Co n t e n t s

February/March 2007 So Much to Choose
—page 2

The Winners
—page 3

Publisher Managing Editor Vice President / Asia Director Art Director / Production Manager Events Director Greek Director U.K. Director Greek Marketing Representative Marketing Sales / Director Sales Director Subscription Director Technical Support President Chairman


52 Weeks of Shipping Transactions
—page 6

Bank Debt in 2006: Public Companies Take
on Dry Powder & Lenders Wander the World
—page 13

“Junk” – The Public Debt Award
—page 26

Restructuring Deals – Breathing Life into Worthy Projects
—page 31

Out-of-the-Box Thinking or The Structured Finance Award
—page 34

One Stamford Landing, Suite 214, 62 Southfield Avenue Stamford, CT 06902 USA Phone: +1 203 406 0106 • Fax: +1 203 406 0110 Email:

M&A: Financial Buyers, Niche Players & Two Special Deals
—page 38

Convertibles: The Equity Linked Award
—page 52

Shipping IPOs Forge into New Territory
—page 54

140 Cecil Street, #16-00, PIL Building Singapore, SG-069540 Phone: +65 6222 9456 • Fax: +65 6491 5563 Email:

Follow-ons Find a Following
—page 61

Money, Money Everywhere – The Award for Private Equity
—page 65

15 Athinaeon Street Palio Faliro, GR-175 61, Greece Phone: +30 210 9858 809 • Fax: +30 210 9842 136 Email:

The Year of the Lease (Yes, Again)
—page 68

Award for Innovation
—page 80

3 Berkeley Square London, W1X5HG UK Phone: +44 207 629 1160 • Fax: +44 207 629 1393 Email:

Editor’s Choice: Nakilat Brings Back Project Finance
—page 84

Annual Subscription is $995 U.S. plus postage Payment should be made to International Marketing Strategies, Inc. at the subscription address above. While Marine Money has taken great care in the production of this publication, no liability can be accepted for any loss incurred in any way whatsoever by any person who may seek to rely on the information contained herein. Marine Money, Inc. (International Marketing Strategies) ISSN No: 1051-5496 Reproduction in any form is strictly prohibited without written consent of the publisher.

Dealmaker of the Year
—page 85

Deal of the Year – DP World and P&O Ports
—page 87

F e b r u a r y / M a r c h 2 0 0 7

Cover Art: “Strong Seas” (2006: 1.5m x 1m) Artist: Nikos Kypraios marine money


So Much to Choose
With apologies to all Trekkies: “Awards the final frontier. These are the voyages of the Starship Marine Money. Its continuing mission: to explore strange new deals, to seek out the winning capital providers, to go boldly where no sane person has gone before.”

F e b r u a r y / M a r c h 2 0 0 7

t is a wonderful task to celebrate the accomplishments of so many and an industry so creative that each year brings yet another crop of deals, projects and transactions that stretch our views of how business is best transacted. The Marine Money team follows the daily volume of the activity with a keen interest. We admire the tried and true, appreciate the real meaning of relationships, marvel at the cycles – not just shipping’s but recently and more obviously in finance – and respect the enormous amount of good new thinking and structures. We also see a wealth of options for shipowners in financial markets around the world, perhaps driven by government stimuli or more dramatically from fundamental shifts in the flow of funds.


things. This issue is a celebration and we make no bones about recognizing achievement with Awards. Two, it is an important compilation of a year’s worth of transactions and as such a snapshot of a moment in time that captures an industry and its financiers in a way that is illustrative and when taken together with all our previous years can provide a road map useful to lenders, investors and CFO’s the world over. If it is true that one can learn from history then in a capital-intensive business, where the best financing may be found across an ocean, then this collection and review of last year’s deals will hopefully bring value to you in your year ahead. And finally, part of what we do in this issue is de-construct some wonderfully complex deals. Hopefully this stimulates other new ideas in pursuit of ever more competitive and empowering structures. Each year in December we request and receive countless recommendations for recognition in these pages. Competitors actually recommend each other’s deals! While we like to think we do a great job week in and week out chronicling trans-

There are three absolute truths about this issue. One, it is true what they say about us, at least sometimes – that we never saw a deal we did not like. The simple fact is we appreciate the creativity, thought, risk and hard work involved in concluding a transaction. That doesn’t mean we would put our money in every deal, but we do admire the men, women and businesses that try to build

actions, we are constantly amazed at the number of deals done that we just didn’t have time to cover or missed entirely. And, this despite the fact that our Marine Money database followed some 2,000 transactions, some as small as a few million dollars and some as much as six billion. There were deals that refinanced companies, helped expand a business or just strengthened a balance sheet. Others carved out new ground. They, in fact, all deserve mention. For instance, so many transactions competed for coverage, we missed Citigroup’s Stena Drillmax transactions the dollar amounts of which were enormous. Other times there are new entrants like Efibanca, which advised on the acquisition of Navgas by Synergas. Likewise, the service businesses slipped below the radar. There was the merger of Atlantic Marine with Dorchester Maritime and who knows what will happen to V.Ships. Then there was the development of a secondary market for KG shares in Germany done by DSM to provide liquidity as the project lives were extended. So much to cover, so little time. The process we go through to select the winners is actually very detailed and takes several

weeks of internal debate. Invariably there are deals that in other years would be hands down winners but this year are in competitive categories. Former Secretary of the US Navy John Lehman’s acquisition of the US shipyard Atlantic Marine faced competition like DP World, OOIL, Tallink and Petrojarl…heady stuff that not even Paul Slater, the transaction’s advisor, could overcome with silver tongued lobbying. We want to thank all of you who either prepared careful and illustrative explanations of deals or who recommended transactions for consideration. The shipping industry benefits from the creative thinking and fierce competition within the finance markets. But it also benefits from the camaraderie, community and commitment of all those individuals who work in this fantastic business. Finally, congratulations to all our friends and colleagues for their accomplishments. May your bonuses be huge and your clients perpetually profitable. And thank you for all your support throughout the year.


Marine Money

2006 Deal of the Year Awards
CATEGORY Bank Debt: Public Debt: WINNER Nordea for Songa Shipholding Jefferies, ABN Amro for Britannia Bulk Pareto, Nordea, DnB for "Norway Inc." Restructuring: Structured Finance: M&A: DVB Bank, NFC Funds for TMM BNP Paribas for Vega Containervessel 2006-1 plc Fortis, Dahlman Rose for Quintana's acquisition of Metrobulk DnB NOR, ABG Sundal Collier for Teekay's acquisition of Petrojarl Equity Linked: Public Equity - IPO: Public Equity - Follow-on: Private Equity: Leasing: Innovation: Editor's Choice Jefferies, Bear Stearns for Hornbeck Offshore Merrill Lynch, Citigroup, Dahlman Rose, Jefferies, Fortis, Nomura International for Danaos Corporation JP Morgan, Deutsche Bank, Goldman Sachs for Horizon Lines Cantor Fitzgerald, CRT Capital Group, Oppenheimer for Paragon Shipping Ship Finance International, AMA Capital, Argent Group, Fortis for Horizon Lines Lloyd Fonds, Oppenheim Pramerica for Open Waters SMBC, CSFB, Lehman Brothers, Barclays Capital, BNP Paribas, DnB NOR, Gulf International Bank, KEIC, KEXIM for Nakilat Inc. Dealmaker of the Year: Deal of the Year: Axel Eitzen Deutsche Bank, Citigroup for DP World deals

2005 Deal of the Year Awards
CATEGORY Bank Debt: Public Debt: Public Equity: WINNER Nordea and DnB NOR for Euronav Deutsche Bank for Berlian Laju Tankers Citigroup and Merrill Lynch & Co. for Seaspan in New York HSBC, UBS Investment Bank, and JPMorgan for China COSCO Holdings Company Limited in Hong Kong Carnegie and UBS Investment Bank for Bergesen Worldwide Gas in Oslo Private Equity: Jefferies Capital Partners for Pacific Basin Fortis Securities LLC for representing Maas Capital Investments in Diana Shipping M&A: Citigroup, Goldman Sachs and JP Morgan for AP Moller-Maersk's acquisition of Royal P&O Nedlloyd DVB for National Shipping Company of Saudia Arabia for Acquisition of 30% of Petredec Leasing: Dealmaker of the Year: Editor's Choice: Greatest Contribution to Ship Finance: KGAL and V. Ships for IMC Morten Arntzen DnB NOR Markets and Enskilda for Aker American Shipping ASA Jeremy Kramer at Neuberger Berman John Sinders at Jefferies & Company

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


2004 Deal of the Year Awards
CATEGORY Bank Debt: WINNER Citigroup / KEXIM for Maran Gas DnB NOR for Nordic American Tankers Nordea Bank for General Maritime Public Debt: Restructuring: Public Equity: Jefferies & Co. / Fortis Securities for Trailer Bridge Miller Buckfire Ying & Co. for Stolt Nielsen S.A. JP Morgan / ABN Amro for P&O Nedlloyd Cantor Fitzgerald / DZ Financial Markets / HARRISdirect / Hibernia Southcoast for Top Tankers Private Equity: M&A: Leasing: Equity Linked: Dealmaker of the Year: Editor's Choice: Goldman Sachs & Co. for Carlyle Group American Marine Advisors for Attransco DVB / Pareto for Stelmar K/S Jefferies & Co. for OMI Corp. convertible Stelios Haji-Ioannou Jefferies & Co. / Citigroup for Ship Finance International

2003 Deal of the Year Awards
CATEGORY Bank Debt: WINNER Nordea / JP Morgan for General Maritime Fortis / Export-Import Bank of Korea for Seaspan Container Lines Public Debt: Restructuring: Public Equity: Private Equity: M&A: Leasing: New Entrant of the Year: Jefferies / Citigroup for Frontline American Marine Advisors for Cruiseinvest JP Morgan for Star Cruise Lines DnB Markets for Aequitas Holdings JP Morgan / Citigroup for Neptune Orient Lines / MISC Citigroup for Golar LNG Export-Import Bank of Korea Tor Olav Trøim BTM Financial Services, Inc., Vereins-und Westbank AG and HSH Nordbank AG for First Ship Lease Mezzanine

F e b r u a r y / M a r c h 2 0 0 7

Dealmaker of the Year: Editor's Choice:

2002 Deal of the Year Awards
Bank Debt: Public Debt: Restructuring: Public Equity: Private Equity: M&A: Leasing: Editor's Choice:

Citigroup / KDB / KEB for Wallenius / HMM Citigroup for CP Ships American Marine Advisors for Enterprises & American Classic Voyages JP Morgan / Jefferies / Sunrise / Alpha for Tsakos Energy Navigation Fortis / Royal Bank of Canada for Seabulk DnB Markets / JP Morgan for Teekay / Navion Royal Bank of Scotland for BP NIB for Latitutde Synthetic Securitization


Marine Money

"SSY Capital advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

52 Weeks of Shipping Transactions
WEEK Week 1 ENDING January 6 DEALS • General Maritime buys out Oaktree’s stake at $37 per share, amounting to $154 million • Fredriksen’s SeaDrill bids for Smedvig shares, continues consolidation in rig market • Electra sells Inchcape Shipping Services to Istithmar for 7x earnings at $285 million Week 2 January 12 • Nordea and DnB NOR top Dealogic league tables as syndicated shipping lend tops $60 billion • PSA, DP World bid for P&O’s prized terminal properties • TEN takes two four vessels from Tsakos family interests for $219 million • DryShips announces standard $0.20 dividend following rumors the company would fall short • Dahlman Rose downgrades the tanker sector • Citigroup downgrades Eagle Bulk, shares plummet 10% • AP Moller-Maersk, COSCO Pacific and Hutchison take stakes in new Shanghai Port Yangshan Phase II Week 3 January 19 • Berlian Laju Tankers announces intent to seek a dual listing in either New York or Singapore • Bank of Scotland raises $405 million in debt for Prime Marine, $166.5 million for Viken LR2 • Markets quiet, analysts cast lots on the year to come Week 4 January 26 • BNP Paribas develops securitized structure for CMA-CGM with XL Capital Assurance • Hanjin Shipping announces $206 million loan raised through various South Korean domestic financial institutions • China Shipping Development signs $52 million loan with Citibank, HSH Nordbank and DnB • Richard Hext to take helm at Pacific Basin as Mark Harris announces intention to step down • SeaDrill places $750 million in an issue managed by Carnegie and Pareto • Arlington Tankers declares $0.53 dividend • Dahlman Rose downgrades dry sector, Bank of America sees value in the tanker sector Week 5 February 2 • Fredriksen picks up GenMar OBOs, GenMar picks up $256.5 million • ABG Sundal Collier initiates coverage of Golden Ocean with a Buy saying “The World is Not Going to Hell Just Yet…” Week 6 February 9 • Rand shareholders prepare to vote on $57.3 million acquisition of Lower Lakes Towing and Grand River Navigation • 2nd Odfjell Invest company acquires high spec rig for $628 million with funding from DnB NOR and 10x oversubscribed equity issue • Odfjell Chemical Tankers prepares NOK600 million 5-yr bond issue to be priced at 3-mo NIBOR + 80 • SMBC closes first Japanese and club deal for Cido Shipping Group • DP World moves closer to P&O as PSA fails to challenge its 520p/share bid Week 7 February 16 • CMA-CGM closes $800 million securitization with BNP • Natexis leads E500 million 5-year syndication with SG and Barclays for CMA-CGM priced at L+90 • Industrial Shipping Enterprises formed • Citigroup and Nordea agree to provide $1.5 billion 7-yr unsecured facility to OSG • Bank of Scotland and Nordea commit to new $360 million 5-yr facility for Aries Maritime • Mitsui & Co signs $33.5 million deal with West Asia Marine • Navantia SL completes 6.5-yr E259 million bonding facility with Lloyds TSB Bank • 19.8% stake in FESCO finally sold to Sergei Generalov’s Industrial Investors for $139 million • Seacor commences consent solicitation for Seabulk bonds Week 8 February 23 • Nordea and Bank of Scotland launch syndication of Aries loan, with anticipated pricing of L+100-150 • Fortis Securities closes $150 million 3-yr Bronco deal at L+200-300 • Marine Money opens its Singapore office Week 9 March 2 • TEN acquires 9 product tankers from Western Petroleum for $530 million • Seaspan contracts for 4 newbuildings, puts them on 12-yr charters to CSCL • Quintana initiates dividend policy, setting yield at 9.5% • Stolt-Nielsen announces the purchase of 100,000 of its common shares in ongoing share repurchase program • Nordic American Tanker Shipping acquires suezmax tanker, new share issue with Bear Stearns, UBS, DnB NOR • Jefferies, Bank of America bullish on tanker sector

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

"Bourbon advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

52 Weeks of Shipping Transactions, continued
WEEK Week 10 ENDING March 9 DEALS • NFC, BTM bank $57 million TMM buy-out of Seacor interest in Marmex • UAE decides to divest US-based P&O interests “primarily to salvage the relationship between the UAE and the US” • Hornbeck Offshore Services announces exchange offer for outstanding aggregate principled 6.125% notes • Rand Acquisition Corp consummates takeover of Great Lakes Towing and Grand River Navigation • Seadrill announces intention to make mandatory offer for outstanding shares in Smedvig • Stolt-Nielsen divests and Fredriksen consolidates in sea farm sector as Stolt and Nutreco sell Marine Harvest to Geveran Trading for $1.4 billion Week 11 March 16 • Top Tankers sells 13 vessels for $550 million with 5-7 year leases back in deals arranged by Pareto and Fortis • KOMARF takes 4 of Top’s vessels in its first non-domestic lease financing • OMI shakes up fleet, strengthens balance sheet • Deep Sea Supply purchases 22 supply ship newbuildings from Fredriksen interests for a total consideration of $394 million • First Securities, Pareto Securities and Fortis Bank lead $165 million placement, Fortis provides $225 million in debt to fund Deep Sea acquisition • Deutsche Bank hired to advise on DP World sale of P&O US assets • Grindrod expands logistical capabilities with acquisition of interests in Auto Carrier Transport and Grindrod Perishable Cargo Agents • GATX expected to buy Oglebay Norton Fleet Week 12 March 23 • Ship Finance buys 5 containership newbuildings and puts them away on 12-year bareboat charters to Horizon Lines • DryShips dividend discrepancy happily resolved through HSH with $530 million refinancing • CMA Shipping 2006 draws two thousand to Connecticut Week 13 March 30 • Georgios Kassiotis’ Omega Navigation Enterprises prepares for $220 million IPO with Jefferies and JP Morgan in the US and UOB Asia in Singapore • HSH extends $295 million secured facility to Omega at L+100-120 • Ultrapetrol files IPO registration statement for $175 million with Credit Suisse and UBS Week 14 April 6 • Marine Money launches its Asia Edition • Omega Navigation prices first shipping IPO of year at $17 per share • Goldenport lists in London with HSBC at 4x EBITDA, 1.2x NAV • Menendez family’s Ultrapetrol files F-1 for NY IPO to raise $175 million • Carnegie, Pareto and SEB Enskilda take SeaDrill to market to sell $540 million in shares Week 15 April 13 April 20 • Caledonia Investments and Anthony Hardy sell Wallem holdings to Tom Steckmest and Nigel Hill under advisory of HSH Gudme, valuing the company at $78 million Week 16 • Top Tankers files registration statement to sell up to $17 million in shares not long after paying out $210 million in cash dividends • Jefferies inks joint venture agreement with Ness Risan • Dalian Port raises $275 million in IPO with UBS and BNP Paribas Peregrine reportedly hundreds of times oversubscribed • State Bank of India, KfW finance VLCC order for Shipping Corp of India • Patrick Corp board recommends acceptance of revised bid from Toll Holdings valuing the company at around $4.2 billion Week 17 Week 18 Week 19 April 27 May 4 May 11 • 50th anniversary of the debut of Malcolm P. McLean’s “radical” idea • Interpool sells a large portion of its operating lease portfolio of containers for $515 million to investors in Switzerland • Heidenreich Marine is on the market under the advisory of Lazard • Quintana prepares to acquire Metrobulk for $735 million • BW Gas agrees to acquire and leaseback Yara’s ammonia fleet for $347 million under advisory of DnB NOR, ABG Sundall Collier

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

52 Weeks of Shipping Transactions, continued
WEEK Week 19 Week 20 ENDING (continued) May 18 DEALS • AMA advises CECO on acquisition of Fouquet Sacop; speculation about chemical spin-off abounds • Bourbon Offshore orders 56 platform supply vessels and 12 harbor tugs for over $880 million • Quintana acquires Metrobulk, supported by Dahlman Rose raising $191 million through PIPE offering and Fortis providing $735 in debt • Tianjin Port IPO 1,700x oversubscribed in Hong Kong • Pacific Shipping Trust prepares for first Singapore shipping trust IPO with DBS, ABN Amro and DnB NOR Week 21 Week 22 May 25 June 1 • Ultrapetrol prepares to take IPO on the road • PIL Closes Singapore’s First Shipping Trust IPO, raising $100 million • Diana files for follow-on offering with Bear Stearns and Wachovia looking to raise $77 million • TEN files shelf registration to raise up to $300 million plus to allow up to $194 million in sales by selling shareholder • Castle Harlan interests file to sell off $75 million in Horizon stock with Deutsche Bank and JP Morgan Week 23 June 8 • Oglebay Norton sells 6 of remaining 9 self-unloading “lakers” to GATX subsidiary American Steamship Company for $120 million cash • Ultrapetrol postpones IPO • Genco increases credit facility with Nordea, DnB NOR and Citigroup to $550 million • Oslo bond market sizzles, with $2.5 billion raised in first 5 months of year • Analysts call bottom of bulk market Week 24 June 15 • Teekay announces plan to spin off shuttle tanker and FSO business into MLP Teekay Offshore Partners • Diana prices second follow-on offering right around NAV • Horizon Lines secondary offering 2x oversubscribed • Heerema Group and Wilh. Wilhelmsen appoint Deutsche Bank to advise on spin-off of heavy lift company Dockwise Transport • Tallink takes Silja Lines from Sea Containers for $594 million with Citigroup and Societe General advising • First Ship Lease secures $90 million 12-yr sale leaseback with Berlian Laju Tankers • Nordea receives mandate for $670 million Awilco Offshore refinance • Natexis and Goldman awarded mandate for PT Apexindo $120 million financing • Morgan Stanley awarded mandate for PSA $1 billion bond • BW Gas prepares for issue of 3 bond loans with Nordea and Pareto to raise $193 million • Belships announces issue of 5-yr NOK 200 million bond with Nordea Week 25 June 22 • Morgan Stanley Capital Group announced as buyers of Heidenreich Marine for $200-$250 million with Lazard advising • HVB wins mandate to advise Croatian government on shipyard restructuring and privatization Week 26 June 29 • Eagle celebrates first anniversary of IPO with acquisition of 3 supramaxes, issue of $33 million PIPE with UBS • ICON Capital reemerges with 2 4-vessel deals • After payment of hefty dividend, Top Tankers raises $19.5 million through at-the-market share offerings with Cantor Fitzgerald • NFC in $30 million sale leaseback with Golden Ocean Group • Fortis acquires Cinergy Market & Trading and Cinergy Canada from Duke Energy for Euro 330 million • Singapore releases details of maritime finance incentive scheme Week 27 July 6 • Golden Ocean takes one newbuilding order, one vessel on charter from NFC, one vessel on charter from Ship Finance • SeaDrill sells jack-up rig to Ship Finance for $210 million and takes back on 15-yr lease • BW Offshore signs $600 million credit facility with DnB NOR • BW Gas completes NOK 700 million bond issue with Nordea and Pareto • Saverys-controlled Delphis takes TeamLines from Finnlines Group for $51 million Week 28 July 13 • Morgan Stanley commits to taking 11 MR product on 3-5 year charters

