in connection with our acquisition of our fleet manager, we had net tangible book value of $20.7 million, or $0.75 per share. After giving effect to the sale of 12,375,000 shares of common stock at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus), our pro forma adjusted net tangible book value as of November 30, 2004, would have been $202.8 million, or $5.07 per share. This represents an immediate appreciation in adjusted net tangible book value of $4.32 per share to existing stockholders and an immediate dilution in adjusted net tangible book value of $10.93 per share to new investors.”
Based on the ready comparison between DryShips and Diana, it is very difficult to imagine that investors will not love this deal. Although we are certainly closer to the top of the shipping cycle than the bottom, the reality is that modern ships with minimal leverage will survive even the nastiest of market corrections and be around for the next turn of the cycle. In our view, this transaction is proof that underwriters, investors and shipping companies have learned from the unfortunate high yield bonds issued in the late 1990s and have created structures that capture all of the value that shipping has to offer.
Simeon Palios and Fortis-owned Diana Shipping began its roadshow in London this week to raise $241 million through the sale of 14.2 million shares of common stock, which will trade on the New York Stock Exchange under the ticker “DSX”. Bear Stearns is sole bookrunner on the deal, and co-managers include Jefferies & Company, UBS Investment Bank and Fortis Securities, which immediately prior to the offering will own 25% of Diana through its private equity fund Maas Capital Investments.
A Dry Bulk Version of Nordic American Shipping
We see absolutely no reason why this offering will not be wildly successful. As we’ve seen in the last 12 months, every new shipping deal that comes to market brings with it a slightly different structure, fleet and philosophy that suits both the selling shareholders and, ideally, investors – and Diana is no exception.
For example, proceeds from the Diana IPO will be used to reduce the net debt on the company’s post-IPO fleet of 10 bulk carriers to zero while the company has pledged to pay out all of its free cash. Sound familiar? It should; this technique is reminiscent of Nordic American Tankers, which not coincidentally is the brainchild of underwriter Bear Stearns – NATS enjoys the strongest valuation in its peer group.
According to our own 2004 pro forma of the company’s financial performance (and assuming no reserve), Diana would have been able to pay a dividend of $1.94, which equates to a whopping 11% yield based on the anticipated offering price, although this is before whatever amount the management feels it should keep on hand for working capital and growth. When the opportunities arise, the unleveraged Diana will simply borrow against its unpledged assets and go shopping. The prospectus notes that “in times when we have debt outstanding, we intend to limit our dividends per share to the amount that we would have been able to pay if we were financed entirely with equity.”
As the fleet list indicates, Diana owns a fleet of seven modern panamax vessels with an average age of just 3.1 years, which should make the fleet very attractive to investors so long as the price can be justified. As the fleet is indeed focused, it is not diversified, meaning investors will be exposed to one of the most volatile segments of the dry bulk business. According to the Form F-1 filed with the SEC, during the nine month period ended September 30, 2004, the company’s vessels achieved daily time charter equivalent rates of $25,269. To give you a sense of just how volatile this business is, the company also said that “during 2001, 2002 and 2003 and the nine months ended September 30, 2004, we recorded net income (loss) of ($0.4) million, $0.1 million, $9.5 million and $28.5 million, respectively.”
Diana’s plan is to grow the business with modern units, and the company recently entered into newbuilding contracts with a Chinese shipyard for the construction of two additional 73,000dwt panamaxes. The company also signed an MOA with Louis Dreyfus Armateurs to purchase a secondhand capesize vessel. All of the new ships should be in the fleet and earning money by the first half of 2005.
Use of Proceeds
As mentioned above, one of the novel features of the Diana transaction is the fact that the company will use the proceeds of the offering to eliminate debt. Of the $182 million proceeds, after fees and expenses, the company will use $15.0 million to fund the final installment due on the new panamax dry bulk carrier that it expects to be delivered to the company in April 2005 and the remaining $166.4 million to repay all of seven of its outstanding credit facilities that mature between June 2013 and November 2015 and bear interest at LIBOR plus 1.125% to LIBOR plus 1.3%.
Although the company’s ships are managed by an affiliate, another interesting feature of this deal is the fact that Diana has agreed to buy the ship management company, Diana Shipping Services (DSS), in the future. According to the filing, “We have entered into an agreement with the stockholders of DSS pursuant to which the DSS stockholders may sell all, but not less than all, of their outstanding shares of DSS to us during the 12 month period following the consummation of this offering for $20.0 million in cash. Under the terms of the agreement, if the DSS stockholders do not sell their outstanding shares to us prior to the one-year anniversary of this offering, we may purchase the DSS shares from them for the same consideration at any time prior to the second anniversary of this offering. We expect the DSS stockholders to sell their outstanding shares of DSS to us during the 12 months following the offering and intend to exercise our option if they do not do so. We intend to finance our expected acquisition of our fleet manager with borrowings under our new credit facility and to refinance the acquisition related debt with the net proceeds of future equity issuances. Upon our acquisition of DSS, DSS will become our wholly-owned subsidiary and we will conduct the strategic, commercial and technical management of our fleet in-house.”
According to the filing, DSS charges Diana $15,000 per month to manage its soon to be 10 ships – giving DSS revenue of $1.8 million. DSS also charges Diana a 2% commission on all revenue generated by the company’s ships. Using the figure of $25,000 per day, each of the 10 vessels will generate $9.1 million, or $91 million on a fleet basis. Using the 2% commission structure, DSS will earn another $1.8 million on the revenue, lifting DSS’ gross revenue, from Diana alone, to $3.6 million. Although we have no idea what sort of overhead the company will have, we would estimate that running 10 ships from Greece would cost in the order of $1 million – leaving net income of $2.6 million. Therefore, according to the purchase price to be paid by the public company, DSS will fetch 13x earnings.
Dilution
Any shipping deal that comes to market with assets on its balance sheet that are less than current market values plus the premium to NAV currently assigned to shipping companies will result in dilution to the new shareholders – and Diana is no exception. Moreover, as we saw in the case of DryShips, this dilution is increased when the selling shareholders extract cash from retained earnings from the balance sheet prior to the offering. In this case, here is how it works: “As of November 30, 2004, on an adjusted basis giving effect to the payment of a $34.0 million cash dividend in December 2004, the declaration of a $14.0 million dividend in February 2005 (payable in April 2005 to stockholders of record in February 2005) and a $19.5 million preferential deemed dividend (representing the portion of the consideration to purchase our fleet manager that exceeds the carrying value of our fleet manager’s net assets as of September 30, 2004) that we expect to record in connection with our acquisition of our fleet manager, we had net tangible book value of $20.7 million, or $0.75 per share. After giving effect to the sale of 12,375,000 shares of common stock at an assumed initial public offering price of $16.00 per share (representing the midpoint of the price range shown on the cover of this prospectus), our pro forma adjusted net tangible book value as of November 30, 2004, would have been $202.8 million, or $5.07 per share. This represents an immediate appreciation in adjusted net tangible book value of $4.32 per share to existing stockholders and an immediate dilution in adjusted net tangible book value of $10.93 per share to new investors.”
Based on the ready comparison between DryShips and Diana, it is very difficult to imagine that investors will not love this deal. Although we are certainly closer to the top of the shipping cycle than the bottom, the reality is that modern ships with minimal leverage will survive even the nastiest of market corrections and be around for the next turn of the cycle. In our view, this transaction is proof that underwriters, investors and shipping companies have learned from the unfortunate high yield bonds issued in the late 1990s and have created structures that capture all of the value that shipping has to offer.
Written by:
carisk | Categories:
Equity,
Freshly Minted | March 3rd, 2005 |
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