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


52 Weeks of Shipping Transactions, continued
WEEK Week 29 ENDING July 20 DEALS • US Shipping announces financing plan to fund construction of 9 Jones Act product carriers at NASSCO and 4 ATBs • DP World bidding progresses • CSAV mandates BNP Paribas to lead $300 million revolver • Navigazione Montanari mandates BNP Paribas, MCC, ING to arrange $450 million loan • HSH Nordbank lends $170 million to Fesco • NFC closes $181 million Ezra deal • J.F. Lehman to take Atlantic Marine for $172 million with debt financing from BNP Paribas, CIBC Week 30 July 27 • Rumors surface of Bodouroglou planning London-based SPAC • Gulf Navigation moves forward with $248 million Dubai IPO led by Shuaa Capital • Secunda International renews IPO efforts with Genuity Capital Markets to lead the deal • Fortis closes oversubscribed $735 million credit facility for Quintana Week 31 August 3 • TBS revitalizes capital structure with $140 million Bank of America-led refinancing at L+225 • Terrapin-sponsored SPAC Aldabra sets sights on Madison Dearborn-controlled Great Lakes Dredge & Dock • Wellington Management leads $13 million equity placement for Rand Logistics to fund chartering in of 3 selfunloading vessels from Wisconsin & Michigan Steamship Co • Golden Ocean takes over Clipper’s bareboat agreement on 5 panamax bulkers for $38 million • First Ship Lease expands equity capital by $55 million • US Shipping closes downsized bond deal to raise $100 million at 13% with Lehman Brothers and CIBC World Markets Week 32 August 10 • Marpetrol sold to Sovcomflot and Novoship • Bjorn Aaserod and Cambridge Partners in market for product tanker project investors • US Shipping pushes forward with USS Product Carriers project, with private equity placement led by Zimmer Lucas Partners and Alerian Capital Management, downsized bond issue managed by CIBC World Markets and Lehman Brothers, increase in existing credit facility • Rumors that Fredriksen and Georgiopoulos near $40/share agreement for sale of General Maritime • JF Lehman closes acquisition of Atlantic Marine Week 33 August 17 • Nordea, DnB and Fortis are in the market with $940 million loan for Teekay Offshore Partners • Nordea syndicating $475 million deal for Ray Shipping • Horizon Lines files with Deutsche Bank and JP Morgan for further sell down of Castle Harlan stake • Sohmen interests take Frontline stake in General Maritime for circa $150 million • Essar restructures its business in shipping, terminals and logistics Week 34 Week 35 August 24 August 31 • Camillo Eitzen announces $1,280 million acquisition of Blystad-controlled Songa with Carnegie, Pareto and Nordea advising • SHUAA Capital leads Gulf Navigation in Dubai’s first shipping IPO with National Bank of Abu Dhabi and Emirates Bank • Teekay and Prosafe court Petrojarl • Eagle Bulk files $300 million shelf registration • Aldabra shareholders prepare to vote on Great Lakes acquisition Week 36 September 7 • Seaspan files $300 million shelf registration • Nordic American Tanker Shipping expands credit facility with DnB NOR to $500 million • Ship Finance looks to increase its $1,200 million credit facility with DnB, Fortis, Nordea and Calyon • Cargill acquires stake in dry bulk vessel vetter RightShip • Chandran-led Chemoil prepares to take the asset-light IPO in Singapore • Castle Harlan continues to sell off Horizon as JP Morgan prepares to price secondary • Healy & Baillie merges with Blank Rome Week 37 September 14 • Eagle sponsor Kelso and Horizon sponsor Castle Harlan both price secondary offerings at full valuations • Pacific Basin uses Danish K/S market to expand controlled fleet

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

52 Weeks of Shipping Transactions, continued
WEEK Week 38 ENDING September 21 DEALS • John Coustas-led Danaos Corporation files prospectus for IPO to raise up to $226 million with Merrill Lynch and Citigroup running the deal • DnB NOR completes first PRC flag bilateral loan as a foreign lender, with $38.4 million 8-yr loan to Shanghai Times Shipping • Fortis Bank provides $62 million in newbuilding finance to Diana • Teekay bids for Petrojarl at $804 million • AET in $168 million sale leaseback to ABG Sundal KS • Aker Philadelphia launches first in series of Jones Act newbuildings for OSG Week 39 September 28 • OSG announces acquisition of Maritrans for $455 million to be advised by UBS, Merrill Lynch • Chiquita Brands International hires Fortis to explore strategic alternatives for Great White Fleet • Nordic American Tanker files for to raise up to $170 million with follow-on offering • FreeSeas announces intent to raise up to $22 million with convertible issue • First Ship Lease gets “Approved Shipping Investment Enterprise” status in Singapore Week 40 October 5 • Danaos prices IPO at $21 per share, the midpoint of the targeted range • Secunda files updated prospectus with Canadian securities regulators, targets October IPO • Ultrapetrol files updated registration statement with UBS and Bear Stearns, increasing maximum offering size to $215 million • Aegean Marine returns, garners support from Peter Georgiopoulos • China Cosco Holdings announces plans to raise circa $970 million with issue of 1.5 billion shares on Shanghai exchange • Teekay LNG files $400 million shelf registration • Euroseas announces 3 for 1 reverse stock split, potential share issue • Ship Finance upsizes credit facility • Captain Charles Vandeperre sells 50% stake in Univan Shipmanagement to Clipper Group • Simpson, Spence & Young launches capital arm • Diana alters target capital structure to incorporate $150 million of semi-permanent debt Week 41 October 12 • Seaspan acquires 4 vessels from Maersk for $160 million and puts them on 5-yr time charters back • Dr. Peters emerges as HMM buyer • Global Oceanic wins support of investors, hires Jefferies for AIM rights offering • Grimaldi tenders for Finnlines valuing company at $814 million, around 8.7x 2005 EBITDA • NAT raises $184 million with follow-on offering led by Bear Stearns and Morgan Stanley Week 42 October 9 • Ultrapetrol prices IPO at $11 per share • Naftotrade and advisor Eurofin cement $60 million NFC deal • Sea Containers files for Chapter 11 bankruptcy protection Week 43 Week 44 October 26 November 2 • Berlian Laju Tankers prices Singapore offering with Deutsche Bank and UBS to raise $117 million • Seaspan files for $250 million follow-on offering to be led by Citigroup and Merrill Lynch • KS organized by RS Platou and controlled by NFC sells PSV newbuilding contracts and options to KG controlled by HCI, Peter Dohle and Basil Papachristidis • Allocean sells two vessels to Pareto with 5-yr bareboat back • Eitzen Chemical issues two-tranche bond with Pareto and Nordea to raise circa $100 million at 350 basis points over floating, completes equity placement with Carnegie and Pareto to raise $300 million and looks to place $20 million in additional equity • Global Oceanic Carriers closes its AIM rights offering with Jefferies to raise _13 million • HVB bank commits to 5-yr amortizing term loan of up to $45 million, AB Bank commits to senior secured syndicated term loan of up to $16.5 million to finance GO Carriers • Varun Shipping completes $51 million preferred placement of 3% shareholding to Caledonia Investments, Sofina NA, SG, ICGQ, and IL&FS Trust C

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


52 Weeks of Shipping Transactions, continued
WEEK Week 44 ENDING (continued) DEALS • Essar Shipping & Logistics raises $200 million in 10-yr syndicated loan led by NIBC Bank and priced at L+20 plus $350 million in high yield offering led by Jefferies and NIBC • Great Eastern to inject around $55 million into recently demerged offshore shipping subsidiary Greatship Week 45 November 9 • Hornbeck Offshore issues convertible notes with Jefferies and Bear Stearns to raise $220 million initially bearing interest at a fixed rate of 1.625% • Jefferies and ABN Amro lead Britannia Bulk in $185 million bond issue • Kristian Gerhard Jebsen Skipsrederi expands cement carrier fleet with $240 million acquisition of Belden advised by DVB • Pacific Basin announces plans for $157 million equity placement led by Goldman Sachs • Fortis, KBC Securities raise Euro 75 million for Exmar in private placement • Canada announces elimination of tax advantages for income trusts, market value of Toronto stock exchange falls C$20 billion Week 46 November 16 • Broker ACM Shipping prepares to list on London AIM with Noble & Company • Oceania Cruises bank facility and private placement complete AMA Cruiseinvest effort • Kelso and Castle Harlan affiliates continues to sell down their respective stakes in Eagle Bulk and Horizon Lines • HSH and König & Cie take new ship investment vehicle Marenave Schiffahrts public • China Shipping Development plans $250 million convertible to fund 42 vessel acquisition • Green Reefers takes 20 vessels from Seatrade, Eidesvik and Odfjell interests • MC Shipping in $52 million ale leaseback with MPC Capital KG fund Week 47 November 23 • Carnival Corp hires Merrill Lynch, RBS, UBS for circa $958 million euro bond offering to mitigate foreign exchange risk in shipbuilding contracts • Vinashin hires Habubank for 9.6% $19 million bond offering • Siam Commercial Bank and Deutsche Bank prepare for three-tranche Thorsen Thai notes issue • HSH Nordbank leads $434 million 15-yr financing for Sovcomflot along with ING and Norddeutsche Landesbank Girozentrale Week 48 November 30 • Chemoil successfully closes $101 million bunkering IPO in Singapore with JP Morgan, UBS and UOB Asia Limited • Aegean Marine Petroleum sets price range for New York bunkering IPO • DnB NOR in record $293 million KS deal with Westfal-Larsen • AP Moller-Maersk in $127 million sale leaseback with Danaos • Navios announces plans for $300 million bond issue • B+H completes private placement of bond loan with Pareto and Nordea to raise $60 million • Fortis launches $775 million facility for Aker American Shipping • OOIL sells four terminals to Ontario Teachers’ Pension Plan for $2,350 million with help of UBS Week 49 December 7 • Aegean Marine prices Bear Stearns-led IPO at top of range or 25-30x earnings to raise $175 million • Teekay Offshore MLP files for IPO with Citigroup and Merrill Lynch • Bodouroglou’s Paragon Shipping raises $100 million in 144A US private equity issue led by Cantor Fitzgerald • HSH Nordbank provides $90.75 million credit facility to Paragon • Sevan Marine raises $140 million in bond issue with Pareto • Odfjell issues notes with DBS Bank in Singapore to raise SGD 160 million • GulfMark Offshore raises $77.8 million in follow-on offering led by Jefferies • Tufton Oceanic closes $114 million in sale leasebacks with Geden Lines, Marsol Week 50 December 14 • Teekay Offshore Partners prices IPO at $21, raising $147 million • Navios Maritime issues $300 millions of 9.5% senior notes due 2014 with Merrill Lynch, JP Morgan, Banc of America and S. Goldman Advisors • Deutsche Bank successfully sells DP World’s US ports to AIG with Lehman advising for 20-25x EBITDA • Larsen & Tubro set up infrastructure finance company Week 51 Week 52 December 21 December 28 • GECAS sale of 41 aircraft portfolio to Genesis has greater implications for shipping • Time to start the next year…

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

Bank Debt in 2006:
Public Companies Take on Dry Powder & Lenders Wander the World
If the international ship finance business is a body, comprising complex system of vital organs, then commercial bank debt is its heart – and as you can see from looking just about every single transaction highlighted in this special issue of Marine Money - nothing functions without it.


Whether you are talking about XL Capital’s $1 billion investment grade credit wrap for CMA-CGM, Top Tankers sale/leaseback in Korea, Odfjell bonds in Norway, Quintana’s acquisition of Metrobulk or the dozens and dozens of public and private equity deals living and breathing in New York these days, the reality is that the financial returns needed to create virtually every capital structure in the global shipping industry are nourished by leverage - and that leverage comes from the bank debt market. And so long as transaction activity is increasing in size and complexity, as it has been for years, we think that the market for bank debt will become even more vibrant. Not surprisingly, the year 2006 was another great one for the business of commercial ship lending. According to Dealogic, syndicated loan volume was up

from $60 billion in 2005 to $70 billion in 2006. This increase was thanks to high asset prices, which can be seen in figure 1. Another reason, we think, for the increased deal volume is simply that there are more public companies than ever before and these companies are legally bound to file details of their financing with Securities and Exchange Commission, which means they get included in the figures compiled by data processors like Dealogic. Loan pricing was stable, thanks to a balance between the supply of and demand for capital, coupled with the fact that loan spreads simply could not go much lower. Most importantly, the shipping market was the star of the show for the third straight year - making just about every deal, except those done at the top tick of the market, look like genius. BNP jumped up the standings in 2006 and DnB and Nordea continued their high-spirited competition for the top spot among loan syndicators, while HSH continues to be an omnipresent Big Brother on deals in every corner of the world. Another interesting trend that continued through 2006 was

the evolution of certain shipping companies into quasioperating lease providers such as Seaspan and Danaos while other shipping companies like Ship Finance have evolved into a financing vehicle providing capital to other shipowners in the form of bareboat leases. At the same time, other owners like Frontline, Pacific Basin and Top Tankers have been taking ships in on charters and sale/leasebacks rather than financing them on balance sheet to maximize returns on capital, unlock cash for dividends and minimize residual value risk. A result of all this is that certain loan facilities, like the $1 billion plus that Ship Finance borrowed this year was in fact used to finance a host of other shipowners. Here is a look at some specific transaction highlights from throughout the year.

dry cargo rates and the vintage vessel values, analysts at investment bank Dahlman Rose telegraphed to the market in a research note that they believed DryShips had either blown covenants in its loan agreement, or was close to doing so. This set off a flurry of debate in both shipping and Wall Street about whether this was the beginning of the end of the golden era, especially for yield oriented dry bulk companies that might have their banks put the kibosh on their dividends and then have investors put the kibosh on their yield driven valuations. Around the same time, a number of dry cargo deals that had been concluded at the top of the market with aggressive amortization had to have their amortization profiles extended to make the cashflows work. DryShips vigorously denied Dahlman’s assertion and came to market with a $530 million refinancing with HSH just few weeks later. The bulk market recovered, and then soared to all time highs, and talk of blown covenants vanished.

Much Ado About Nothing…Yet
“It’s over,” a very well known dry cargo owner said to me in the early part of 2006. Although the sun was shining on our industry for most the year, the first quarter saw a few dark clouds pass by and serve as a reminder of how it feels when things aren’t so buoyant. In March, after a steep drop in

Banks Wander the World in Search of Deals
The year 2006 saw international banks pack up their bags,

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


pick their spots around the world and then hire lots of local lawyers to help them understand rights and remedies. More than any other year that we can recall (at least since the Asian Crisis in 1997), commercial shipping bankers have been aggressively moving into emerging markets that they feel they understand. This is partly a function of the fact that banks are looking for ways to leverage their expertise and comfort with the assets into higher yields, and partly because banks seem to be functioning so well that bankers have the time to devote to the harder deals. Hardly a week went by in 2006 that we did not see deals of this nature, and here are a few selected examples. Royal Bank of Scotland and DnB Finance PRC Flag Vessels After many years of talking about it, 2006 saw international banks make a confident move onto Mainland China. Although much of the business was still conducted with the big and state owned companies that have long had access to international coffers, such as the $52 million deal that China Shipping Development did with Citibank, HSH Nordbank and DnB, we saw some smaller companies access bank funds as well this year. The most celebrated (literally) example of this occurred with great fanfare in September when DnB completed its first PRC flag bilateral loan as a foreign lender. That deal involved the Norwegian bank

signing a loan agreement with the Chinese company Shanghai Times Shipping for a $38.4 million bilateral term loan of 8 years. The bilateral is the first of its kind being offered by a foreign lender towards a People’s Republic of China (PRC) flag mortgage, which until then had been viewed as too high risk by foreign lenders. This was an ideal first transaction in that it involved solid players, quality vessels and industrial employment the demand for which is unlikely to diminish. Specifically, proceeds of the deal financed Shanghai Times purchase of one panamax and one handymax from Danaos Shipping, both built in 1994 in Japan. As for employment, the bulkers are

transporting coal on behalf of the beneficial owner of Shanghai Times, who provide 10% of the electrical power to China’s 1.3 billion citizens. Wikborg Rein & Co, Shanghai Branch was legal counsel on the transaction so those interested in doing financings in that market are well advised to call our friends at Wikborg Rein. Royal Bank of Scotland also entered the PRC flag market when they, together with Bank of China, closed a club deal for 3 PRC flag vessels in the second quarter of 2006.

lucrative deals, 2006 was the year when the international lending community got a few signs that it may be close to a breakthrough in Japan – and Sumitomo Bank is in perfect position to facilitate that breakthrough. Although Japanese shipping companies have long had their appetite for capital satiated by LIBOR minus debt from Japanese banks and shipyardrelated trading companies, it now appears that the state of that economy, the truly enormous newbuilding orders undertaken by the large Japanese companies, and the growing trend by Shikoku owners to provide long term bareboat financing to companies outside Japan have

Japan (Finally) Opens Up
After many years of making sales calls that resulted in more embarrassing karaoke than

Some Horses Change Position in 2006
Top 20 Bookrunner Table - Syndicated Shipping Loans – Full Year 2006 Rank Bookrunner Amt ($m) No. 1 DnB NOR Bank ASA 13,691 68 2 Nordea Bank AB 13,334 54 3 BNP Paribas 5,306 22 4 Citigroup 4,682 15 5 ING 3,622 15 6 Fortis 2,951 16 7 Sumitomo Mitsui Banking Corp 2,715 19 8 Calyon 2,689 5 9 SG CIB 2,386 15 HSH Nordbank 1,995 6 10 11 Mitsubishi UFJ Financial Group 1,166 11 12 Mizuho 960 17 13 Korea Development Bank - KDB 907 6 762 2 14 Gulf International Bank BSC 15 Lloyds TSB 654 3 1 654 Barclays Capital 16 3 651 RBS 17 18 NATIXIS SA 603 1 Bank of America 565 3 19 20 HSBC 493 3 Total 76,380 286
Source: Dealogic

F e b r u a r y / M a r c h 2 0 0 7

% share 20.6 20.1 8.0 7.1 5.5 4.5 4.1 4.1 3.6 3.0 1.8 1.5 1.4 1.2 1.0 1.0 1.0 0.9 0.9 0.7 100.0


Marine Money

combined to pique the interest of Japanese owners in international sources of capital. One example of the emerging phenomena came when Sumitomo Mitsui Banking Corporation’s head of shipping Stanislas Roger closed a $240 million syndicated club deal for Cido Shipping Group. According to our records, this is the first ever shipping deal where a Japanese bank has acted with the role as sole mandated arranger and facility agent for a club deal with Japanese and foreign banks. The proceeds of the 10-year loan were used to fund for Cido’s 6 PCC newbuildings to be delivered from Shin Kurushima Dockyard between 2006 and 2009. Each vessel will have a capacity of 6,400 RT and brings Cido’s PCC fleet to 44 putting them

as the 4th largest owners of these vehicles. The vessels will go on charter to NYK and Cido Shipping Group. The other lenders involved in the senior part are Allied Irish Banks, The Bank of Fukuoka, Ltd., Commerzbank AG, Crédit Industriel et Commercial, Kansai Urban Banking Corporation, Natexis, and The Norinchukin Bank – a nice mix of banks that we could easily imagine coming together on future deals.

financed one vessel, the other was financed by KfW, Citigroup and Nordea. This is the largest amount ever raised at one time by the Shipping Corp of India, the two largest VLCCs ever ordered under the India registry, and it is evidence of a growing relationship between SCI and international ship finance community. In November, Essar Shipping & Logistics raised $200 million in the international banking market in the form of a 10-year syndicated loan with the help of mandated lead arranger and facility agent NIBC Bank, who took in DnB NOR, DVB and Bank of Scotland as arrangers and Nordea as lead arranger. The facility, priced at L+120, goes towards the company’s $300 million ship acquisition program and is Essar’s first

international syndicated loan.

Asia & Latin America
Natexis went from participant to arranger when it, along with Goldman Sachs, was awarded a mandate from drilling rig company PT Apexindo for a $120 million financing in Indonesia. The ten year financing, the first of its kind in Indonesia, was used for the construction of a jack-up rig to be delivered early 2007 from PPL in Singapore at a total price of $145 million. Interestingly, Sea Drill owns 30% of PT Apexindo, which shows that consolidation is also a catalyst for internationalization of ship finance. No conversation about emerging markets is complete with a stop in Latin America, that resource rich part of the world known for the age of its fleet and the challenge of some of its flags. In May, Chile’s CSAV mandated BNP Paribas as sole MLA, bookrunner and facility agent to lead a $300 million revolver with proceeds to be used to fund future vessel acquisitions. DVB, Natexis and BTM have also been active in Mexico with deals for TMM. Meanwhile, HSH Nordbank has made a move into the Russian market for shipping lending with a $170 million facility for Russian liner company Fesco.

India Embraces the Dollars
There were plenty of other global firsts in 2006. In May, government-controlled Shipping Corp of India signed financing for two 319,000 DWT VLCC newbuildings for a total of $206 million. Although State Bank of India

Top 20 Mandated Arranger Table - Syndicated Shipping Loans – Full Year 2006 Rank Mandated Arranger Amt ($m) No. 1 DnB NOR Bank ASA 12,521 87 2 Nordea Bank AB 11,714 78 3 BNP Paribas 4,638 32 4 Citigroup 4,391 27 5 Fortis 3,875 24 3,610 23 HSH Nordbank 6 7 Calyon 3,477 11 SG CIB 3,460 27 8 9 Sumitomo Mitsui Banking Corp 3,214 29 10 ING 2,973 24 11 HSBC 1,733 15 12 Mitsubishi UFJ Financial Group 1,418 19 13 Mizuho 1,205 24 14 Korea Development Bank - KDB 935 6 15 DZ Bank AG 915 8 16 RBS 889 7 17 Deutsche Bank AG 780 8 18 Lloyds TSB 598 5 19 Goldman Sachs 583 2 20 Commerzbank Group 556 5 286 76,380 Total

%share 16.4 15.3 6.1 5.8 5.1 4.7 4.6 4.5 4.2 3.9 2.3 1.9 1.6 1.2 1.2 1.2 1.0 0.8 0.8 0.73 100

Public Companies Reload
It is difficult for any of us to fully comprehend the impact

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


that having so many public companies will have on the global shipping industry, but it is very clear in the bank market. One result of this increased transparency of having more public companies is that loan pricing and covenants have become much more efficient than they were in the past. As you can see from the Marine Money deal table that accompanies this article, public companies were voracious consumers of capital commitments in 2006, though in many

case this involved the recycling and topping off of existing loans. In addition to the sheer volume of deals, the public companies, and their requirement to file their loan agreements, has opened wide a window into the previously private world of commercial ship lending. Of course, when companies go public the juicy details of their personal guarantees and other assets involved in cross collateralization melt away, but nevertheless public company loan filings have exposed the inner workings of the commercial ship finance

market previously only seen by those doing the deals.

won’t need debt!” That didn’t last long. In fact, as we stated above, we believe increased capital market transaction volume stimulates demand for bank debt, not competes with it. In May of 2006, Diana Shipping, which initially proclaimed it would never use leverage for anything more than a bridge between buying a ship and concluding a follow on stock offering, made the following formal announcement, “…it is in the best interest of its shareholders to target a capital structure incor-

Commercial Banks Find Ways to Add More Value
A few years ago, when shipping companies began their steady march up Wall Street, there were, as always, a lot of gossip chattering in the ship finance market. One refrain was that “equity markets are going to reduce the demand for bank debt, especially because companies like Diana Shipping will not even have any debt! They

Noteworthy 2006 Events in Commercial Banking 
                             Dry Ships covenants "almost blown", issue blows over quickly Dnb completes bilateral loan in PRC flag for Shanghai Times BNP jumps up the league tables, active in every corner of the planet Diana Shipping changes policy to include permanent bank debt Sumitomo closes first Japanese/Foreign Club Deal - for Cido Monaline Insurance company XL Capital wraps CMA-CGM credit Healthy demand and good valuations in follow-on offering market take pressure off banks Fredriksen, Troim, Bylstad, DnB swap personnel, dig into the offshore market Despite high leverage, Lehman gets Nakilat Aa3/A+ rating on the back of Qatar contracts Robust demand in KS, KG, Korean and other leasing markets create demand for bank debt Bond market deleverages Navios' balance sheet, in favor of HSH Fortis Bank continues to integrate commercial and investment banking with Metrobulk Regional shipping companies outstrip local capital and mandate more foreign banks Natexis goes from participant to arranger TBS Shipping graduates from finance companies into bank market, chops cost of funds in half Some shipping companies evolve into finance providers Others evolve into non-vessel owning trading companies Loan volumes jump on high asset prices, consolidation, more reporting Loan volumes enhaced by non-traditional shipping assets like LNG and Rigs Dividend paying companies turn to bank debt market to boost yields French banks seen wandering the world with deals in South America and Asia Trading companies begin to see that by owning tonnage that they control physical commodities $1 billion deals being pushed out of the top 10 International banking tiptoeing into mainland China, South America, Mexico, FSU Prosperity continues in Norway's transaction community Strong freight markets have all but those who paid highest prices feeling good Loan pricing stabilizes, with no room to go down further with credit enhancement Credit hogs tk, etc out of market in 06 Public companies reload revolves, for public relations and increased buying power Indian and Italian shipping companies increasingly active in global capital markets

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

"LISCR advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

porating $150 million of semipermanent debt to support the company’s long-term growth plans.” So why did they change their strategy? It is simple – because a good deal is almost always made better with a slug of bank debt. Scott Burk, analyst at Bear Stearns pretty much sums up the beauty of bank debt; “The new policy results in higher dividends because the company now won’t need to use equity to pay for its recent $91 million capesize acquisition. We think this is positive for the stock as it increases its dividends, improves its equity gearing and lowers its cost of capital.”

Yeah, as long as the market remain firm. And Diana wasn’t alone. As you can see from our own league tables, the availability of standby bank debt became a prime public relations message for just about all of the freshly minted public companies, looking for ways to articulate to investors that they are able to grow, even if they chose not to in a market with high asset prices. Citigroup, Nordea, DnB and HSBC put together a $1.5 billion unsecured, floating rate credit facility for OSG priced at L+80, Bank of Scotland and

Nordea extended Aries $360 million in credit with CEO Mons Bolin saying, “With a $75 million undrawn commitment, Aries is in a strong position to pursue future growth opportunities.” Aries immediately snapped up two panamax tankers from Stena for $56 million each. HSH and Bank of Scotland gave DryShips the ultimate in investor relations services when granting George $530 million with about 30% of the amortization, which we figure equated to a 10-year profile on assets already 10 years old. It immediately soothed any investor worried about Dahlman Rose’s claim that the company was in tech-

nical default. In March, the name HSH again surfaced in an US IPO prospectus as the money behind soon to be public Omega Navigation’s $295 million senior secured credit facility. About $145 million of the term loan portion and a $63 million draw down on the revolving credit facility will fund repayment of the company’s old facility and a substantial portion of the identified fleet - and leave Omega with some liquidity if it chooses to exercise any of its purchase options on the panamax tankers. As always, bank debt provided the grease that made Omega’s sensitive economics

Top 10 Largest Syndicated Loans in 2006
Credit Date Borrower 14-Dec-06 Qatar Gas Transport Co Ltd Nakilat Deal Value ($m) 2,615 Deal Nationality Qatar Mandated Arranger Parent Barclays Capital, BNP Paribas, DnB NOR Bank ASA, Gulf International Bank BSC, Arab Banking Corp - BSC, Calyon, Citigroup, Credit Suisse, Dexia Group, Fortis, Goldman Sachs & Co, HSBC, JP Morgan, Lehman Brothers, Mizuho Financial Group Inc, Morgan Stanley, Citigroup, DnB NOR Bank ASA, HSBC, Nordea Bank AB BNP Paribas, SG Corporate & Investment Banking, Calyon, HSBC Nordea Bank AB, DnB NOR Bank ASA Mitsubishi UFJ Financial Group Inc, DnB NOR Bank ASA, SG Corporate & Investment Banking, Sumitomo Mitsui Banking Corp Calyon Calyon, DnB NOR Bank ASA, Fortis, Nordea Bank AB Nordea Bank AB Mitsubishi UFJ Financial Group Inc, DnB NOR Bank ASA, SG Corporate & Investment Banking Calyon DnB NOR Bank ASA, Nordea Bank AB Bookrunner Parent Barclays Capital, BNP Paribas, DnB NOR Bank ASA, Gulf International Bank BSC

9-Feb-06 22-Sep-06

Overseas Shipholding Group Inc F3 ONE Ltd & F3 Two Ltd Euronav SA/NV J5 Nakilat Ltd

1,800 1,687 1,645 1,632

United States United States Belgium Qatar

Citigroup, Nordea Bank AB

F e b r u a r y / M a r c h 2 0 0 7

9-Jun-06 26-Jan-06

11-Sep-06 18-Sep-06 20-Nov-06

Mediterranean Shipping Co Ship Finance International Ltd J.O.Q Shipping SA, J.O.R Shipping SA, J.O.S Shipping SA, J.O.T Shipping SA, J.O.U Shipping SA

1,473 1,131 954

Greece Norway South Korea

Export-Import Bank of Korea - KEXIM, BNP BNP Paribas, DnB NOR Bank Paribas, ING, DnB NOR Bank ASA, Industrial & ASA, ING Commercial Bank of China - ICBC, Lloyds TSB Group plc, Sumitomo Mitsui Banking Corp, DBS Bank Ltd, Woori Finance Holdings Co Ltd, Mizuho Financial Group Inc Citigroup, Goldman Sachs & Co DnB NOR Bank ASA, Fortis, Nordea Bank AB Citigroup, Goldman Sachs & Co DnB NOR Bank ASA, Fortis, Nordea Bank AB

7-Nov-06 2-Oct-06

Royal Caribbean Cruises Ltd Teekay Offshore Partners LP

953 940.000

United States Bahamas

Source: Dealogic 18

Marine Money

work. Pricing on the loan was LIBOR + 100 if the company keeps its debt to capitalization at less than 0.55 to 1.0, and LIBOR + 120 otherwise. Replicating bond like features, the term loan requires semi-annual payments of a paltry $1.5 million until the facility matures in five years, at which point $131.5 million is due. The cornerstone of the financial structure needed to make Quintana’s $735 million acquisition of the Metrobulk fleet work was the $735 million secured revolving credit facility provided by the advisor, Fortis Bank. The facility, which has a term of 8.25 years, will also repay debt drawn down out of Quintana’s current $250 million facility with Citigroup and Bank of Scotland. Secured by vessels, the majority of which are on charter to investment-grade Bunge, the facility is priced at only 85 basis points over LIBOR until the end of 2010, at which point the margin will increase to 110 basis points. A bullet repayment of $294 million is due on final maturity date. Here is an example of the privy look that the world gets at loan agreements, like the one Quintana entered into the acquire Metrostar. The degree if detail that was disclosed at the time of the loan closing, discussed further in our M&A article in which Fortis receives an award for its work on this transaction, is an excellent example of the private look the world gets at public company loan agreements due to disclosure requirements and concerns.

Shortly after Diana made its announcement, Genco Shipping & Trading announced its agreement to increase its credit facility with Nordea, DnB NOR and Citigroup from $450 million to $550 million. Genco, which was appreciative enough to not make any changes to the participants or terms of the facility, agreed to pay LIBOR + 95 to LIBOR + 100 basis points for the 10 year deal. The new deal left Genco with undrawn commitments of $419 million, which was a clear signal to investors that they could still grow without dilution. And this phenomenon is not limited to America. In May, the debt component of the Pacific Shipping Trust which did an IPO in Singapore was provided through amortizing loan facilities from DBS Bank, DnB NOR, HSH Nordbank and OCBC totaling $155 million. The DBS, HSH, and OCBC loans all have 12-year terms, while the DnB loan is to have a term of 10 years. And the deals kept on coming. On May 19, 2006, Seaspan Corporation entered into a 10 to 13-year (based on the delivery dates of certain vessels), senior secured, $365 million revolving credit facility with DnB Nor, Credit Suisse and Fortis Capital Corp. as Mandated Lead Arrangers, DNB Nor Bank ASA as Sole Book runner, Administrative Agent and Security Agent, Landesbank Hessen-Thuringen as Documentation Agent and various participating banks including: Bayerische HypoUnd Vereinsbank, Deutsche

"Anglo-Eastern advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Bank AG in Hamburg, Credit Industriel et Commercial and Deutsche Schiffsbank. Indebtedness under the revolving credit facility bears interest at a rate equal to LIBOR + 85 basis points until approximately July 31, 2013, for the first tranche, and LIBOR + 92.5 basis points thereafter. Eagle Bulk Shipping also increased its credit facility, lowering their overall cost of capital while also attaining the

dry powder to acquire additional tonnage. But unlike Genco and Seaspan, Eagle also tapped the equity markets through a PIPE to help fund their latest acquisitions. It is also interesting to note that Eagle’s facility is strikingly similar to the high yield bond structures so alluring in the late 90s – no principle repayment obligations during the loan’s six-year tenor. So similar, but blessedly cheaper in terms of both costs and filing obliga-

tions. Royal Bank of Scotland, which led the Eagle facility, created a similar one for Diana, which also amended their facility to provide cash availability for expansion and to lower overall finance costs.

To B/D or Not to B/D
Another frequent topic of discussion amongst commercial banks at the beginning of shipping’s bull run for securities issuance was whether they

should apply with the National Association of Securities Dealers to become a registered Broker/Dealer, thus allowing them to collect underwriting fees from public debt and equity deals. The logic was that since many of the commercial banks basically controlled the client relationships, why should they simply let the investment banks skim the cream of nonrisk placement fees, which run into the millions of dollars. Some leading banks did, like

Nordea Largest 2006 Debt Deals
Customer Nakilat Inc Overseas Shipholding Group Euronav NV Seadrill Limited Eastwind Ship Finance International Ltd. SeaDrill Limited Teekay Offshore Operating L.P. Bonny Gas Transport Limited Awilco Offshore ASA Teekay Shipping Corp. NCL Corporation Ltd SeaDrill Tender Rigs Ltd. Genco Shipping & Trading Limited Victoria Marine, Inc. Hurtigruten Group ASA Songa Shipholding Pte Ltd. Ray Car Carriers Ltd. Prosafe ASA Silja Oy Ab Masterbulk Pte Ltd MSC Mediterranean Shipping Co. Songa Offshore ASA Sea Containers / Silja Aries Maritime Transport Ltd. Seacor Holdings Inc. Color Group ASA Concordia Maritime AB First Olsen Cruise Lines Clipper Fourth Ltd.
Source: Nordea 20


F e b r u a r y / M a r c h 2 0 0 7

Global Amount 2,225,000,000 1,800,000,000 1,650,000,000 1,200,000,000 80,000,000 1,131,439,219 7,410,631,696 940,000,000 680,000,000 670,000,000 650,000,000 610,000,000 585,000,000 550,000,000 537,000,000 3,300,000,000 510,000,000 475,000,000 450,000,000 350,000,000 418,000,000 410,000,000 400,000,000 306,000,000 360,000,000 300,000,000 1,626,000,000 250,000,000 122,000,000 230,000,000

Facility Tenor (In Months) Type T/L 228 R/C 84 R/C 84 T/l 24 TL+RC T/L 53 Guarantee 2.5 R/C 96 T/L 144 T/L & R/C 40 R/C 78 R/C 60 R/C 72 R/C 108 T/L 115 R/C 84 T/L & R/C 96 T/L 120 R/C 84 T/L 90 T/L 96 T/L 144 R/C 30 T/L $ R/C 60 R/C 60 R/C 84 R/C 96 RCF 96 T/L 110 T/L & R/C 120

Signing Date 12/14/06 5/10/06 6/9/06 6/23/06 1/30/06 9/18/06 2/17/06 10/11/06 9/29/06 9/11/06 9/29/06 12/22/06 7/7/06 7/10/06 10/25/06 9/22/06 7/13/06 10/13/06 7/6/06 6/11/06 8/30/06 8/1206 9/27/06 6/15/06 4/3/06 11/3/06 6/12/06 6/19/06 8/29/06 3/23/06

Nationality Qatar United States Belgium Bermuda United States Norway Bermuda Bahamas Nigeria Norway Canada United States Bermuda United States Virgin Islands (British) Norway Singapore Israel Norway Finland Singapore Switzerland Norway United Kingdom Greece United States Norway Sweden Norway Bahamas

Marine Money

Fortis, DnB and DVB, and some leading banks didn’t, like HSH Nordbank, Nordea and Royal Bank of Scotland. What has borne out since then, and was especially clear in 2006, is that underwriting securities deals is not as easy as it looks, especially in a market that is anything less than a feeding frenzy. Instead, some of those banks that chose not to pursue the coveted “B/D” license as it is called in Wall Street parlance, perhaps anticipating that the risk was in fact greater than the opportunity cost. Banks like Nordea, have found plenty of other ways to give value to their customers, and one of such deals has put Nordea in the winner’s circle for the third straight year in the category of bank debt. What will be clear for close readers of Marine Money, is that anyone who thought investment banking carries all the return

without any of the risk was wrong. What time and data have shown is that there are few business activities that have as little risk as lending reasonable amounts of money against relatively modern assets controlled by experienced operators.

The Winners
Nordea for Songa Shipholding Behind every great shipping dealmaker, there is a financial institution – and usually a bunch of them. In the case of Axel Eitzen, our dealmaker of the year, his efforts to grow the world’s largest product tanker company almost overnight have been aided by no fewer than 25 financial institutions, ranging from American Marine Advisors to Carnegie. And while there have been many parties who have helped Axel turn his vision into a reality, the work of Nordea stands out as extraordinary for a “traditional” commercial bank.

Like many complex deals, the financing in question involves a few steps. In July, Nordea lead arranged a $510 million credit facility for Songa Shipholding. This facility consolidated all of the indebtedness for the company while providing longterm financing for its significant newbuilding program. The transaction was also intended to streamline Songa’s capital structure ahead of being acquired and was assumed as part of the acquisition. Then, in October, Nordea was sole lead arranger, sole bookrunner and agent for the $265 million, 7-year facility that allowed Eitzen Chemical ASA to acquire Songa Shipholding AS for $1.28 billion. What is interesting to note is that Nordea actually represented Arne Blystad in the sale of Songa, but also served as Joint Lead Manager for the $25 million unsecured bond deal

that helped the transaction get done and Nordea even provided a $75 million bridge loan and provided all of the FX services required.

Those companies that have the healthiest relationships with the commercial banking community are by definition the same companies that have access to the broadest and cheapest capital in the world – and this is an important thing when you consider that the cost of capital is single largest daily expense for most ships. The converse is also true – those companies that for whatever reason do not have access to the bank market have to work a lot hard to achieve fewer and more costly financing alternatives. But buttressed by years of strong earnings and basically no defaults, the good news is banks continue to be hungry.

DnB NOR Selected 2006 Financings
Borrower/Group Qatar Gas Transport Co Ltd - Nakilat J5 Nakilat Ltd Hanjin Group Teekay Offshore Partners LP Eastern Drilling ASA Aker Drilling ASA Star Cruises Ltd NCL Corp Ltd Bergesen Worldwide Offshore Ltd Universal Terminals Nordic American Tanker Shipping Ltd Carnival plc Acergy Treasury Ltd Odfjell Invest Ltd Grieg Shipping Seaspan Corp Cido Tanker Holding Co Seacor Exmar NV Westfal-Larsen Chemical Carriers I KS Nationality Qatar Qatar South Korea Bahamas Norway Norway Hong Kong United States Norway Singapore Bermuda United States United Kingdom Norway Norway Hong Kong Japan United States Belgium Norway Amount 2,615 1,632 954 940 800 775 750 610 600 539 500 461 400 388 370 365 324 300 280 233 Currency USD USD USD USD USD USD USD USD USD SGD USD USD USD USD USD USD USD USD USD USD Facility type Term Loan / Export Credit Term Loan Term Loan Revolving Credit Revolving Credit/Trem Loan Term Loan/Revolving Credit Term Loan/Revolving Credit Term Loan Revolving Credit Term Loan Revolving Credit Term Loan Revolving Credit Term Loan Term Loan Revolving Credit Term Loan Revolving Credit Term Loan Term Loan Deal date 14-Dec-06 26-Jan-06 20-Nov-06 2-Oct-06 6-Dec-06 19-Jan-06 18-Dec-06 22-Dec-06 5-Jul-06 7-Jul-06 21-Sep-06 19-Sep-06 10-Aug-06 4-May-06 8-Nov-06 11-May-06 24-Jul-06 31-Oct-06 4-May-06 18-Dec-06 Maturity date 12/14/25 26-Jan-21 20-Nov-18 2-Oct-13 6-Dec-09 19-Jan-09 18-Dec-14 22-Dec-11 5-Jul-12 7-Jul-16 21-Sep-10 19-Sep-20 1-Aug-11 4-May-11 8-Nov-16 31-Aug-19 24-Jul-16 31-Oct-13 4-May-18 18-Mar-15

F e b r u a r y / M a r c h 2 0 0 7

Source: DnB NOR

Marine Money


Selected Bank Debt Deals 2006
Borrower Thoresen Thai Navibulgar Precious Shipping Aker American Shipping Westfal-Larsen KS Nakilat Nakilat Diana Shipping Sovcomflot Lender Societe General Nord Bank DnB NOR Fortis Capital DnB NOR Bank Korea Export Insurance Co KEXIM RBS HSH Nordbank as lead arranger, ING Bank advisor, Norddeutsche Landesbank Girozentrale as co-lender Oceania Cruises Bonny Gas Transport UBS, Lehman Brothers BNP Paribas $400 $680 $1,850 $300m 6-yr term loan, $75m 7-yr loan, $25m 5-yr revolver Refinancing for 13 x LNG carriers on charter to Nigeria LNG Nanjing Tanker Corporation ICBC, Agricultural Bank of China, Bank of Communications, China Construction Bank Nanjing Tanker Corporation Credit Agricole Indosuez Pakistan National Shipping Corporation Global Oceanic Carriers Global Oceanic Carriers Sovcomflot / NYK / Samudera Szczecin shipyard Agencja Rozwoju Przemyslu DnB NOR, Fortis, Nordea, Calyon Star Cruises Nel Lines Shanghai Time Diana Shipping Eitzen Chemical Regional Container Lines KGs managed by Hellespont Hammonia BNP Paribas, Calyon, HSBC, Societe General First Business Bank as lender, XRTC as advisor DnB NOR Fortis Nordea DnB NOR HSH Nordbank, Exim Bank of China $136 $38 $62 Circa $150 $40 $86 8-yr mortgage financing for Chinese-flag panamax & handymax Construction financing for 2 x capesize bulkers from Shanghai Waigaoqiao Shipbuilding w/ 2010 delivery Financing for Songa acquisition 10-yr financing for 2 x 1,108 teu containership newbuildings Construction financing for 3 x 73,400 dwt product tankers bound for KGs Refinancing for MOL/Oman Shipping Co JV funding purchase of 1 x LNG carrier with 16-year term 22 Sep-06 Sep-06 Sep-06 Sep-06 Sep-06 Sep-06 EUR 21 7-year loan to refinance existing disputed loan agreement Sep-06 $1,700 $81 $220 AB Bank HVB Societe General $17 $45 $400 10-yr senior secured syndicated term loan at a benchmark rate + 120 bp to finance 1 x dry bulk carrier 5-yr committed amortizing term loan at a benchmark rate + Oct-06 160 bps to finance 1 x dry bulk carrier Limited recourse facility of 2 x LNG carriers on long term charter to Tangguh LNG Loans from Polish industrial-development agency done along with consortium of private banks Ship Finance International Increase to existing facility; pricing at L+70; original had 6-year term Financing for two by 4,200 passenger newbuildings Sep-06 Sep-06 Sep-06 Sep-06 Oct-06 ABN Amro $180 $135 Funding for 2x VLCC newbuildings at Jiangnan Changxing Oct-06 Funding for 2 x aframax tankers, 1 x panamax bulker Oct-06 Funding for 4x VLCCs & 18x product tanker newbuilds delivered by Bohai Shipbuilding Oct-06 Oct-06 Nov-06 Amount ($mm) $50-$60 $70 $250 $775 $240 $225 $500 $200 $434 Purpose Funding for 2 x handmax newbuildings Funding for newbuilding program 1-yr extension of existing but as-yet unused credit facility Act product tanker under construction on BB to OSG 8 year first priority mortgage at L+75 Funding for 16-ship LNG newbuilding program Funding for 16-ship LNG newbuilding program Offer letter for 364-day facility to become available upon full utilization of existing revolving facility 15-yr loan to finance 3 x ice-class shuttle tankers + 3 x product carriers Nov-06 Nov-06 Nov-06 Nov-06 Nov-06 Month Dec-06 Dec-06 Nov-06

Senior secured credit facility to fund acquisition of 10 Jones Nov-06

F e b r u a r y / M a r c h 2 0 0 7

Energy Spring LNG Carrier Gulf International Bank

Marine Money

Selected Bank Debt Deals 2006 continued
Borrower Nordic American Tanker Shipping Bluewater Grupo TMM B+H Ocean Carriers Essar Shipping Ray Shipping Teekay Offshore Partners China Shipping Container Lines ING Deutsche Bank Nordea, DVB, HSH Nordbank, Bank of Scotland De Nationale Invester-ingsbank Nordea Nordea, DnB, Fortis ICBC Bank as lead arranger, Agricultural Bank, China Merchant Bank, Shenzhen Development US Shipping TBS International China Shipping Lehman Brothers, CIBC World Markets Bank of America DnB NOR, ICBC as bookrunners, BTM, Mizuho, Bank of Nova Scotia, Swedbank MC Shipping Euronav J.F. Lehman & Co Scotiabank Nordea, DnB NOR BNP Paribas $127 $150 $155 Refinancing, acquisition funding; L+85-95 Increase to revolving portion of existing $1.6b facility; L+80 pricing, 25bp commitment fee to remain unchanged LBO to finance acquisition of Atlantic Marine, comprising $35m revolver and $120m term loan; pricing expected around L+300 Navigazione Montanari Compania Sudamericana de Vapores B+H Ocean Carriers USS Product Investors Fesco JF Lehman & Co Eagle Bulk Shipping Undetermined Blackstone Group, Lehman Brothers HSH Nordbank BNP Paribas Royal Bank of Scotland $170 $155 $450 $70 $325 BNP Paribas, MCC, ING BNP Paribas $450 $300 8-yr senior secured loan to fund general corporate purposes, Jul-06 vessel financing Revolving credit facility; pricing expected in range of L+112.5-125 In market for financing for 2 x aframax tankers Conditional debt financing for US Shipping / NASSCO JV to fund construction of 9 x Jones Act product carriers Financing for 3 x containership newbuildings, refi of existing debt Financing for purchase of Atlantic Marine Amendment to existing $330m facility, increasing amount, extending term from 4 to 6 years, and dropping pricing from L+95 to L+75-85 Bergesen Worldwide Offshore DnB NOR Kirby Corp PT Apexindo Awilco Offshore JPMorgan Natexis, Goldman Sachs Nordea as lead arranger, DnB NOR, Fokus Bank, Calyon, Deutsche Bank, HVB $600 $250 $120 $670 6-year unsecured reducing revolving credit facility at L+97.5 $100m increase to existing credit faciltiy; extension of maturity from 2007 to 2011; variable rate currently at L+40 10-year financing for construction of jack-up rig Refinancing of existing $410m facility towards 7 x jack-up rigs and 2 x floatels Jun-06 Jun-06 Jul-06 Jun-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 $140 $246 $350 Amendment to existing facility; upsized from $310 to $350m $65m revolver + $75m 4-yr term loan; pricing at L+225 Financing for 3 x supertankers Jul-06 Jul-06 Aug-06 $200 $475 $940 $186 Planned facility for Teekay's offshore spin-off 10-yr yuan-denominted financing for 4 x containership newbuildings Funding for acquisitions in 10-yr facility at L+120 Aug-06 Aug-06 Aug-06 Aug-06 $850 $200 $202 Lender DnB NOR Amount ($mm) $200 Purpose Increase in existing facility to $500m; terms to remain unchanged Refinancing on$600m in leases with Lloyds TSB for fleet of 4 FPSOs Securitization to refinance existing debt and provide capital for future projects Refinancing and funding for future acquisitoins Aug-06 Aug-06 Aug-06 Month Sep-06

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected Bank Debt Deals 2006 continued
Borrower PSA Genco Black Sea Shipping Management Concordia Maritime Seaspan Pacific Shipping Trust Gulf Energy Maritime Diana Shipping OSG Quintana Maritime Songa Shipholding Pte Goldenport Tallink Ship Finance International Shipping Corp of India Shipping Corp of India Chittagong port DnB NOR, credit Suisse, Fortis, Landesbank Hessen-Thuringen DBS, DnB NOR, HSH Nordbank, OCBC Abu Dhabi Commercial Bank Royal Bank of Scotland Nordea, Citi, DnB NOR, HSBC, RBS, Lloyds TSB Fortis Nordea, SEB, Calyon, DVB, HVB EFG Eurobank Ergasias HSH Nordbank, KfW Fortis KfW, Citigroup, Nordea State Bank of India Japan Bank for International Cooperation Hana Bank ING, Woori KDB Kookmin Bank of Scotland, Nordea Bank Finland Qatar Gas Transport SMBC as bookrunner, HSBC, Qatar National Bank, Commercial Bank of Qatar, Apicorp Omega Navigation General National Maritime Transport DryShips FAL Shipping HSH Nordbank Calyon HSH Nordbank as lead arranger, Bank of Scotland BNP Paribas $90 $295 $31 $673 Concurrent with IPO; 5-year term at L+100 to L+120 Funding for acquisition of 3 x aframax tankers from Chartworld for Libyan company Up to $530m to refinance existing indebtedness due 2016, up to $71.25m for future vessel acquisitions w/ terms tbd Funding for 6 vessel purchase by UAE-based FAL Oil subsidiary 24 Mar-06 Mar-06 Mar-06 Mar-06 $500 9-year loan to fund LNG newbuildings Mar-06 $120 $340 $210 $103 $103 $278 $15 $55 $58 $40 $360 $735 $510 Funding for acquisition of Metrobulk; 8.25 year secured facility at L+85-L+110 8-year term with pricing at L+85 for Blystad-controlled chemical carrier owner Syndicated loan concurrent with IPO at L+112.5 Financing for 3 x superfast ferries; 10-yr EUR 240m tranche & 2-yr EUR 40m tranche Financing for 5 x containerships on lt charter to Horizon 10-year financing for 1 of 2 x 319,000 dwt VLCC newbuildings 10-year financing for 1 of 2 x 319,000 dwt VLCC newbuildings Funding for 2 container terminals and associated logisitical developments Bilateral 1-year revolving credit 8-year tenor 5-yr refinancing Refinancing of $140m term loan and $150m revolving Apr-06 Apr-06 Apr-06 Mar-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 May-06 $100 $300 $1,800 Funding for 2 x panamax product tanker newbuildings from Hyundai Mipo Amendment to existing $230m facility; 10-year term; priced at L+75-85 vs. original at L+100 Amendment to February facility; 7-year term at L+70-75 May-06 May-06 May-06 $155 Credit facilities in conjunction with IPO; 10-12 year terms May-06 Lender RBS, Barclays, DBS Nordea, DnB NOR, Citigroup European Bank for Reconstruction & Development $250 $365 7-year refinancing at L+75 (down from L+125) Revolving credit facility w/ 10-13 year term at L+85-92.5 May-06 May-06 Amount ($mm) $3,420 $550 $20 Purpose Financing for acquisition of stake in Hutchison Port Holdings Amendment of existing $450m facility to $550m; all other terms remain unchanged Financing for 5 x 5,500 dwt dry bulk newbuildings Jun-06 Jun-06 Month Jun-06

F e b r u a r y / M a r c h 2 0 0 7

Daeyang Shipping Co Hanjin Shipping Eukor Car Carriers Eukor Car Carriers Aries Maritime Transport

Bilateral loan with 3-yr pre and 15-yr post delivery tranches Apr-06

Marine Money

Selected Bank Debt Deals 2006 continued
Borrower Stocznia Szczecinska Nowa (SSN) Deep Sea Supply Aker Yards OSG Aries Maritime Transport Navantia CMA CGM CMA CGM Trogir Irano-Hind Shipping Korea Line Citigroup and Nordea as bookrunners, DnB NOR, HSBC Bank of Scotland, Nordea Lloyds TSB as bookrunner, BBVA BNP Paribas Natexis Banques Populaires as bookrunner, SG, Barclays Zagrebacka Banka Undisclosed Citigroup as bookrunner, Bank of Nova Scotia, ING Bank, United Overseas Bank, Sumitomo Odfjell Invest Cido Shipping Group Cosco Container Lines Hanjin Shipping China Shipping Development Industrial Shipping Enterprises Viken LR2 A.S. Prime Marine Bank of Scotland (agent/arranger), BNP Paribas, NIB Capital Bank of Scotland (agent/arranger), Credit Suisse, Fortis, HSH Nordbank, BTM Capital Korea Gas Corp DP World Marine Harvest Citibank, Korea Development Bank Barclays, Deutsche Bank $6,500 Euro 300 Debt financing for intended P&O acquisition at top-level all-in of L+108 5-year unsecured revolving facility to fund repayment of shareholder loans from Stolt-Nielsen & Nutreco Jan-06 Jan-06 $800 Funding for LNG JV; each bank extends half of financing Jan-06 $405 Corporate fleet refinancing Jan-06 $167 Acquisition of 3 newbuild LR2 product tankers Jan-06 DVB $85 Debt financing for acquisition of 8-vessel fleet Jan-06 DnB NOR Sumitomo Mitsui Banking Corp BNP Paribas, Bank of China, Societe General, ING Unnamed domestic Citibank, HSH Nordbank, DnB $206 $52 Financing for 4 x 4,300 teu containerships with November delivery; 12-yr post delivery tranche at L+70 Funding for company's shipbuilding plans Jan-06 Jan-06 $466 $388 $240 To fund acquisition of 6th generatoin semi-submersible drilling rig 10-year term; first Japanese-led international shipping syndicate Financing for 8 containerships Jan-06 Feb-06 Feb-06 $28 $150 $400 $250 Euro 500 $360 Euro 359 5-year revolving credit facility to refinance existing debt 6.5-year syndicated bonding facility for Spanish state-owned military shipbuilder Debt tranche of securitization; syndicated to 6 shipping banks w/ pricing estimated around L+70 5-year multi-currency revolving credit facility at L+90; oversubscribed and upsized Financing for busy production schedule and restructuring program of Croatian shipyard Soft loans to fund fleet expansion Financing for 2 x LNG newbuildings at L+50 Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Lender Citibank, Bank Pekao, Nord LB Fortis $225 $151 $1,500 Amount ($mm) $200 Purpose Polish shipyard takes out financing as state guarantees set to expire Funding for purchase of supply vessels from Hemen Holdings Mar-06 Refinancing and upsizing of existed syndicated bank loan due 2011 1-year unsecured credit facility Feb-06 Mar-06 Month Mar-06

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


“Junk” – The Public Debt Award
t was another interesting year in the public debt market. The bond market continued to be active with transactions that ran the gamut from the simplicity of straight issuance to the complexity of project financing. In the latter category, US Shipping (“USS”), for example, accessed the bond market to assist in the capitalization of its joint venture with The Blackstone Group and Lehman Brothers, which will warehouse USS’s fleet renewal program. Also of interest, was the final resolution of the Navigator Gas saga with the bondholders finally getting control of the company and its vessels.


F e b r u a r y / M a r c h 2 0 0 7

Of the various transactions that occurred this year, two transactions and a trend stood out. High yield bonds returned in the US, a niche player successfully issued in Europe, and a new capital of high yield evolved.

With the assistance of Merrill Lynch and JP Morgan, Angeliki Frangou’s Navios Maritime issued high yield bonds for the first time since the junk bond debacle of the late 1990s. Navios does not fear leverage and manages it well. So it was no surprise that in December, the company announced the successful sale of its $300 million of 9.5% Senior Notes due 2014, the proceeds of which were used to refinance its existing credit facility with HSH Nordbank. Priced at 99.316% to yield 9.625%, the Notes were offered in the United States only to qualified institutional buyers pursuant to Rule 144A. The Notes will initially be guaranteed by all of Navios’ existing subsidiaries, other than its South American business. One of the key attractions of the refinancing was the lack of principal amortization during the tenor, which is

typical of these deals. Investors were attracted by the company’s charter coverage, the value of its purchase options, the company’s low break-even levels, and the dynamics of the dry bulk market in the intermediate term. For many US investors this was a first time experience with dry bulk shipping company bonds. As to the company, the relatively low EBITDA multiple at which its shares trade made bonds a dramatically less expensive way to raise growth funding than the issuance of additional equity. In November, Jefferies and ABN Amro successfully sold high yield bonds for Britannia Bulk. Given the company’s debt rating of B-/B3, the challenge for the bankers was to raise capital to enable this company, which was burdened with a short operating history, high

leverage and an old fleet, to modernize and grow. Despite having to downsize the offer and increase pricing, Jefferies and ABN Amro were successful in raising $185 million in capital, without equity dilution, which was used to pay off existing debt and create a Vessel Acquisition Account of $140 million. Also in a very interesting structural detail, the company negotiated the ability to prepay up to 35% of the bonds within the first three years from the proceeds of an equity offering at a price of 112.75% plus interest. Britannia is a niche player in the larger international dry bulk business. It focuses on transporting coal exports from the Baltic region primarily to northern and western Europe. Based upon geography, this trade is characterized by shorthauls and icy conditions and


Marine Money

"Top Tankers advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

requires knowledgeable management. Trade in this region has grown in recent years based upon increased exports of coal from Russia to Europe. Also unlike most businesses in this segment, the company generates a substantial portion of its income from fixed price COAs, which have terms of up to two years. Key customers include Glencore International AG, Siberian Coal Energy Company and Wegloloks S.A. A local market for high yield bonds has evolved in Norway based upon the significance of the offshore and shipping industries to that country. As demand for rigs, currently the primary growth driver, has increased reflecting greater exploration activities, capital

requirements have soared. In order to meet this growing demand, local investment banks, including Pareto, Nordea, and DnB, have found sufficient appetite in their own backyard as well as from international investors. They know their customers and have designed a product accordingly. This is clearly evident in the volume in the shipping, offshore and oil services segment, which totaled $2.8 billion in 2005 and grew to $4 billion in 2006. Aside from the fact that they are high yield; the bonds have many other attractive features. They have relatively short tenors (3-7 years), are largely unsecured, with few and flexible covenants, and are denom-

inated in Norwegian kroner or US dollars. The bonds do not have official credit ratings, although shadow ratings often are provided, leaving analysis to the purchasers. The latter allows marketing without a roadshow and fast closure. Although the deals are not SEC-compliant creating a barrier to US investors, there has been no shortage of appetite for the NOK denominated bonds from the Norwegian market which is not only familiar with the sectors and issuers but also has an insatiable appetite for the paper. The USD denominated bonds have been sold to UK high yield and hedge fund investors which also have a large appetite for shipping and offshore issues although they lack the breadth of knowledge of the industry and issuers that Norway has. Although an extremely difficult choice, we are pleased to present our Public Debt Deal of the Year Award to Jefferies and ABN Amro for Britannia and to Pareto, Nordea and DnB for making the Norwegian High Yield Bond Market the new capital of high yield in 2006. Although groundbreaking in that it restored an old technique, the Navios transaction was well executed but in a sense somewhat less inspiring. On the other hand, the Britannia transaction, albeit small in scale, demonstrated that with hard working bankers and a good story perceived difficulties could be surmounted. Although one can

argue that everything has a price, we do not believe that to be the case here. Other than the niche play and the COAs, there was not much to hang a hat on. Yield is important but you still need to get your money back. We view the Norwegian Bond Market almost as a force of nature. Like oil demand, appetite for this financing has not been sated. In fact, Norway seems to have taken the lead when it comes to the financing of the offshore industry and demand for this financing should grow hand in hand with demand for new rigs. These bonds are ideally structured to meet the medium term needs of the borrowers while tailored to meet the requirements of a knowledgeable investor base. Execution is quick, easy and low cost. Spreads are at historical lows reflecting in large part the demand. And best of all, the investors given their familiarity with the industry and the issuers, take “reasonably” aggressive positions. We are not sure whether a credit card could be any easier. Finally we note that the bond business together with the syndication desks demonstrates Norway’s continuing dominance as a supplier of credit to the industry. We congratulate Jefferies and ABN Amro for their hard work on Britannia and Pareto, Nordea and DnB for developing both a product and a market for the times.

"Emirates Ship Investment Company adverF e b r u a r y / M a r c h 2 0 0 7

tised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"


Marine Money

Selected 2006 Public Debt Transactions
Borrower Navios Maritime Arrangers / Advisors Merrill Lynch, JP Morgan, Bank of America, S. Goldman Odfjell Asia II Pte Odfjell Asia II Pte DBS Bank DBS Bank $33 $72 4.15% Floating at + 0.88 Sevan Marine Nakilat, Inc. Nakilat, Inc. B+H Ocean Carriers Carnival Corp Pareto Securities Unknown Unknown Pareto Securities, Nordea Bank Norge Merrill Lynch, RBS, UBS, Barclays $140 $850 $200-$300 $60 $958 3mLibor +4% 4.33% 2013 2013 9.25% 2011 FPSO construction financing Secured bond issue Subordinated debt issue Senior unsecured bond loan Euro offering; issued at 99.532% of par w/ 4.25% coupon Vinashin Israel Corp Thoresen Thai Siam Commercial Bank, Deutsche Bank China Shipping Development Hornbeck Offshore Britannia Bulk Zim Blue Star Maritime Citigroup China International Capital Corporation Jefferies, Bear Stearns Jefferies, ABN Amro $220 $185 $114 $13 $249 1.30% 2.70% 1.63% 11.00% 5.45% Euribor + 1.25% Hellenic Seaways Natexis Banques Populaires $38 2016 Convertible issue to fund fast ferry construction FreeSeas Eitzen Chemical Pareto, Nordea $22 $101 Undet. 3-mo L/ NIBOR +3.50% NYK Nepline IM Skaugen US Shipping Nordea Markets Lehman Brothers, CIBC World Markets BW Gas Nordea, Pareto $112 3-mo. NIBOR + 30 2009 Partly to finance Yara fleet Jul-06 Merrill Lynch $470 $46 $100 $100 L+1.80% 13.00% 2009 2014 2026 Converts at 16% premium Islamic bond issue by Malaysian co Replacing NOK bonds with USD bonds Funding for construction project Sep-06 Aug-06 Aug-06 Aug-06 2011 2011 Funds to acquire handysize vessels Senior unsecured notes Sep-06 Sep-06 Sep-06 2026 2011 2013-2015 2014 Convertible at 37.5% premium Issued at 93.62% of par Private offering to institutional investors Secured acquisition funding Nov-06 Nov-06 Oct-06 Sep-06 Habubank $19 $151 $220 9.60% 2008 Funding for export shipbuilding projects Sale to institutional investors by Ofer entity 2009, 2011, Refinance debt, expand fleet 2013 2011 Convertible issue to fund acquisition Nov-06 Nov-06 Nov-06 Nov-06 Dec-06 Nov-06 Nov-06 Nov-06 Nov-06 2011 2011 Guaranteed by Odfjell Priced over 6-mo SGD swap offer rate Dec-06 Dec-06 Amount (US$ M) Interest Rate $300 9.50% Maturity 2014 Purpose / Remarks Refinance existing debt Month Dec-06

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected 2006 Public Debt Transactions continued
Borrower BW Gas Arrangers / Advisors Nordea, Pareto Amount (US$ M) Interest Rate $112 3-mo. NIBOR + 50 Belships PSA Corp Nordea $16 $1,000 2011 Maturity 2011 Purpose / Remarks Partly to finance Yara fleet; pricing for 1st NOK250m tranche only Senior unsecured notes Funding for acq. of stake in Hutchison Port Holdings Royal Caribbean GS, Barclays, BNP, Morgan Stanley, RBS Royal Caribbean GS, Barclays, BNP, Morgan Stanley, RBS IM Skaugen Mitsui OSK Lines Arpeni Pratama Ocean Line HMM Aker Yards SK Securities Pareto Securities, DnB NOR Markets Hornbeck Wells Fargo Bank $75 $241 $91 5.00% NIBOR + 2.50% 6.13% 2014 Exchange offer; new notes registered w/ SEC & freely tradable Seacor Odfjell HMM CMA CGM CMA CGM UBS DnB NOR Hannuri Investment & Securities BNP Paribas BNP Paribas Barclays, Dubai Islamic Bank $139 $89 $156 $300 $254 $3,500 9.50% N+80 5.00% 7.25% 5.56% 2013 2011 2009 2013 Various Corporate bonds; 8% discount to par Senior notes Asset-backed securities Sharia bonds to help fund P&O acquisition Consent solicitation for Seabulk notes Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Jan-06 Mar-06 2011 2013 Issued at 6% discount to par value Acquisition funding, refinancing Apr-06 Mar-06 Nordea Nomura, Daiwa Securities, SMBC Citigroup $100 $380 $160 8.75% L+1.80% 2009 2011 2013 $350 7.25% 2016 $550 7.00% 2013 General corporate purposes, including redemption of notes, repurchase of stock General corporate purposes, including redemption of notes, repurchase of stock Will buyback outstanding NOK300m issue Zero coupon convertibles Callable after 4 years Jun-06 May-06 Apr-06 Jun-06 Jun-06 Jul-06 Jun-06 Month Jul-06

F e b r u a r y / M a r c h 2 0 0 7

DP World

"INCE & Co advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"


Marine Money

Restructuring Deals –
Breathing Life into Worthy Projects
n a year of relative prosperity there were as might be expected few restructurings. What to do with an Award that a few years ago dominated these pages? The race came down to two very different deals both in terms of size and sector, and while we may be accused of flipping a coin, there is no proof of that!


from Cruiseinvest. The purchase price totaled $375 million. The $400 million facility consists of a $300 million sixyear term loan, a $75 million seven-year loan and a $25 million five-year revolving credit facility. DnB and DVB were most involved in the first two tiers. The company is currently out on the road looking to raise an additional $125 to $150 million from the private equity, hedge fund, institutional world for future expansion plans. For the company the acquisition significantly reduced overall capital expenditures and carrying costs of operating the vessels, which positively impacts EBITDA. V.Ships Leisure remained as marine and fleet managers and ICS, a subsidiary of Miami based Apollo Ship Chandlers, continues to provide hotel services. This financing wrapped up what can only be called a very successful restructuring that began with the collapse of Renaissance Cruise and the arrival of AMA on the scene and their subsequent creation of Cruiseinvest, which with the $400 million financing deal are now done with the Renaissance recovery. Back of the envelope

estimates would indicate that the Cruiseinvest effort, greatly facilitated by the fact that Oceania CEO Frank Del Rio and his team delivered on their vision, returned somewhere between a 50 percent and a doubling of their money. Not too shabby. Our winner though is DVB Bank and NFC Shipping Funds for their support of the restructuring and rebirth of Marmex, the former 60/40 joint venture between Grupo TMM and Seacor, into New Marmex. Grupo TMM at one time was a darling of these pages back in the early 1990’s when Wall Street saw the company as a Mexico play. It was one of the first capital markets practitioners. In 1993 their $200 million debt offering led by Goldman and Bear Stearns was second in size in Marine Money’s database to Royal Caribbean’s $207 million IPO. But, Mexico faltered, shipping slumped and expansions into railroad activities lead to a prolonged legal battle with the Mexican government tying up management, all of which left TMM a shell of its former glory. Although TMM has had its financial difficulties, a complicated financial structure, and all sorts of complexities associated with the Mexican Flag, cabo-

We have observed first hand restructurings and understand how difficult it can be to coordinate interests and resolve problems in a fashion that does not simply temporarily bandage a wound but enables future health and value creation. Relationships, strong understanding of the business and thoughtful structuring are common hallmarks, but easier said than done. So we start by congratulating both deals and all the parties involved. Our runner-up is Oceania Cruises where a restructuring orchestrated by AMA’s Jim Dolphin has achieved great results. Earlier this year, Oceania Cruises completed a $400 million bank debt facility. The facility, placed by UBS and Lehman Brothers, enabled the successful 2002 start-up to purchase the three cruise ships it previously operated under long-term lease agreements

tage rules and mortgage protection, DVB and NFC saw potential in 2005. The financing team, led by DVB’s Camila Policarpio and NFC’s Carol Ann Malinowski, built a strong rapport with CFO Juan Fernandez who was in the process of methodically creating and executing a plan to improve financial structure and strengthen the company’s position as the largest Mexican logistics and transportation provider in Latin America and improving its relationships with key financial institutions. Management was also focused on its core competencies and markets. The relationship began with the financing of two product tankers in the middle of 2005. This transaction featured a recognizable asset, but nonetheless posed all the risks associated with both a turn-around company in a difficult jurisdiction. These ships were financed largely against 5-year charters from Pemex, which enabled DVB and NFC to get comfortable with all the other risks and most importantly become familiar with management. It also gave the team the opportunity to work with the lawyers on acceptable financing structure within the Mexican legal framework – the Mexican Guarantee Trust structure.

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


But it is for the 2006 transaction when Grupo TMM sought DVB and NFC’s assistance in their buy out of Seacor’s 40% share of the Maritima Mexicana S.A. de C.V. “Marmex”, that we give the Award. For TMM, a company in transition, 100% control of Marmex was the key objective in furthering the company’s three-legged strategy for rebirth and growth. In 2006 TMM successfully sold

their stake in the Kansas City railroad, a transaction that provided enough liquidity to pre-pay their outstanding bonds and to help get their larger finances in some order. The strategy was now to focus on three business areas: product tankers, the offshore sector and logistics – including trucking and warehousing. The deal to acquire Seacor’s shares in Marmex was a modest

$22 million, a sum that until recently was beyond reach. DVB and their partner NFC lent TMM $18 million, sharing the exposure almost equally between them. TMM came up with $4 million in equity. Structuring the security for the deal was a work of art possible only because of the previous experience with the product tankers, knowledge of management, the Mexican Guarantee Trust structure and a diversified

and acceptable mix of collaterals. The loan was secured primarily by a fleet of 12 of Marmex’s supply boats and anchor handlers, which had a year to a year and a half of charter cover primarily from Pemex, but other charterers as well. The transaction though was a four-year deal and the supply boat business is riskier than other segments so additional collateral

Example of Financing with Mexican Trust Structure

(Exsiting shipowner)

Purchase & Sale of vessel 5-year Bareboat Chartering

(C0-Charterers) Mexican Company F e b r u a r y / M a r c h 2 0 0 7

Mexican SPC

Loan Agreement


BB Charter and Technical Management Agreement

2) Bal Remi anc ttan e (V ce o AT, OPE f rema X, a inin g nd pro fit)

SPC transfers fiduciary legal title to trustee (Mexican Bank)
r Se 1)

s he nc Tra bt De of e vic

Subcharterer(s) (Mexican Companies)

Monthly payments of BB Charter and Tecnical Management Agreement (USD denominated, MXN paid)

Guarantee and Administration Trust*

Converts MXN Into USD

USD Account

: Cash Flows
*to be registered with Mexican Maritime Registry along with vessel

: Contractual Obligations


Marine Money

was secured through a second priority lien against the product tankers and other collateral outside Mexico. Like most DVB and NFC deals they are well structured to effectively stand alone, most importantly the relationship nature of their approach enabled them to develop a diversified collateral package providing the security needed to complete the transaction. Critical to the success of the transaction was becoming comfortable with TMM of

course, but structuring security via a Guarantee Trust structure for a Mexican flag and at the same time meeting Mexico’s cabotage rules was critical. The closing procedure and timing of the funding became an artful balancing act, as the financing structure required the go-ahead from Pemex, the Mexican Trustee, Mexico’s Maritime Registry and even the United States Coast Guard. Nancy Hengen and Gerardo Lozano at Holland and Knight led the legal team representing the

lenders on the US and Mexican side, respectively. Paul Amiel and Romualdo Segovia of Haynes and Boone represented the borrower in the US and Mexico, respectively. Since completion of the Marmex deal the company has set out to modernize its fleet, concluding several other financings with BTMU Capital and West LB. For Seacor the deal permitted a profitable monetization of a strategic investment. So both sides come

out happy. Taking a chance on a company with a complicated financial history and in a difficult regulatory and mortgage environment demonstrates commitment. For us those are true measures of success and reason we are pleased to give DVB and NFC Shipping Funds the Restructuring Deal of the Year Award.

"IMMARBE International Merchant Marine Registry of Belize advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Out-of the-Box Thinking or the Structured Finance Award
ne transaction executed this year was sufficiently impressive and out of the ordinary to cause the Marine Money editors to see the need to create a new category of award as we view it as a precursor of the future. No matter what our more jaded readership may think, it is not a quick solution just to reward another institution as a consequence of a plethora of good deals. We do not take additions lightly. The transaction is, as you will see below, a public debt deal; yet it is also so much more than that.


It represents the recurrent themes of out of the box thinking, best practices and imagination gone wild on the balance sheet. As a consequence of large capital requirements, credit capacity constraints and a desire to shift risk, owners saw the limitations of the available standard finance products to deal with these issues and sat down with their bankers to see if any of the existing structured finance tools could be applied to shipping. Although banks

had previously securitized their loan portfolios, it was BNP Paribas that put together the first securitization of a fleet of vessels rated by Standard & Poor’s and Moody’s. It was their experience in and lessons learned from aircraft financing that were clearly critical to making this happen. As a beginning, we thought it important to define what we are talking about. According to Mark Fisher and Zoe Shaw’s text, Securitization, “securitization is the packaging of desig-

nated pools of loans or receivables with an appropriate level of credit enhancement and the redistribution of these packages to investors. Investors buy repackaged assets in the form of securities or loans which are collateralized on the underlying pool and its associated income stream.” At the low-end of investment grade (BBB-/Ba1), CMACGM was looking to raise $800 million to buy 12 containerships as part of its expansion plans and

Innovative Structure

F e b r u a r y / M a r c h 2 0 0 7 Figure 1

Marine Money

"CMA SHIPPING 2007 advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

Vega ContainerVessel 2006-1 plc
Class Principal Amount (MUSD) 254 245 300 799 Rating Without the Wrap A-/A3 NR NR Rating Average Life 7.2 7.1 7.0 LTV Expected Maturity 2018 2018 2013 Financial Market

A B Corporate Bond Total


33% 65% NR

ABS Bond Market 144 A European Shipping Bank Market Corporate Bond Market 144A

Figure 2 approached their friends at BNP Paribas for help. BNP, understanding how well securitization would work for this client’s situation, as described in general terms above, came up with Vega Containervessel 2006-1 plc (“Vega”), an Irish special purpose entity, which through careful structuring of the debt was able to borrow 100% of the contract value of these 12 vessels and in turn lease them to CMA-CGM under long-term capital leases. In the securitization structure, CMA-CGM is the lessee of 12 SPV lessors, which will acquire the 12 vessels beginning in 2008. Each SPV lessor refinances itself thanks to Vega, which will have issued two classes of notes and one loan as shown in Figure 1. F e b r u a r y / M a r c h 2 0 0 7 Due to the capacity limitations of the ABS market and in order to obtain a competitive all-in cost of financing for a comprehensive debt package of 100% of the value of the assets, BNP structured three different tranches of debt to meet the demands of three distinct investor bases. These included the AAA/Aaa ABS investor (Class A), the shipping bank market (Class B) and the corporate bond investor market. Each tranche isolated the risk and efficiently priced that risk generating an all-in cost of about 5.5% or 100 basis points over 10 year US Treasuries. To put the significance of this accomplishment in context, we need to outline the issues and challenges with which BNP Paribas had to deal. Key to the transaction was to get a debt rating for the ABS piece which sounds simple but which had never been done in shipping or in Europe. The rating agencies had figured out that shipping is volatile. However, the fact that it was an “industrial” shipping story and the specific routes the vessels were to be operated on were outlined mitigated some of the risk. However, BNP still had to convince the rating agencies that the Enhanced Equipment Trust Certificate (“EETC”) methodology, which was used in the US to structure the financing of aircraft on the ABS market could be applied to shipping. According to this methodology, notching up above CMA-CGM’s credit rating is a function of two main criteria: A) Is the legal environment strong enough to allow repossession of the vessels in a timely fashion? By defining the scope of the issue, BNP satisfied the agencies by incorporating a covenant which defined acceptable jurisdictions where the vessels were required to call every 90 days which were compatible with the company’s business plan. B) What is the resale value of the vessels and is the second-hand market sufficiently liquid for each type? This question was particularly difficult for the new 5,100 TEU vessels for which little data was available. To solve this issue, BNP developed a model that simulated the stressed values of the vessels as a function of targeted rating. Ultimately, the transaction was placed simultaneously in three different but complementary financial markets with each market effectively tapped for what it is most price efficient at providing: Class A - $253.7 million of senior notes rated AAA/Aaa thanks to the XL Capital Assurance wrap with an “attachment point” of A-/A3 was placed on the ABS market. The 144A issuance was a European deal for US investors. And for the first time in Europe, S&P rated an EETC type structure after declining four aircraft deals. Class B – a $245 million subordinated and unrated loan was pre-placed as a club deal with experienced shipping banks. To obtain similar pricing to a classical non-tranched transaction, the combined A and B tranches represented a conservative LTV of 62%. Class C - $300 million was funded through an unrated corporate bond issued directly by CMA-CGM. The bond due in 2013 was unsecured and issued at par to yield 7.25% (225 bps over like term treasuries) and was three times oversubscribed resulting in the issuance being increased from $250 million to $300 million. The beauty of this structure, in addition to the 100% financing at all-in competitive pricing, was that it allowed CMA-CGM to lock its financing in fixed rates and to secure some of its financing needs over three years in advance. We congratulate all involved and would not be surprised to see Vega-2 very soon.


Marine Money

"hci Capital advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

M&A: Financial Buyers, Niche Players & Two Special Deals
his year’s M&A market was smaller in volume than that of 2005, but also more interesting. With a total volume of around $11.3 billion, the 2006 M&A market falls short of 2005’s $14.4 billion in volume, yet the smaller numbers belie the fact that there are more than 20% more deals in 2006.


that the commercial, operational and other services provided by such companies overlap with those some shipping companies provide for themselves and thus their value should be considered a part of the shipping sector. That said, on the one hand what we saw in 2006 was a proliferation of niche sector M&A deals. A common market perception that vessel values had peaked put pressure on valuations and made many large-scale acquisitions appear less attractive than they would have as vessel values were still rising. The search for value therefore became more focused on sectors like the Jones Act or chemical tanker sectors where regulations or general market

conditions protected acquirers from the threat of over supply in the medium term. These sectors were also preferred by financial buyers, whose emergence as major players in the business was the most noteworthy trend in the shipping M&A markets last year. They came out as bidders and buyers in a variety of deals and sectors, creating a whole new level of marketability for shipping companies who now must worry less about finding the “perfect fit” and more about the perfect price.

F e b r u a r y / M a r c h 2 0 0 7

The difference can be attributed to a few large transactions in 2005, and also depends on how you cut the numbers. Take away TUI’s $2.3 billion acquisition of CP Ships and AP Moller’s $2.7 billion acquisition of Royal P&O Nedlloyd, both in 2005, and the numbers tell a different story. The story has to do both with a shift in sectors and a growth in consolidating activity among smaller companies. While the name of the game in 2005 was liner consolidation, the big-ticket transactions we witnessed in 2006 tended to be within the rig and infrastructure industries. While many of these deals involve some of the same players as pure shipping deals and are followed in these pages, it does not seem appropriate to count them in shipping M&A volume. The sale of shipping services companies such as Heidenreich Marine, however, are counted based on the idea

sitions in 2006. It’s safe to say that their highest volume was in the big ticket ports and terminal sector while their highest market share was probably in the realm of shipping services – not surprising as these businesses tend to be unique, tricky merge or to understand and value. It is in just such acts of understanding and assigning value to complex, asset-light businesses that private equity firms specialize. The first of these deals came in early January, with Dubai government-owned Istithmar’s acquisition of Inchcape Shipping Services from Electra Investment Trust for $285 million. Electra had hired Lazard to explore opportunities, while the buyer was

Financial Buyers Shake Up the Market
Private equity players were out in force making shipping acqui-


Marine Money

advised by Merrill Lynch and ultimately paid a little north of 7x 2005 earnings for what was reported to be the world’s largest marine management company. Notably, Carlyle and Exponent Capital were also contenders and were willing to pay within 5% of the final sales price. Even more exciting for the shipping services landscape was when it was announced in June that Morgan Stanley would purchase Heidenreich Marine, which was also advised by Lazard. While the final price was never disclosed, it was understood to be upwards of $200 million. Financial buyers also showed a strong interest in the ports and terminals sector, with AIG Global Investment Group being the ultimate buyer for DP World’s US assets for circa $700 million, around 20-25x earnings, under the advisory of Deutsche Bank. With its steady earnings stream, largely predetermined supply, and high earnings multiples, ports and terminals have proved particularly attractive to long-term investors. OOIL’s sale of four Canadian terminals at 21x EBITDA to the Ontario Teacher’s Pension Plan further illustrated the point. UBS advised the seller and HSBC the buyer in this $2.35 billion transaction. Private equity also got involved in the purchase of shipping assets in 2006, though again primarily in niche sectors. For example Jefferies advised

Oglebay Norton on the sale of six of its self-unloading Great Lakes bulk vessels to GATX subsidiary American Steamship Company for $120 million in June of 2006. Then in June, Heerema Group and Wilh appointed Wilhelmsen Deutsche Bank to advise on the sale of heavy lift company Dockwise Transport, and in 2007 we learned that they too found a financial buyer for the circa $800 million transaction, Lehman-advised 3i.

tions that occurred during the year, while Fredriksen aimed to consolidate the Norwegian rig sector with a number of massive deals. Other activity ran the gamut, including LPG, Jones Act, OBOs, the cement trade, offshore, dry bulk – you name it. There is a theory that consolidation moves from the largest size vessels to the smallest ones because of the capital required to reach commercial, technical and regulatory critical mass. The trend towards consolidation in the product and chemical tanker market witnessed in 2006 could therefore be considered particularly indicative of growing maturity in the patterns of ship ownership and ship operation.

Back in the Great Lakes sector in the US and Canada, we saw a surprisingly large showing of SPAC (Special Purpose Acquisition Company) M&A. Like financial buyers, SPAC investors acquire primarily for investment purposes, but unlike financial buyers their shares have the liquidity and varied investor base of a public company. Laurence Levy-led Rand acquired Lower Lakes Towing and Grand River Navigation in February for $54 million, then in December Terrapin SPAC Aldabra’s shareholders voted to approve a merger with Great Lakes Dredge & Dock from private equity firm Madison Dearborn Capital Partners.

And activity in this market was rampant, starting with Tsakos Energy Navigation’s acquisition of nine 1A ice class product tankers for $530 million in March. Important deals included Palmali Shipping’s acquisition of 10 handysize product tankers from Lukoil in April 2006 and the August sale by Marpetrol of a fleet of 12 modern chemical tankers to Sovcomflot and Novoship. Axel Eitzen is our 2006 Dealmaker of the Year, largely due to his activities in this sector, which included the acquisition of Fouquet Sacop’s 12 chemical tankers and culminated in the $1,280 million acquisition of Arne Blystad-controlled Songa Shipholding AS and its fleet of 49 chemical tanker vessels and newbuilding contracts ranging

"Garanti advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"
F e b r u a r y / M a r c h 2 0 0 7

Consolidation Moves Forward
All this talk of SPACs and financial buyers should in no way downplay the torrent of consolidation that characterized the M&A market in 2006. Product and chemical tanker companies were among the more common fleet combina-

Marine Money


from 8,750 dwt to 40,000 dwt. The smaller size theory certainly didn’t apply to the rig sector, where Fredriksen’s SeaDrill continued to work towards being a consolidator in the Oslo rig market with the acquisition of Smedvig and Mosvold Drilling, pursuit of Eastern Drilling, and development of a stake in Aker Drilling. One deal of particular interest was done in the gas sector comprised the largest transaction ever closed on the Italian Shipping Market and between Italian Shipping operators. In a transaction nicknamed “Sparkling”, Synergas, owned 50% by the Venice-based Zacchello family and 50% by the Naples-based Cafiero

Mattioli family, acquired Navgas and its fleet of 10 LPG vessels for $220.6 million. This represents a healthy price of around 9.6x 2006 earnings. Efibanca advised Synergas on the deal, as well as providing the $28 million mezzanine component of the transaction’s financing. In the fall, OSG’s $471 million acquisition of Maritrans under the advisory of UBS and Merrill Lynch signaled a move towards consolidation in the Jones Act sector, while Kristian Gerhard Jebsen Skipsrederi’s $240 million acquisition of Belden Ship Holding and its 23-vessel cement carrier fleet under the advisory of DVB was one of a few signs of life we saw in the cement sector in 2006.

Worthy of honorable mention are Citigroup and Societe General for the Euro 470 million (circa $574 million) acquisition of Silja Oy Ab by Tallink from Sea Containers. The transaction followed Tallink’s $235 million Estonian IPO by not more than six months and also played an important role in Sea Containers’ ongoing restructuring. At the time we estimated that the vessels were sold at around 15x EBITDA, allowing Sea Containers, advised by Societe General, to repay approximately $510 million in related bank debt while also receiving $60 million in cash proceeds. For Tallink, advised by Citigroup, the transaction cemented its position as leading Baltic cruise ferry oper-

ator while also comprising what we some officials have called the biggest company acquisition every by a Baltic company in the Western European market. What’s more, all this was accomplished in a complex environment, anti-trust requiring three independent reviews in Sweden, Finland and Estonia, all of which were achieved without a hitch through appropriate structuring.

And the Winners are…
With all this excitement and competition in the shipping M&A market, it was tricky to narrow the field down to just two outstanding transactions. At the end of the day, both our winners had to not just make

The Acquired Fleet from Metrobulk
Vessel Bulk One Bulk Two Bulk Three Bulk Four Bulk Five Bulk Six Bulk Seven Bulk Eight Kamsarmax H.1373 Kamsarmax H.1374 Kamsarmax H.1375 Kamsarmax H.1394 Kamsarmax H.1395 Kamsarmax H.1357 Kamsarmax H.1358 Kamsarmax H.1396 Kamsarmax H.1359 Total Type Panamax Panamax Panamax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Kamsarmax Average: DWT 76,466 76,429 76,417 82,769 82,209 82,224 82,209 82,266 82,000 82,000 82,000 82,300 82,300 82,300 82,300 82,300 82,300 1,380,789 81,222 Built 2004 2004 2004 2005 2006 2006 2006 2006 2006 2006 2006 2007 2007 2007 2007 2007 2007 Expected Delivery to Quintana Sep-06 Sep-06 Sep-06 Sep-06 Sep-06 Sep-06 Jul-06 Jul-06 Jul-06 Aug-06 Oct-06 Nov-06 Jan-07 Jan-07 Jan-07 Mar-07 Jun-07 Average $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $43.2 $734.4 Premium: Charterfree* $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $42.0 $714.0 $20.4

F e b r u a r y / M a r c h 2 0 0 7

Source: Company presentation *Based on per dwt value compared to sale of Jin Yang, 2005 built 76kdwt, for $39.1m

Figure 2

Marine Money

"Jefferies advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

Charters & Estimated EBITDA for Acquired Fleet
Average floor rate Average Average ceiling rate Average Opex + Dry Dock Capex** 2007 $16,350 $21,601 $26,851 2008 $16,269 $21,494 $26,719 2009 $14,400 $18,803 $23,206 2010 $14,460 $18,902 $23,343 Average EBITDA Multiple* $15,370 10.4 $20,200 7.3 $25,030 5.6 $3,950

*Estimate based on $735 million acquisition price, 365 day operating year **Average is for existing & acquired Quintana fleet

Figure 3

an impressive and accretive acquisition, but had to do so against difficult odds and to make a real meaningful difference in the future of their company. Advisors in these transactions had to go above and beyond to align the stars for their clients, and we are happy to say we saw that in both the work that Fortis and Dahlman Rose did for Quintana Maritime’s acquisition of Metrobulk and in the work that DnB NOR Markets and ABG Sundal Collier did for Teekay and Petrojarl. So here, in no particular order other than chronological, are the winners.

Fortis & Dahlman Rose for Quintana
Product and chemical tankers may be smaller in tonnage than kamsarmaxes, but they’re not necessarily cheaper, and the international dry bulk industry has long had the reputation of being one of shipping’s more fragmented sectors. The spate of dry bulk IPOs in 2005 led to expectations of consolidation within the industry, but Quintana Maritime was the first to do this in one massive stroke with the acquisition of 17 dry vessels from Metrobulk for $735 million. Details on the

fleet are shown in Figures 2 & 3. The transaction not only represented the first public dry cargo company to execute a major fleet acquisition and improve their cash flow in a meaningful way since doing an IPO, but for success also required Dahlman Rose to place the largest PIPE (Private Investment Public Entity) ever in shipping only weeks after getting the mandate while requiring Harris Antoniou of Fortis to emerge as a very able M&A advisor and to provide the bank facility that would be the cornerstone of the financial structure.

Beyond the fact that this is the biggest dollar dry cargo we can recall, it truly required its advisors to go above and beyond in securing the necessary financing while transforming the nature of the acquirer. Our understanding is that Harris Antoniou that was first to spot the opportunity in Theodore Angelopoulos’ Metrobulk, more inspiring when you consider he envisioned a company that had recently IPO-ed for only $192 million as a perfect fit for a $735 million acquisition. But Stamatis Molaris’ team was

F e b r u a r y / M a r c h 2 0 0 7

$191 Million in Equity: Nothing Personal
Holder Corby Robertson, Jr. Corby Robertson III Luke Stevens Putman S James Nelson Stamatis Molaris Hans J Mende Nikos Franzeskakis Paul J Cornell FRX Offshore GP LTD Total Cost Amount raised (gross) Relation Director, 10% owner Director VP, General Counsel, Secretary Director Director, President, CEO Director Chief Commercial Officer CFO Director, 10% owner Firm (if applicable) Quintana Maritime Partners EMPAR Partnership FSD Corp AMCI Acquisition II, LLC 1,867 106,667 Preferred Shares 160,000 10,667 Common Shares 3,500 3,500 28,000 3,500 100,000 3,500 42,500 42,500 227,000 $8.00 $1,816,000.00

160,000 439,200 $93.75 $41,175,000.09 Figure 4


Marine Money

Fortis Facility Amortization Schedule
Installment 1 Installments 2-5 Installments 6-17 Installments 18-32 Total amortization Final maturity Amount (US$ millions) $10.00 $11.75 $13.25 $15.00 $441.00 $294.00 Figure 5 clearly more excited about the prospects than concerned about the difficulties of execution. Twenty percent of $735 million is $147 million, and at least this much equity needed to be obtained within about three weeks. This would not be so intimidating if you were John Fredriksen in Oslo but for a small-cap dry bulk company in the US the task was a bit more daunting. This is where upand-coming NY-based investment bank Dahlman Rose stepped in. The timeframe made it not remotely feasible to file with the SEC and organize a shareholder vote for a traditional follow-on offering, while Quintana’s $200 million equity market capitalization at the time severely limited the efficacy of a straight PIPE offering, which in the US is limited to 20% of the value of the equity outstanding, or in Quintana’s case at the time $40 million. Given these parameters, Dahlman Rose and Quintana were left with the challenge of designing a security that could be sold legally for a Nasdaq listed company – within three weeks. The security was also to be convertible into common shares as soon as practicable. We understand that Dahlman Rose had about a week to work on the structure before taking it on the road. Fortunately the story and scale were enough to get investors excited, and reception was generally excellent, with across

the board interest from normal shipping investors as well as PIPE buyers. The result was that Dahlman Rose raised $191 million for Quintana in shipping’s largest PIPE offering within the allotted timeframe. The accredited institutional investors to whom it was sold bought the 2,045,542 units offered for $93.75 a piece. Each unit consisted of 12.5 convertible preferred shares of stock – roughly $7.50 per preferred share – plus four Class A warrants. Pending approval which was attained later in the year, each warrant entitles its holder to purchase one share of common stock for $8.00. If all the warrants are ultimately exercised within the three year term, an additional $65.5 million would be raised for the company. Incidentally, Quintana’s shares closed out 2006 at $11.01 and at press time have traded up to $12.51. It’s also worth noting that over $41 million of the new equity was contributed by “insiders”, shown in Figure 4 and defined in this case as individuals or holding organizations controlled by individuals who

are either on the board of directors, part of senior management, or both. This demonstrated a commitment on the part of Quintana’s board and management, who were not only willing to put their skin in the game, but were actually keen not to allow their own exposure to be diluted. Also committed to making the deal work was Fortis Bank, which provided the cornerstone of the financial structure in the form of the $735 million revolving credit facility it provided. The 8.25-year facility was large enough to allow Quintana to repay debt drawn down out of their previous $250 million facility with Citigroup and Bank of Scotland, streamlining their debt while also financing the acquisitions. Secured by vessels, the majority of which are on charter to investment-grade Bunge, the facility is priced at only 85 basis points over LIBOR until the end of 2010, at which point the margin will increase to 110 basis points. The facility amortizes in 32 quarterly installments, as shown in Figure 5,

"DenizBank advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


beginning four months from the delivery of the newbuilding vessel “Bulk Eleven” but not later that December 31, 2006. A lump sum payment of the $294 million balance is to be made upon the final maturity date, although voluntary prepayments to go towards reducing this sum are permitted. This crucial facility carries with it a number of important, though quite manageable, maintenance covenants, notably: • The aggregate fair value of the vessels securing the facility must be no less than 115% of the aggregate amount outstanding under the facility until December 31, 2010, and no less than 125% thereafter;

• The minimum liquidity, including available undrawn credit line, must be $550,000 per vessel to begin with, moving incrementally up to $741,000; • The ratio of 12-month trailing EBITDA to interest expense must not be less than 2.00 to 1.00; • Total debt over total assets may not exceed 75%; • Minimum market adjusted net worth shall be $200 million. Needless to say, Bunge’s credit and support were instrumental to making this deal work. But so was the commitment of Quintana’s management, its advisors and lenders at Fortis, and its bankers at Dahlman Rose.

DnB NOR and ABG Sundal for Teekay & Petrojarl
Sometimes a small part of a larger organization holds a lot of hidden value in its assets, relationships, and expertise that is just waiting to be unlocked. DnB NOR and ABG Sundal Collier were instrumental in unlocking just such value in Petrojarl with its $860 million acquisition by Teekay in the autumn of 2006. It was a fitting end to a series of divestments and investments that ultimately ended with positive results for Petrojarl parent Petroleum Geo-Services, bidder Prosafe, Petrojarl investors and buyer Teekay Shipping. For years, Petrojarl belonged to

Petroleum Geo-Services, faithfully providing a stable cash stream to its parent who had entered into Chapter 11 bankruptcy protection in 2003. Then on June 30, 2006, Petrojarl and its four sophisticated FPSOs, two shuttle tankers, and one storage tanker were set free in their very own listing on the Oslo stock exchange with an initial equity market capitalization of around $510 million. By the end of August, Teekay Shipping and Prosafe had engaged in a bidding war for the company, having a very positive impact on its share price as shown in Figure 6. Prior to that, in February of 2006, Teekay and Petrjoarl had formed a joint venture, the purpose of which analyst Omar Nokta of Dahlman Rose described as providing Teekay access to Petrojarl’s expertise in engineering FPSOs. By that spring, Teekay had announced its plans to spin off its shuttle tanker and FSO business into an MLP to be named Teekay Offshore. While we have no confirmation, it is certainly conceivable that by this time Teekay was already mulling whether their cooperation with Petrojarl had the potential to develop into a more meaningful relationship. But he who hesitates is (sometimes) lost, and whatever Teekay’s intentions may or may not have been, it was Prosafe, a leading owner and operator of semi-submersible service rigs and of FPSOs outside the North Sea, who first moved on Petrojarl, picking up a 29.7%

F e b r u a r y / M a r c h 2 0 0 7 Figure 6

Marine Money

stake in August. Within two days of that announcement, Teekay had acquired its own 15% stake in Petrojarl for over $100 million, which it quickly built up to a 38% stake. During the same week, Prosafe announced its intention to propose a merger. Petrojarl noted in response to Prosafe’s advances its interest in being acquired if the transaction would include the creation of a stand-alone, focused FPSO company, and when it became clear that Prosafe’s interest would be to merge its target into its current, more diversified structure Petrojarl demurely described this as “not

an ideal solution” though did not write it off entirely. This all but invited a competing offer from Teekay, who soon raised its shareholding over 40%, requiring Teekay to either make a mandatory offer for the company or a reduce its stake. Both Teekay’s immediate action upon hearing of Prosafe’s stake and offer and Petrojarl’s answers to Prosafe indicate that Teekay and Petrojarl’s joint venture had been a positive experience for both companies and that there was mutual interest in a future together. On September 18, Teekay launched its bid for Petrojarl at NOK 70 per share, and by the

time the bid had expired Teekay had taken ownership of 63.8% of the shares outstanding at price representing a robust multiple of about 13x Petrojarl’s 2005 EBITDA. Petrojarl’s board came out encouraging its shareholders to accept the offer, saying that Teekay, as a leading global shipping company, would be a very positive owner of Petrojarl, one who shares Petrojarl’s ambitions, and who would actively support the company’s future developments. Soon after this transaction was completed, Teekay moved forward with its offshore MLP IPO, Teekay Offshore Partners.

While the majority stake in Petrojarl was not bundled with the MLP IPO assets, opportunities for future cooperation were and certainly are beneficial to Teekay’s standing in the offshore market. So ultimately, Petrojarl was able to find value with its own listing, its investors were able to find value with the sale of their shares to Teekay, bidder Prosafe too saw its stake appreciate massively, and Teekay won an important ally and asset in a market it is developing and found value it could spin to a new group of US investors. Congratulations to all.

"MTI Network advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected 2006 M&A Transactions
Acquirer, New Partners, Advisors or Parent Seller James Fisher Dorchester Atlantic Marine Gunther Hertz Bureau Veritas DP World US assets Kleimar Serius Rederi AB Logistics Group Ontario Teachers' Pension Plan OSG Compagnie Marocaine de Navigation Green Reefers China Shipping Development Corp Kristian Gerhard Jebsen Skipsrederi AS China Shipping Development Corp Teekay Clessidra Scandlines J.C. Flowers Wallenius Fredriksen interests Marine Terminals Corp Great White Fleet ACL Moby Lines Eimskip DnB NOR Markets for Teekay, ABG Sundal Collier for Petrojarl Capitalia NM Rothschild, Morgan Stanley Unknown Unknown Unknown Goldman Sachs Fortis Unknown Unknown Unknown Unknown Undisclosed Circa $950 $1,600 $16 $163 Moby For sale Stake in HSH Nordbank Singapore Shipping Corp Hanjin Shipping $480 Petrojarl Mandatory bid, backed by Petrojarl's board; Stake came to 63.2% Private equity fund takes 30% stake in Italian ro-pax operator Danish/German ro-ro & ferry operator; Stena Line, Deutsche Seereederei consortiums lead bidding Co-invested with GS and JPM, 27% stake Purchase of SSC's 40% interest in Ow Shipping & 50% interest in Wallenius Ship Management Sale of 10% stake US west coast terminal operator; potential bidders likely to include SSA, Macquarie Undetermined For sale $32 $63 $10 Consortium of Venezuelan businessmen Lloyd Sardegna Kursiu Linija Chiquita exploring strategic alternatives for subsidiary Divestiture of Venezuela barge, towboat, and related assets Acquisition of 5 x ro-pax vessels from Marsano by Onorato interests Acquisition of remaining 30% stake for complete ownership Grandi Navi Veloci Up to $1,000 Sale of stake Bank of America Capital Partners, Apax Partners, Investitori Associati in takeover talks Sep-06 Sep-06 Sep-06 Sep-06 Sep-06 Oct-06 Oct-06 Circa $2,000 Possible future sale Oct-06 Oct-06 Oct-06 Oct-06 Oct-06 Unknown $314 42-vessel bulk fleet Nordea China International Capital Corporation DVB $240 Belden Ship Holding 14 x cement carriers owned by CSAV, International Shipholding Group, Belden Invest From parent China Shipping Nov-06 Nov-06 UBS for OSG, Merrill Lynch for Maritrans Unknown Starting at $259 $175 $308 Morocco state owned ferry/liner/roro co 20 reefer vessels 42 dry bulk carriers From affiliates of Seatrade, Caiano, Norchem, Rederiparter From China Shipping Nov-06 Nov-06 Expected launch of privatisation tender Nov-06 $471 Maritrans Acquisition for $37.50 per share Nov-06 UBS for seller, HSBC for buyer $2,350,000 4 x OOIL terminals Unknown Unknown Deutsche Bank Unknown Unknown $664 Circa $700 Unknown Undisclosed Unknown 40%+ share in Germanischer Lloyd Germanischer Lloyd AIG Global Investment Group Potential sale of Belgian Bulker Rederi AB Brevik SYMS Acquisition of Rederi AB's 3-tanker fleet Potential takeover; acquiree hopes to exclude debts, charter obligations Sold at 21x EBITDA Nov-06 Nov-06 Nov-06 Centrans Ocean Shipping Unknown JP Morgan, Pan Ocean as possible bidders Nov-06 Bid for German classification company 20-25x earnings; price not yet released Dec-06 Dec-06 EC Hambro Rabben, Evolution Securities N/A N/A N/A Amount (US$ M) $45 FT Everard Plus assumption of $55m in debt; includes 11-vessel fleet, 4 more vessels to enter service in 2007, 1 facility Merger between shipmanagement companies Atlantic Marine and Dorchester Maritime White knight to stave off BV bid Dec-06 Dec-06 Dec-06 Target / New Company Comments Month

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

"Ehlermann Rindfleisch Gadow advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

Selected 2006 M&A Transactions continued
Acquirer, New Partners, Advisors or Parent Seller Grimaldi V.Ships Teekay Prosafe Unknown NM Rothschild DnB NOR ABG Sundal Collier Amount (US$ M) $275 $400-$500 $186 Circa $800 Finnlines Possible future sale Petrojarl Petrojarl Great Lakes Dredge & Dock Corp RCCL Prosafe Teekay Oldendorff Carriers Unknown ABG Sundal Collier DnB NOR Unknown $898 $145 $108 Undisclosed $78 Pullmantur 29.57% Petrojarl stake 15% Petrojarl stake CEC Lines Wilson Stake up to 35.4%; last purchase valued at $41m Appointment of advisor to examine future options Stake over 40% requiring mandatory bid to be launched within 4 weeks Proposed merger - failed Acquisition of Madison Dearborn-controlled Great Lakes by blank check entity Acquisition of five-ship Spanish cruise company; inclusive of E270m in debt At NOK 50 11,250,000 shares at NOK 60 Sale by Clipper Elite Carriers of 60% stake in liner & heavy lift division Djuva 11, Bergshav Tankers, Unknown Aktieselskabet Borgestad, Osiris Prosjekt Camillo Eitzen Frontline Crosby Marine Pacific International Lines SvitzerWijsmuller Howe Robinson Kristian Eidsvik Teledata Golden Ocean Group Unknown Unknown Unknown Unknown None Undisclosed $105 Circa $100 $529 Undisclosed Adsteam Parks Paton Hoepful & Brown Unknown Carnegie & Pareto for CECO, Nordea for Songa $154 $32 General Maritime stake Tidewater tugs Pacific Direct Line Sale of shares to World Wide at $40 each Sale of 10 tugs out of 14 contracted Purchase of "significant interest" in New Zealand-based 7-ship operator Bid for Australian towage company by Maersk subsidiary; regulatory approval received Angus Graham & Partners Merger of dry cargo chartering firms Wilson ECM Marine 5 x vessels on bareboat to Clipper Sovcomflot & Novoship Morgan Stanley, Cuatrecasas, Drewry, Moore Stephens for Marpetrol Bid for remaining 52.4% of shares at NOK 20.33; cited as low Acquisition by Indian co of US-based QI firm GOGL takes over bareboat commitments & purchase options Fleet of 12 x modern chemical tankers Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 $1,280 Songa Shipholding 49 x chemical tanker vessels & newbuildings Aug-06 Bid for remaining 53.4% of shares at NOK 24/share - failed Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aug-06 Aldabra Acquisition Corp BearingPoint Capital Aug-06 Aug-06 Aug-06 Target / New Company Comments Month

F e b r u a r y / M a r c h 2 0 0 7

buyside, Jefferies, Poten for sellside OOIL Kirby Corp Pullmantur Iberojet Vermogensverwaltungsgesellschaft MBH Atlantic Marine Chimimport Cobelfret Genco Delphis First International, Davidson Capital Unknown Unknown Dahlman Rose Unknown $14 $94 $81 $51 Bulgarian River Shipping Corp Simon Group 2 x panamax, 1 x handymax TeamLines Acquisition of 70% of shares in Danube tug barge operator Assets comprise Humber Sea Terminal, Port Sutton Bridge Franco Compania Naviera ships intended for use in pulled cavan IPO Purchase by Saverys shortsea liner operator of 2nd largest north Europe feedership operator Jul-06 Jul-06 Jul-06 Jul-06 $172 UBS Unknown Banesto Unknown DVB Undetermined Selling assets $15 Capital Towing Undetermined For sale Unknown $869 Carlyle Containers owned by Florens Container, Inc. JF Lehman & Co Considering sale of North American terminals division Fleet of 11 x inland towboats Owners seeking 40% partner for 6-ship Spanish cruise line but full sale considered Purchase of 2-ship Spanish cruise line Sale by COSCO subsidiary to special purpose entity; all lease contracts to remain intact Purchase by private equity firm of shipyard group Jul-06 Jul-06 Jul-06 Jul-06 Jul-06 Jul-06


Marine Money

Selected 2006 M&A Transactions continued
Acquirer, New Partners, Advisors or Parent Seller Blue Star Maritime Fortis Clarkson Heidenreich Tallink Associated British Ports American Steamship Company Berlian Laju Tankers Aker Yards Shipbuilding Attica Holdings Uralsib Eimskip Quintana Scandlines Palmali Shipping BW Gas Camillo Eitzen PSA International Emirates Shipping Line SeaDrill Tom Steckmest & Nigel Hill Marmaras Maritime Triton Container International Torm Diana Shipping Gearbulk DP World SSA Marine Oiltanking Stolthaven Antwerp Grindrod Undisclosed Undisclosed 50% of Auto Carriers, 25% of Grindrod Perishable Cargo Agents Deep Sea Supply Kirby Corp Geveran Trading Grupo TMM Grupo TMM Unknown Unknown ABG Sundal Collier for Stolt-Nielsen Unknown DVB / NFC $10 $57 Servicios Mexicanos en Remolcadores Maritima Mexicana, 5 x offshore vessels Purchase of 40% Marmex interest plus vessels from Seacor Mar-06 $394 $16 $1,410,000 22 supply vessel newbuilding contracts Dixie Offshore Transportation Marine Harvest Fredriksen entity; purchase from Nutreco Holdings, Stolt-Nielsen (25%) Purchase from Smit of remaining 40% minority stake Mar-06 Mar-06 From Fredriksen's Hemen Holdings; $120m paid, $274m in construction commitments Purchase of Progress Fuel's 65% stake Mar-06 Mar-06 Unknown Unknown Unknown Unknown Citigroup Unknown $64 Circa $350 $20 $61 $865 32% stake in Norden Diana Shipping Services Borgestad Shipping Gwadar For sale Stolt-Nielsen, Oiltanking Possible sale Public company brings manager in-house 5 x open-hatch bulkers to Jebsen/MOL company Frontrunner in bid for Pakistani port US container terminal operator SNSA subsidiary to buy 50% interest in Antwerp terminal Grindrod now owns 100% of both entities Mar-06 Apr-06 Mar-06 Mar-06 Mar-06 Mar-06 Mar-06 Unknown Goldman Sachs $1,000 $2,500 For sale For sale Unknown Unknown Unknown Fortis NM Rothschild, Morgan Stanley Unknown DnB NOR, ABG Sundal Collier AMA Capital Partners Unknown Unknown Enskilda for Smedvig; Enskilda, Carnegie, Fondsfinans for SeaDrill HSH Gudme Circa $80 Wallem Group $735 $950 $265 $347 $276 $4,388 Up to $255 Circa $156 Undetermined Kursiu Linja Metrobulk For sale 10 x handysize product tankers Yara's LPB/Ammonia fleet Long-term charterback to Yara Fouquet Sacop 20% stake SCI/Zim Line JV Smedvig Fleet of 12 x modern chemical tankers Hutchison Whampoa's portfolio of ports & terminals 8 x 2600 TEU vessels Final bid by SeaDrill of NOK205/A-share, NOK165/B-share successful Sold by Caledonia Investments (78%) and Anthony Hardy (21%) Diamantides 12-tanker fleet Bermuda-based shipping container company Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Apr-06 Unknown Unknown Up to $260 $61 Unknown Unknown Unknown Lazard Societe General, Citigroup Unknown Jefferies Amount (US$ M) $20 EUR 330 $9-$18 $200-$250 $574 $5,100 $120 Oglebay Norton Great Lakes Fleet Undetermined Alstom Marine's Shareholder approval for possible acquisition 75/25 JV Aker SA through 2010, when Alstom is to relinquish remaining interest Possibly English Channel ferry operation Acquisition of 50% share in equity 17 x panamax and kamsarmax fleet Danish/German ro-ro & ferry operator From Lukoil May-06 May-06 May-06 May-06 May-06 Apr-06 Novorossiysk Sea Port Co Sale of 30% stake to Investsberbank Jun-06 May-06 Dane Sea Lines cinergy Genchem Chartering Morgan Stanley Silja Lines Purchase of Greek ferry operator assets at auction Acquisition of North American energy trader Acquisition of specialized chemical products provider Sold Purchase by Estonian public ferry company from Sea Containers Goldman & Macquarie in bidding war; GS raised Acquisition of 6 x vessels by GATX subsidiary Jun-06 Jun-06 Jul-06 Jun-06 Jun-06 Jun-06 Jun-06 Target / New Company Comments Month

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected 2006 M&A Transactions continued
Acquirer, New Partners, Advisors or Parent Seller Grupo TMM Eolos fleet Tanker Pacific OOIL & Shanghai New Changing Group SeaDrill Tanker Pacific Vafias Industrial Investors MPC Munchmeyer Petersen Steamship Cobelfret Rand Acquisition Corp AL Ships Prime Marine Industrial Shipping Enterprises MSC PSA Dorian (Hellas) JB Ugland Korea Line, KoGas, HMM, STX Unknown UBS Unknown Unknown Unknown Unknown Unknown Unknown Lazard Unknown Unknown N/A Unknown Circa $80 $155 $100 $235 $45 Undisclosed N/A $540 $210 $6,100 $50 $90 Unknown NatCity Investments, Macquarie KGAL Unknown JP Morgan $105 $54 $450 $135 Circa $115 Unknown None None Unknown Unknown Circa $160 $248 $110 $139 $483 Mosvold Drilling Genmar OBOs Eolos bulker fleet Fesco Seatrade Groningen reefers Dart Line Lower Lakes Dredging 8 x panamax tanker newbuildings 6 x OBOs 8 vessels from multiple sellers Phillip Morris Capital ships P&O Steam Navigation Co. Reportedly for sale Sovcomflot ships Korea Gas Corp JV subsidiary 4 x J Lauritzen reefers Oaktree's stake Sigloo Gas KS Inchcape Shipping 37% stake in Affin Merchant Bank Rettig Group Golar LNG Transocean Rederi AB Engship HMM Petrojack Sale of Engblom family's 11 dry bulk, container & ro-ro vessels Speculation that Golar offshoot Geveran may be plotting takeover after raising stake to 17.76% Option to purchase 3 x jack-up rigs until March 15, 2006 Jan-06 Jan-06 Jan-06 a 2.4% discount to closing price Camillo Eitzen Istithmar PJSC Affin Holdings Bid for outstanding shares of Sigloo; Eitzen currently owns 50.5% Done Sale of MISC stake completed Jan-06 Jan-06 Jan-06 Jan-06 Buyout of Oaktree's 4,176,756 share stake at $37/share, Jan-06 Counterbid by Temasek-owned PSA at 470p/share; 26x 2006E earnings Fleet of 5 gas ships 2 x suezmax tankers To handle LNG shipments of around 3m tons annually Jan-06 Jan-06 Jan-06 Jan-06 Exercising options for 3 x 20-year-old conros Jan-06 Purchase by Belgian ferry & shipping group of UK ferry operation including 4 x ro-ro ships and 1 terminal Proposed acquisition by blank check company; shareholders approved Rumored sale by KG/V. Ships JV for $26m premium to Feb-06 October purchase price Sale to Norwegian interests w/ 2-4 yr TC back to Klaveness at $12.5-15k/day Box feederships & vegoil tankers Jan-06 Feb-06 Feb-06 Feb-06 Unknown Unknown Unknown Unknown Tsakos Energy Navigation Unknown Amount (US$ M) $20 $530 Circa $110 $248 $185 3 x offshore vessels Western Petroleum S.A. 3 x panamax bulkers GenMar ships Property JV Conversion from leased to owned 9 x ice class product tankers For sale 9 x OBOs; originally thought sold to Fredriksen interests Shipping group to join with state-owned property company for development project NOK14 per share bid upped to NOK17; 92.97% accepted 9x aframax OBOs Fleet of bulkers - failed Privatization of 19.8% stake at 18% premium to asking price Acquisition of 14 x reefers by KG fund Feb-06 Feb-06 Feb-06 Feb-06 Feb-06 Mar-06 Mar-06 Feb-06 Feb-06 Feb-06 Target / New Company Comments Month

F e b r u a r y / M a r c h 2 0 0 7

Chartworld Shipping General Maritime


Marine Money

"Blank Rome LLP advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

“Hell, I don’t know what you’re talking about, but at that rate sign me up!”

Convertibles: The Equity Linked Award
he use of convertibles is generally not commonplace despite the low coupon rate. The likely explanation is the high cost in terms of equity dilution. This year we reinstituted this award reflecting increased activity in this category by a widely diverse group of borrowers including Hornbeck Offshore, FreeSeas and China Shipping Development.


In September, FreeSeas announced its plans to issue up to $22 million of senior convertible secured notes due

2011 to private investors. The proceeds were to be used to acquire more modern handysize vessels. From our standpoint, the significance of this transaction was that it served as a bellwether of market sentiment. How would the market receive a debt offering, properly priced with upside, from a company with a market capitalization of $30 million? Or, in other words, can a very small cap company utilize its access to public markets to grow? Unfortunately these questions will remain unanswered at this time,

as the company has decided to defer the deal as announced. In the Far East, China Shipping Development planned a RMB 2 billion ($250 million) convertible bond to fund its exercise of purchase options on 42 dry bulk vessels from China Shipping. The bond would have a term of five years and have a coupon of between 1.30% and 2.70%. The initial conversion price is to be the higher of the average closing prices of the A shares 20 days before the issuance of the

offering memorandum and the average trading price of the A shares on the trading date immediately preceding the issue of the memorandum with an additional upward margin of 15-20%. The company’s board believes that the convertible bond issue would allow the company to take advantage of the current favorable low interest rate environment while providing a much more attractive coupon than a straight bond issue and not leading to any immediate

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

dilution to earnings per share. China International Capital Corporation is serving as financial advisor to the company while Evolution Watterson securities is serving as independent financial advisor to the independent board committee. Now for the winner! How do you begin to describe a transaction that provides 20 year financing at 1.625%, declining to 1.375% after year seven, mitigates dilution risk and is described as Convertible Senior Notes with Concurrent Share Repurchase and Call Spread Overlay. You immediately call James Harp at Hornbeck Offshore Services or his advisors, Jefferies & Company and Bear Stearns and ask for help. Hornbeck Offshore Services sold $250 million aggregate principal amount of convertible senior notes due November 25, 2026 that were privately offered to qualified institutional buyers under Rule 144A. Concurrently, the company is using a portion of the proceeds to pay the cost of convertible note hedges, issue warrants and buy back 1.8 million shares of its stock. The convertible notes initially bear interest at a fixed rate of 1.625%, declining to 1.375% beginning in November 2013, and are convertible into cash up to the principal amount and shares of Hornbeck for any conversion value above the principal amount or, upon the company’s election in certain prior to circumstances

November 15, 2013, solely into shares, at a conversion price of $48.48, a premium of 37.5% over the last reported sale price. The convertible note hedge together with the warrants, done by Jefferies, increases the conversion price to $62.59 per share with a corresponding premium of 77.5%. In effect, Hornbeck has synthetically increased the premium through the hedge. From the Company’s perspective, it has shifted the burden of dilution for any stock appreciation from 37.5%-up to 77.5%up from the stock price on the day of closing, which was $35.26. If the share price is less than $48.48, the note holders get cash and an interest return of 1.625%. Over $48.48, the convertible is in the money but the risk of dilution is shifted to the counterparty. The company only begins to suffer dilution if its shares are above $62.59. However any future dilution above that level is mitigated even further by their purchase of 1.8 million shares of Hornbeck stock, which was also funded through the net proceeds of the offering. The stock appreciation will help the company get back the difference. With $300 million of 6.125% senior notes due 2014 and $250 million of 1.625% convertible senior notes due 2026, the blended (weighted) average coupon on pro forma company-wide debt of $550 million will be about 4.1% (fixed). Meanwhile, after

adding the incremental $129 million of new cash raised to the September 30, 2006 reported cash balance of $320 million, Hornbeck will have in excess of $450 million of “dry powder” cash that will be earning interest income in the 5.00% range, making them a temporary net lender. In fact, the arbitrage and the share buyback made the deal immediately accretive by increasing 2007’s projected EPS by $0.30. With the help of their investment bankers, Hornbeck, by monetizing the volatility of its stock and strong credit spreads, has borrowed cheaply and created a nice arbitrage.

And based upon the reception by investors, they too were happy with the deal both in terms of structure and the deepwater story. With a minimal sales effort, the original base offering was upsized and the $30 million over allotment was exercised prior to closing. The deal was priced at the low-end of the coupon range (1 7/8 +/25 bps) and the high-end of the conversion premium range (35% +/- 2.5%). This is surely an example of financial engineering at its best and it was no surprise that it was chosen as the EquityLinked deal of the year.

"PetroTank advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"
F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Shipping IPOs Forge into New Territory
he volume of shipping equity raised from the public markets in 2006 represents a drop from the amount raised in 2005, but it could hardly have been any other way. What is amazing, really, is high how the volume remained, with nearly $5.8 billion of new public equity brought into shipping. Between vessel values and the overall size of the ship finance market remaining fairly stable and the cumulative effect of the public equity raised over the past few years in the bull market, the trend toward public ownership of the global merchant fleet is definitely growing.


past year growing public investment in shipping has been split between enlarging existing public companies, shrinking sponsor holdings, and taking new companies public. And as this has occurred the market for public equity in shipping has begun to stabilize. There was a time in 2005 when the market for new shipping IPOs could rightfully be characterized as a bloody mess. But since the start of 2006, the vast majority of the 2005 IPOs (with exceptions, of course), have traded above their IPO price and have made quarterly payments of the promised yield to investors. The 2006 IPO market was correspondingly a good bit more rational, with owners, bankers and investors all a bit more educated and less impulsive. Our 2006 winner showed

a cleaner, more predictable side of the IPO market where proper structuring and reputable principals can yield dependable results with both shipping companies and IPO investors attaining the desired benefit. While lacking a sense of swashbuckling excitement, there is a lot to be said for creating such a product among the sometimes insufficiently risk averse shipping crowd. A more stable market has allowed the quality of deals to evolve as their variety has increased. Whereas the focus in 2005 was largely on commodity bulk shipping companies more often than not in the US markets, 2006 IPOs were far more varied, with companies focusing on anything from bunkering to newbuilding orders to brokering and on exchanges from New York and London to Dubai and Singapore.

The Year in Review
It’s hard to say whether developments in exchanges or developments in sectors were more interesting in 2006. From both a geographical standpoint and a business model standpoint, we think it’s safe to say that bankers and owners had their work cut out for them as far as educating new investors – and expanding the capital base that ultimately is available to shipping. It’s therefore best to attack the year from a chronological standpoint. We all held our breath a bit in the winter and early spring as deals would surface then be postponed or quietly disappear. Would the public equity market be open to shipping in 2006, or had it been oversaturated? Omega Navigation was first

F e b r u a r y / M a r c h 2 0 0 7

Worth noting is that nearly half of all equity raised in 2006 was done so through non-initial offerings, whether through new share issues, sponsor sell-offs, or private placements for public entities. In other words over the

Sources: Citigroup, Marine Money Research 54

Figure 1

Marine Money

out, and in early April it successfully priced its dual New York / Singapore IPO while Goldenport executed an IPO on the London Stock Exchange. Response to either deal was not ravenous, but it was willing. Jefferies and JP Morgan-led Omega priced below its $19-$21 price range at $17 per share and has not traded up, though if the results of 2005’s IPO class are indicative there is certainly hope for the coming year. Goldenport on the other hand, save for a dip in the summer, has been trading above its _2.35 offer price. Interesting considering that where Omega is an example of short operating history, new ships, Goldenport went out as just the reverse, with a long operating history and old ships. However we said at the time that the HSBC-led Goldenport deal may actually have been appealing because investors believed that there would be a downturn. Goldenport used $25 million of its proceeds to repay debt and held on to $68 million to buy new ships “when the prevailing market conditions are favorable to do so.” With ships in their twilight years on charter, investors were willing to bet that they would get enough dividend back to remove the risk of residual value and then be in a perfect position to strike when the market hits bottom. Somewhat ironically however, 2006 turned out to be a better than anticipated year for the bulk market in which both companies operate.

Neither of these transactions, therefore, indicated bullish sentiment on the shipping market or on shipping deals, and we would watch companies like Ultrapetrol, Danaos, Berlian Laju Tankers, Secunda Marine, Chemoil and others hover on the sidelines for some months to come. Meanwhile it was Chinese infrastructure projects that were really in vogue in the spring of last year, with Dalian Port’s IPO as much as 300x oversubscribed and Tianjin Port Development Holdings’ IPO reportedly as much as 1,700x oversubscribed. Then in late May, shortly after Singapore put a new maritime finance incentive scheme into place, Pacific International Lines was among the first to take advantage of it with the sale and long-term bareboat charter back of eight container vessels to new publicly-listed entity Pacific Shipping Trust (PST). DBS led the deal, which was the first of its kind, and successfully raised around $100 million. Besides being innovative in the use of a tax-advantaged public company as a special purpose lessor for an entire fleet of vessels, the deal was also a big step forward from the only IPO done in Singapore in 2005, Courage Marine’s tiny $35 million deal. In the end, Singapore’s investors were not entirely comfortable with the new structure and PST was forced to downsize its offering by about 20%. Share performance has been flat, but together with a projected yield of over 9%, the company is treating investors solidly and the door

should be open to more deals of this kind. Next out was Gulf Navigation in late August with Dubai’s first shipping IPO. SHUAA Capital led the $248 million deal, which was groundbreaking in that it was the first shipping company to actually tap the ofttouted Dubai market, and we’re sure many other companies were watching very closely to see how the deal went. But Gulf Navigation was not content to pioneer a new exchange for shipping, or a new sector for the DIFX, the company also sold a fleet to the public where nearly 80% by dwt was yet to exist, and met with success. As the year progressed, John Coustas-sponsored Danaos also met with success as his IPO priced at the midpoint of its targeted range and then traded up. Kevin Wong’s Berlian Laju Tankers succeeded in securing a Singapore listing, opening the company up to a more international base of investors than was previously available to BLT when it was listed only in Indonesia. The Menendez family’s Ultrapetrol deal led by UBS and Bear Stearns in New York had to accept a discount to their price target, but was ultimately successful in selling a rather eclectic bundle of businesses based largely in South America and investors have since seen the shares trade up substantially. ACM Shipping, a broker, had a tiny offering of circa $15 million led by Noble & Company on the AIM in

London. The success of this deal was particularly indicative of the importance of exchange choice – the AIM welcomes smaller deals, requires less compliance and fees, and is in London, where two other shipcompanies were broking already listed. Meanwhile, two bunkering deals on opposite sides of the globe, each of which had been pulled at least once, succeeded in the span of little over a week. Chandran’s Chemoil, in a deal run by JP Morgan and UBS along with UOB Asia, raised around $100 million in Singapore. While we were thrilled to see a bunkering deal accomplished, the deal did hit some rough spots and ultimately had to reduce its price range and saw the sponsor purchase around 34,000,000 shares. That’s why we were all the more impressed to see Melisanidis’ Aegean Marine Petroleum price at the top of its range, more than 25x 2005 net income, in a deal led by Bear Stearns in New York. No doubt Peter Georgiopoulos and John Tavlarios’ sponsorship and participation bolstered the deal’s credibility; it couldn’t have been the quarterly dividend payment set to start at $0.01. When Aegean priced, it was evident that not only had the shipping IPO market tightened, particularly in New York, but it was open to new types of deals that would have been hard to even consider less than two years earlier. Then, finally, just before the end of the year, Teekay filed for its long-awaited Teekay

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Offshore MLP IPO, Citigroup and Merrill Lynch took the deal on the road, and it was priced less than two weeks later at the high end of its range.

And the Winner is…
In a year full of firsts and unexpected successes, our award goes to Merrill Lynch and Citigroup, Dahlman Rose, Jefferies, Fortis and Nomura Interna-

tional for their execution of the Danaos Corporation IPO. An IPO by a containership owner with a solid operating history structured as a C-Corp and priced in the midpoint of its range at first glance might seem a bit “vanilla”, but that’s precisely what makes it groundbreaking. Not only did the sponsors and investors both get what they

were looking for, but in so doing they have taken a major step forward in creating a foundation for the shipping asset class in the US markets, helping investors to see shipping just like any other yield-generating asset class, incorporate it into their portfolios, and periodically look for new deals. At the same time, like Ship Finance International and

Seaspan, Danaos Corporation provides a source of equity to public and non-public shipping companies alike in its role as a lessor. Danaos has already exercised this capability with the purchase and long-term charter back of three containerships to AP Moller-Maersk in a deal strikingly similar to one done between Seaspan and Maersk Ultimately what the deal

Guts of the Deal
Danaos Corporation Number of Shares % of Total O/S Shares Offering Price Range Deal Size Existing Fleet Average Age of Fleet Newbuildings Vessels under Contract Dividend Policy Dilution Lock-up Management Company Credit Facility Commercial Banks Cost of Debt Primary Shares Secondary Shares Selling Shareholder % Retained Use of Proceeds Annual EBITDA Investment Banks Issuer's Counsel Underwriters' Counsel Accountants Incorporation Industry Information Exchange Ticker 10.25 million 18.8% $20 - 22 $205.0 to 225.5 million 27 Vessels of 116,115 TEU (4 subject to purchase options) 11.4 years declining to 9.1 after delivery of all contracted vessels. 9 vessels of 76,104 TEU 2 x 4,300 TEU Quarterly dividends of $0.44 per share $11.91 180 days/730 for Coustas Family External; Danaos Shipping, owned by the Coustas family $1.4 billion ($700 million each) RBS & Aegean Baltic/HSH Nordbank L + 0.75% All None Danaos Corporation 80.00% Repay outstanding indebtedness under the RBS and Aegean Baltic Bank credit facilities $171.00 Merrill Lynch, Citigroup, Dahlman Rose, Jefferies, Fortis, Nomura Morgan, Lewis & Bockius Cravath, Swaine & Moore PricewaterhouseCoopers Marshall Islands Clarkson Research Services NYSE DAC Figure 2

F e b r u a r y / M a r c h 2 0 0 7

Marine Money

"Bureau Veritas advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

Danaos' Current Fleet
Vessel Year Built TEU Time Charter Term 12 years 12 years 12 years 6 years 6 years 6 years 6 years 8 years 8 years 6.5 years 5 years 5 years 5 years 5 years 3 years 3 years 3 years 3 years 5 years 5 years 5 years 3 years 2.5-3 years Daily Charter Rate (USD thousands) $34.0 $29.5 $29.5 $25.5 $25.5 $25.5 $25.5 $20.0 $20.0 $20.8 $20.6 $20.6 $20.8 $30.5 $23.5 $25.1 $23.6 $23.6 $20.4 $20.4 $20.4 $27.0 $22.0 Charterer

Post-Panamax CSCL Pusan CSCL America CSCL Europe APL Belgium APL England APL Holland APL Scotland Hyundai Commodore Hyundai Duke MOL Confidence Panamax Maersk Derby (ex P&O Nedlloyd Caracas) Vancouver Express (ex P&O Nedlloyd Caribbean) Norasia Hamburg YM Yantian YM Milano Victory I Independence Henry CMA CGM Elbe CMA CGM Kalamata CMA CGM Komodo F e b r u a r y / M a r c h 2 0 0 7 Pacific Bridge Eagle Express 2004 2004 1989 1989 1988 1988 1986 1986 1991 1991 1991 1984 1977 4,253 4,253 3,908 3,908 3,129 3,098 3,045 3,039 2,917 2,917 2,917 2,130 1,704 Maersk Maersk COSCO Yang Ming Yang Ming Norasia Wan Hai Wan Hai CMA-CGM CMA-CGM CMA-CGM Hapag-Lloyd Hapag-Lloyd 2006 2004 2004 2002 2001 2001 2001 1992 1992 1994 9,580 8,468 8,468 5,506 5,506 5,506 5,506 4,651 4,651 4,651 China Shipping China Shipping China Shipping APL-NOL APL-NOL APL-NOL APL-NOL Hyundai Hyundai Hyundai


Year Built


Bareboat Charter Term 2.0 years 2.0 years 2.0 years 2.0 years

Daily Charter Rate (USD thousands) $10.0 $10.0 $10.0 $10.0


Panamax Maersk Constantia S.A. Helderberg S.A. Sederberg S.A. Winterberg 1979 1977 1978 1978 3,101 3,101 3,101 3,101 Maersk Maersk Maersk Maersk

Figure 3


Marine Money

Contracted Vessels
Newbuildings Year Built 2006 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2009 2004 2004 TEU Expected Delivery 2006 2007 2007 2008 2008 2008 2008 2009 2009 2009 2009 2009 2009 2009 2007 2007 Time Charter Term 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years 12 years Figure 4 Charter Expiration 2018 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021 2021 2021 2021 2019 2019 Daily Charter Rate (USD thousands) $34.0 $26.1 $26.1 $22.8 $22.8 $22.8 $22.8 $22.8 $34.4 $22.8 $34.4 $34.4 $34.4 $34.4 $27.8 $27.8 Charterer

HN 1561 HN 1639 HN 1640 HN 1670 HN 1671 HN 1672 HN 1673 HN 1698 HN S4001 HN 1699 HN S4002 HN S4003 HN S4004 HN S4005 Secondhand Vessels E.R. Auckland E.R. Wellington

9,580 4,253 4,253 4,253 4,253 4,253 4,253 4,253 6,500 4,253 6,500 6,500 6,500 6,500 4,300 4,300

China Shipping Yang Ming Yang Ming Zim Zim Zim Zim Zim CMA-CGM Zim CMA-CGM CMA-CGM CMA-CGM CMA-CGM Yang Ming Yang Ming

showed, however, was that with the right combination of structure, sponsor, and yield, it is possible to do a clean shipping IPO and to make all parties happy. John Coustas raised around $200 million for his company while retaining a take of more than 80%. The stock priced to yield a little over 8% initially and has since traded upwards. The vessels are on long-term charters with strong counterparties, and while the fleet on average is not young, 16 vessels are currently on order to be delivered through 2010. Investors have visible yield, visible cash flow, and visible

growth, while Dr. Coustas retains significant control over his fleet and, free from the requirements on cash flow distribution that an MLP structure would impose, will be able to retain the income necessary to make strategic vessel or newbuilding acquisitions if and when management deems them appropriate, such as those done with Maersk. To review the deal briefly, Danaos consists of 27 existing containerships that average 11.4 years in age along with nine vessels currently under construction. Merrill Lynch

and Citigroup ran the books on the deal, with Dahlman Rose, Jefferies, Fortis and Nomura also acting as underwriters. All the ships in the deal are on long-term charters with companies such as China Shipping, APL, Hyundai, Maersk, CMA CGM and other blue chip credits. Details on the fleet and charters are available in Figures 3 & 4. Proceeds were used to repay debt on the fleet, which had been provided by RBS, Aegean Baltic and HSH Nordbank. Figure 2 breaks out further the “guts” of the deal.

The IPO came to market with an EV/EBITDA valuation of 9.5x and a price/book value of 3x. We have not performed a charterfree valuation of the fleet nor do we think it is the appropriate technique for valuing this company. Planned quarterly dividends of $0.44 per share provided an initial yield at $21 per share of 8.4%; that yield has since lowered to around 7% as the stock traded up to $24, indicating the comfort level investors feel with the company.

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected 2006 Initial Public Offerings
Teekay Offshore Partners

Underwriters / Advisors
Citigroup, Merrill Lynch

Amount Structure / Pricing / Comments (US$ M)
$147 Spin-off by Teekay of offshore assets; 7,000,000 common units w/ 1,050,000 shoe at $19-$21 per unit



Aegean Marine Petroleum

Bear Stearns, Johnson Rice, Simmons, Dahlman Rose


NYSE IPO priced at top of range



ACM Shipping Chemoil China Merchants Energy Shipping Marenave

Noble & Co JPMorgan, UBS, UOB Asia China International Capital Corp.

$15 $101 $566

AIM listing by London-based tanker broker Bunkering IPO in Singapore Shanghai IPO of 1.2 billion 'A' shares for expansion of tanker fleet and LNG vessels

Done Priced Done

Dec-06 Nov-06 Nov-06

HSH Gudme Corporate Finance


Creation by HSH Nordbank and Konig & Cie of new product for institutional investors and public listing in Germany



Berlian Laju Tankers Danaos Corporation

Deutsche Bank, UBS Merrill Lynch, Citigroup

$117 $215

Singapore offering by selling shareholder IPO on NYSE of 10,250,000 shares at $21 each, midpoint of range

Done Done

Oct-06 Oct-06

Ocean Tankers

Cyprus Investment and Securities Corporation (CISCO)


First Cyprus international shipping IPO; priced at $0.55/share, circa 1.3x book




UBS, Bear Stearns, Merrill Lynch, Jeffereis, Raymond James, DVB


Nasdaq IPO



Eitzen Chemical

Carnegie, Pareto


Equity placement to raise funds for Songa acquisition; to be spun off from Camillo Eitzen into separate Oslo-listed company with chemical tanker focus

In progress


Lloyds Fonds fund


8,200-teu post panamax containership purchased by KG for $101m to be sold to public

In progress


Gulf Navigation

SHUAA Capital, National Bank of Abu Dhabi, Emirates Bank


Dubai IPO of 55% stake in tanker owner; proceeds to fund fleet expansion



Johan Shipping Energy Infrastructure

Merchant Bank Maxim Group LLC, Ferris, Banker Watts Acquisition Corp.

$13 $203

Kuala Lumpur IPO as Swee Joo Blank check IPO in New York

In progress Done

Aug-06 Jul-06

F e b r u a r y / M a r c h 2 0 0 7

Pacific Shipping Trust

DBS as bookrunner, ABN Amro, DnB NOR


IPO of Singapore's first shipping investment fund by containership owner/operator PIL



Tianjin Port Development Holdings Dalian Port Co

ABN Amro Rothschild, CLSA

Circa $140

Hong Kong IPO of 578,000,000 news shares at HK$1.88 comprising 34% of enlarged share capital; 1700x oversubscribed



BNP Paribas, UBS


Hong Kong IPO to help fund expansion plan 300x oversubscribed



Omega Navigation

Jefferies, JP Morgan


12,000,000 share IPO in New York & Singpore at $17 per share



Goldenport Vietnam Ocean Shipping Agency (VOSA) Global Logistics Acquisition Corp Avion

HSBC Unknown

$110 $11

London Stock Exchange IPO Ho Chi Minh City IPO of 38.55% stake; 8x over subscribed

Done Done

Mar-06 Mar-06

BB&T Capital Markets


Blank check company formed to target cross section of transport & logistics companies




Iceland IPO by Eimskip parent; largest ever on Icex




Marine Money

Follow-ons Find a Following
t the end of 2006, Clarkson identified 169 public shipowning companies with a combined market capitalization of $207 billion and a fleet of 7,288 ships. While this might be considered over-inclusive, the reality is that 22 of those were merchant shipping companies that went public in 2005 while another 17 went public during 2006. The combination of the growing number of existing public shipping companies and the growth in annual IPOs has led us to distinguish the awards given out for the act of going public initially from what companies use their publicly-listed status to accomplish in the equity markets once they arrive.


any offering of shares after a company’s initial public offering. This includes the sale of new shares to the public to raise funds as well as secondary offerings, where a selling shareholder registers to sell a large block of its securities. Private placements where new shares in an existing public company are placed in a private offering to institutional investors then subsequently listed on the appropriate exchange would also qualify for these purposes as follow-on offerings. As Figure 2 shows, 2006 was a very busy year in the equity follow-on markets. It started with a bang when Fredriksen rig-entity SeaDrill, led by Tor Olav Trøim, hired Carnegie and Pareto to raise close to $750 million in new equity in Oslo to go towards the acquisition of Smedvig and financing for a semi-submersible drilling rig

under construction. This was only the first of many forays by Fredriksen entities into the Norwegian equity market in 2006, and while particularly striking in size was indicative of the amount of liquidity that existed in the Oslo market throughout the year, particularly in relation to offshore ventures. Over the course of 2006, shipping companies across the globe used follow-on offerings to do everything from fund incremental organic growth to finance major acquisitions, to allow private equity investors an opportunity for divestment or to give themselves a fresh start. NY-listed Nordic American Tanker Shipping, for example, used a follow-on offering to raise $123 million in March concurrent with the acquisition of their ninth suezmax tanker,

then went back to the public markets again in October to raise $184 million. Also in New York, Diana continued its strategy of buying with debt, backfilling with equity in a June follow-on offering worth $77 million. In Hong Kong Goldman Sachs took Pacific Basin back to the public equity markets to raise $157 million, while KBC Securities and Fortis took Exmar back to the Euronext to raise around $96 million in an offering that was upsized due to demand. At least as impressive, in December Jefferies led Gulfmark Offshore in a $77 million follow-on offering that saw Gulfmark’s stock actually close at an all-time high of $40.80 on the day Jefferies bid the stock. The deal was done on a “bought deal” basis, which reduced timing and market risk and required no roadshow. Eagle Bulk Shipping worked with UBS to use the follow-on market for multiple purposes, raising $33 million in a June PIPE (Private Investment Public Entity) offering, then allowing private equity sponsor Kelso to sell a $30 million block of shares in September followed by a $42 million block of shares in November, with a base share price that continued to rise and pay dividends all the while.

To do this we have introduced a new award for the best followon offering of the year. We have used the term follow-on offering as a catchall to include

F e b r u a r y / M a r c h 2 0 0 7

Figure 1 Marine Money

Selected 2006 Non-Initial Share Offerings
Star Cruises

Underwriters / Advisors
CIMB-GK Securities

Amount (US$ M)

Structure / Pricing / Comments
Hong Kong rights issue by Malaysion cruise operator to fund 3 newbuildings


GulfMark Offshore Horizon Lines Eagle Bulk Shipping

Jefferies JP Morgan Securities UBS Investment Bank

$78 Circa $64 $42

Follow-on offering Sale by selling shareholder of 2,355,083 shares Offering by selling shareholders of 2,700,000 shares priced at $15.70 per share

Dec-06 Nov-06 Nov-06

Pacific Basin Exmar

Goldman Sachs KBC Securities as bookrunner, Fortis as selling agent

$157 $96

Placement of 257,000,000 new shares Private placement of 3,200,000 new shares to professional & institutional investors at E23.5 per share

Nov-06 Nov-06


Citigroup, Merrill Lynch


Offering of 10 million new shares + 1.5 million share overallotment at $21.50 per share


Eitzen Chemical

Carnegie, Pareto


Offering of 4,700,000 new shares concurrent with listing e of issued shares on Oslo Bors


Hyundai Merchant Marine



Issue of 20,000,000 preferred shares at KRW15,000 each; funding to back attempted Hyundai Engineering buyback


Nordic American Tanker Shipping Global Oceanic Carriers

Bear Stearns, Morgan Stanley, DnB NOR, Dahlman Rose, Scotia Capital Jefferies


Follow-on offering of 5,000,000 common shares at $32 each + 750,000 share shoe



AIM rights offering of 20,016,396 new ordinary shares at 65p to fund 2 x dry bulk vessels


Eagle Bulk Shipping

UBS Investment Bank


Secondary offering by selling shareholder per recently filed shelf registration


Horizon Lines

Deutsche Bank, JP Morgan, Goldman Sachs


Second secondary offering at $14.50/share by selling shareholders, primarily Castle Harlan Partners IV and Stockwell Fund




Rights issue to fund growth; Citigroup Venture Capital International, Infortar, Amber Trust II, Firebird to take stakes


Camillo Eitzen & Co. ASA Golden Ocean Group

Pareto Securities ASA Carnegie

$36 $21

Private placement fo fund acquisition of Sigas Kosan Equity placement to raise funds for Clipper acquisition; underwritten by Hemen Holdings, who kept 40%

Aug-06 Aug-06

F e b r u a r y / M a r c h 2 0 0 7

Rand Logistics

Wellington Management


Placement of 2,402,957 shares common stock at $5.41 per share to institutional investors


Svithoid Tankers



Rights issue in Sweden by small product & chemical tanker company that plans to move up to the "O" list of Stockholm exchange


Top Tankers

Cantor Fitzgerald


"At-the-market" offerings of 2,600,000 shares at $7.50 per share; Top has registered for the sale of an additional 5,000,000 shares


Eagle Bulk Shipping Diana Shipping

UBS Bear Stearns, Wachovia

$33 $77

PIPE offering to fund acquisition of 3 x supramax bulk carriers Follow-on offering of 7,000,000 shares common stock + 1,050,000 share shoe w/ rights to purchase preferred stock attached at $9.50 per share

Jun-06 Jun-06

Horizon Lines

Deutsche Bank, JP Morgan


Offering by selling shareholders of 5,750,000 shares + 862,500 shoe at $14 per share


Figure 2 Marine Money


"Holman Fenwick & Willan advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

Selected 2006 Non-Initial Share Offerings continued
Quintana Maritime B+H Ocean Carriers Awilco Offshore Deep Sea Supply First Securities, Pareto, Fortis

Underwriters / Advisors
Dahlman Rose Pareto Securities ASA

Amount (US$ M)
$191 $0.4 $82 $165

Structure / Pricing / Comments
PIPE offering to fund Metrobulk acquisition Oslo offering of 20,000 shares to non-US investors Oslo private placement of 9,500,000 shares Funding for purchase of supply vessels; rapidly oversubscribed; Hemen to hold over 20%

May-06 Mar-06 Mar-06 Mar-06

Nordic American Tankers

Bear Stearns, UBS as joint bookrunners, DnB NOR


Offering of 3,750,000 million shares with 547,500 overallotment option exercised; priced at $28.50


ASL Marine Sevan Odfjell Drilling

Kim Eng Securities Pareto Securities ASA DnB NOR

$12 $230 $140

Planned placement of 30,000,000 new shares at S$0.68 each Financing for construction of drilling unit Private placement to fund acquisition of 6th generation semi-submersible drilling rig; 10x oversubscribed

Feb-06 Feb-06 Feb-06

SeaDrill Ltd.

Carnegie, Pareto


Private placement of 75,000,000 new shares at NOK66/share to fund acquisition of Smedvig & finance contracted rig


Martin Midstream Partners

Citigroup as bookrunner, Raymond James, RBC, AG Edwards, KeyBanc


NY offering of 3,450,000 common units (including shoe) at $29.12/unit by diversified company with shipping operations


Figure 2 con’t Global Oceanic Carriers in London was able to use a small but meaningful $41 million rights offering on the AIM (Alternative Investment Market) with Jefferies in London to fund an essential relaunching of its public business under new management. This only scratches the surface of the myriad uses the followon market served for shipping companies in 2006, but should serve to provide a sense of the size, scale, variation, and overall impressive performance the market has witnessed. In essence, it is the ultimate provider of the liquidity sought with a public listing. It allows companies to raise equity as necessary to complete projects or to sell large blocks of shares in short periods of time – generally without serious price disruption.

Horizon: A Story of Value Creation
It is against this exciting backdrop that we are pleased to announce the winner of our first annual Follow-On Deal of the Year Award: JP Morgan, Deutsche Bank and Goldman Sachs for Horizon Lines. In an interesting resurface of history, the foundation for the 2006 Horizon Lines transactions was laid in 2004 in a deal that won our Private Equity Deal of the Year Award that year. That happened when the Carlyle Group sold Horizon Lines to Castle Harlan under the advisory of Goldman Sachs. Carlyle had purchased CSX Lines, renamed Horizon, in 2003 for $375 million, but was able to sell it only one year later to Castle Harlan in a $650 million LBO priced around 7.3x cash flow. It had clearly been a good

deal for Carlyle; the question that remained at the time was where Castle Harlan was going to find its return. Therefore it was little surprise when preparations for a Horizon Lines IPO came into the public light. 2005 was a busy but difficult year for shipping IPOs, however, and Castle Harlan was forced to downsize their offering and wait until October to sell the company to the public. The initial sale brought in $110.5 million in proceeds, $62.2 million of which went toward redeeming preferred stock, bringing Castle Harlan Group’s holding in Horizon Lines down from 65% to 39%. After the $10 per share offering, the company had a net tangible book value of -$12.29 per share and a private equity firm who was somewhat disappointed with the divestment it

was able to make, having initially invested $157 million of cash. Burdened with debt, the company’s new shareholders had reason to be wary while its sponsor had reason to be concerned. What they did have going for them, however, was an experienced management team and an established trade in a market with strong fundamentals. Just over a year later, the playing field is substantially different, with Horizon selling shareholders having been able to sell $233 million worth of shares in a series of secondary offerings in June, September and November of 2006. These priced successively at $14.00, $14.50, and amazingly $25.50 per share. Deutsche Bank, JP Morgan and Goldman Sachs

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

handled the first two offerings, while JP Morgan alone handled the final. Horizon then closed the year at a share price of $26.96 per share and has traded up since.

What this means is that not only has Castle Harlan been able to gradually sell off its holding at an ever-increasing premium, but that Horizon’s public shareholders, from its September 28, 2005, IPO date

to the close of 2006, have made a total return of 175%! And soon Horizon may even be able to issue equity to fund its own growth and modernization. This is a true case of finding value. Old private equity investors looking to sell and

new public investors looking to buy were both able to make money, and the strength of the company’s share price is better than ever. It certainly merits the consideration of anyone who considers the market a zero sum game.

Money, Money Everywhere The Award for Private Equity
here was no shortage of great deals this year. The difficulty was in categorizing them and nowhere was that more apparent than in the private equity category. The classic private equity deal in shipping was the Carlyle acquisition of Horizon Lines. It clearly met the parameters of buying a non-public business, fixing it up and exiting profitably. However, private equity’s money is omnipresent while deals are few and far between. And, as we know, money moves to wherever the deals are. So, how do you, for example, treat Morgan Stanley’s strategic acquisition of Heidmar no less the Ontario Teacher’s Pension Plan’s purchase of OOIL’s US ports? With the blending of categories are these more M&A than PE? Is it PE because these are financial buyers rather than strategic buyers? And where does a long-term hold view flipping fit in? versus Contributing to this vagueness was a dearth of pure private deals as a consequence of strong shipping markets and even


higher valuations. This was no time to buy-in on asset plays. There are no clear answers but more on this later. The editors have taken the strictly conservative view and awarded the private equity award to Cantor Fitzgerald, CRT Capital Group and Oppenheimer for Paragon Shipping Inc. in what may have been the only time last year a private company issued equity in a private placement. More than just fitting expected parameters, it is a structural gem taking the best from a Chinese menu of alternative structures. During November and December, Paragon Shipping Inc., a private 144A issuer, issued 9,074,400 units (including over allotment) consisting of one Class ”A” Common share and 1/5 of one Warrant. The unit price was $10.00 which raised a total of $90,744,000 from private equity sources and an additional $22,500,000 from an

affiliate controlled by it’s founder and CEO, Mr. Michael Bodouroglou for a total capital raise of $113,244,000. These proceeds together with a senior credit facility of $90.75 million were used to acquire the identified initial fleet. The investment bankers behind the deal gave careful thought to the structure by taking the “best practices” or features of private equity, SPACs and IPOs and packaging them together in this offering. From the SPAC structure, the deal is being sold as units of a common share and 1/5 of a warrant. In this manner, the company avoids the large overhang of warrants associated with a SPAC while the original shareholders are rewarded for taking the initial risk when the exit strategy of an IPO is implemented. This is no blind pool. Borrowing from public offerings and to avoid SPAC voting requirements, all the vessels were identified. Two of the ships are identified as being owned by affiliates of Mr. Bodouroglou and are being

purchased from them at the price they paid ($69.5 million). In addition, the other three vessels are contracted under MOAs, subject to the successful completion of the offering, at a price of $112 million. All the vessels will be chartered for a period of one to two years. The defined use of proceeds and vessel employment are derived from public offerings. Mr. Bodouroglou will be coinvesting alongside the private equity with respect to the Units, however, he is also receiving Class “B” shares, representing 15% of the Company for a nominal amount in line with similar features seen in SPACs. The latter are however subordinated to the ”A” shares with respect to dividends and liquidation and carry no voting rights from issuance through the IPO. They are convertible into ”A” shares upon a successful IPO at which time all accrued dividends are paid. In terms of the business plan, Paragon will be focusing on the

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


F e b r u a r y / M a r c h 2 0 0 7

dry bulk market with a particular emphasis on panamax and handymax vessels initially. Believing that second hand vessels provide better returns than newbuildings, they acquired vessels whose average age is 8.6 years and are targeting vessels of between 5 and 15 years of age for future acquisition. The existing fleet consists of two 1995 built handymax and three 1999 built panamax bulkcarriers that will be acquired for a total cost of $181.5 million. Using the full payout dividend model, dividends will be paid out of cash flow after reserves established by the board of directors. Based upon projections, the company expects to pay a dividend of $0.4375 per share for the first quarter. If annualized, the yield on the shares is 17.5%, which forms the basis of the valuation. To provide stable earnings to support the dividend, Paragon has time chartered three vessels for one year and two for two years. These are on to first class charterers including Morgan Stanley, Klaveness, STX Pan Ocean and Express Sea Transport. And finally, growth will come from acquisitions, which naturally will be accretive, and financed with the issuance of new equity and new debt. Like others before, Paragon has opted to use an affiliate, Allseas, to provide both commercial and technical management. Although this raises the potential conflict of interest issue, it would appear that the technical management fee of $237,500 per vessel together with a

1.25% fee on freights and hire and 1% on sale and purchase are in line with third party management fees. Moreover, the company blunted potential criticism by excluding the two vessels purchased from the affiliate. The senior credit facility of $90.75 million is also carefully structured, based upon age of the fleet, with a loan to value of 50%, a 3.5 year term and a balloon repayment. Interest is floating with a margin above LIBOR. Based upon the assumed interest rate of 6.5%, one might assume a margin of about 1%. Finally, unlike private equity in general, the company has a defined path to liquidity with the requirement that the “A” shares be registered within 180 days, after which they will trade on the NASDAQ Bulletin Board. With the sponsor clearly incented by the subordination provisions, an IPO should follow shortly. We commend Mr. Bodouroglou on his perseverance and choice of bankers. Clearly this deal was worth the wait and deserving of the award. But it is not only about ships, private equity interest is moving into the marine services and logistics industries as a natural adjunct. Less volatility and strong cash flows were the main attraction. However strong interest in this space has also pushed these valuations to less attractive levels. Before we

conclude then let’s take a look at some other transactions that caught our eye in 2006. One of the more interesting transactions was the acquisition by J.F. Lehman & Co. of the US shipyard Atlantic Marine for $172 million. Atlantic Marine is well known for its work in marine maintenance, repair, overhaul and conversion. Founded in 1992, J.F. Lehman & Company focuses exclusively on buying middle market defense, aerospace and maritime companies as well as their technologies. Paul Slater of First International and Davidson Capital advised Atlantic. BNP Paribas and CIBC World Markets arranged a credit facility of $155 million to support the purchase. On the logistics side, we have our deal of the year, the DP/P&O ports transaction, discussed in greater detail earlier as well as AIG’s (another financial buyer) opportunistic acquisition of the US piece of that deal sold separately for security or political reasons depending on your viewpoint. OOIL’s sale of their US port assets to the Ontario Teacher’s Pension PlaN, another financial buyer, captured the port business’ cash flow as an ideal match for the latter’s long-term liabilities with the potential for upside. The acquisition by Morgan Stanley of Heidmar, an asset light business, was a natural complement to its paper and physical commodities trading businesses. Finally, Florens Container Holdings

limited, a wholly owned subsidiary of COSCO Pacific sold, but will continue to manage, more than half its fleet to “AD ACTA” 634 VermOgensverwaltungsgesellschaft MBH, a German KG, believing the asset light model will enable it to improve its capital structure, increase its sources of income, lower operational risk and increase market share. And finally at the end of the year, the giant UK PE firm, 3i, purchased Dockwise as a move into the offshore support business. Although these transactions were all funded privately, the general consensus was that the M&A character of these deals gave them their import and inclusion in the PE category, although logical, was therefore inappropriate. In fact, given the number of deals in this segment, as owners shift asset risk to financial buyers, we may need to add a category next year. Finally, as a cautionary note, we mention ISEC’s rumored difficulties in case anybody believes investing in this space is a nobrainer or that PE firms are omniscient. Formed earlier this year, ISEC invested in container feeder vessels and vegoil product tankers. Price and technical issues were the key problems for this company. However, under the leadership of Tony Gurnee, the company can hopefully be re-structured and find its way once again.


Marine Money

"Fortis Bank advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

The Year of the Lease
(Yes, again)
late 2005, we n proclaimed that 2006 was going to be “The Year of the Lease” and, although it is not in our institutional character to be self-congratulatory, we will indulge ourselves a little and say two words – BINGO BABY!!!


Who would have thought vessel leasing would ever be so fascinating? But it is. What began in 2003 as a way for opportunistic shipowners to extract maximum valuation from yield-starved investors has ended up transforming leasing from an irrelevant conference topic into probably the most interesting method to isolate and price different layers of risk in the capital structure of a vessel.

As we sifted through all of the issues of Freshly Minted that we produced during 2006, trying to refresh our memories so we could write this annual Awards issue, we were startled to find that we actually wrote more about vessel leasing during 2006 than we did any other capital market structure, including commercial bank debt which comprises about 80% of the $100 billion of capital that is formed for shipping related deals annually. The landscape of leasing deals was so expansive this year thatit was almost impossible to pick a single winner. While we do, and we want to heartily congratulate our winner, we only name them at the end because we believe that those

transactions you must read about before getting to our winner deserve up front mention as well. OK, so our late 2005 prediction was hardly a contrarian one. In fact, vessel leasing has been steadily maturing since 2003 when a spike in freight rates and asset prices came together with historically low interest rates resulting in a spontaneous conception of the modern ship leasing industry. This story is told Figure 1. As the shipping markets strengthened and interest rates remained at historically low levels throughout 2004, demand for leasing products continued to be strong.

Responding to this positive supply and demand environment, new entrants started popping up everywhere offering new, or at least newly spruced up, leasing products. The dormant KS market sprang back to life with renewed vigor. German KG fundraisers broke record after record, adding more than Euro 2 billion of equity per year for four consecutive years. With the help of Jefferies & Company, Ship Finance International became the world’s first public vessel leasing company using the model pioneered by Marriott Hotels whereby property ownership and property management were performed by different companies with

F e b r u a r y / M a r c h 2 0 0 7
Source: Marsoft, the federal Reserve 68

Figure 1

Marine Money

totally different risk and return parameters. First Ship Lease, which was established by industry giants like Mr. Schoeller, HSH Nordbank and HVB, did its first deal. The Korean government passed the Ship Investment Act to create its own KG-like market. Even shipowners were getting into the leasing game with OSG creating a sale/leaseback of four vintage product tankers and then marketing it to the finance world, rather than just shipbrokers. US lessors jumped from airplanes and railcars into foreign flag ships with Icon Capital buying one of the many Zim sale/leasebacks that seem to always be in the market. Tufton set up an Islamic ship leasing company and popped a quick deal and Navigation Finance continued to enjoy its first mover advantage by closing loads of deals. Leasing’s momentum continued through 2005 with volumes at or near record levels for most every market, except the UK Tax Lease market which registered a volume decline due to the legislative changes that trimmed the certainty of NPV benefits. Arlington Tankers, Double Hull Tankers and Seaspan followed in the footsteps of Ship Finance International by raising more than $1 billion of capital on the New York Stock Exchange - with proceeds ostensibly to be used for offering leasing services to related and third parties that now include, among others, Frontline, COSCO, SeaDrill, CP Ships, CSCL, Horizon Lines, Mitsui OSK, Golden

Figure 2

Ocean Group, APL, Hyundai, Maersk and CMA CGM. Over a period of just a few years, it seems that everything about vessel leasing dramatically changed; the people that offer it, the people that use it, the reasons for using it and the economics and structures associated with it. Once a rigid, long-term type of financing driven mostly by the net present value benefits of accelerated tax depreciation, and therefore appealing only to onshore industrial companies that had no desire to opportunistically buy and sell assets, vessel leasing has evolved into a vibrant, often tax neutral risk management tool and investment vehicle that is being considered, if not used, by every shipping company with a CFO worth his or her salt.

new things developed as well. The drive toward public leasing companies continued with the IPOs of Danaos, Pacific Shipping Trust and Omega. As you can see from Figure 3, the KG market was down slightly, which might indicate that today’s more sober containership market has owners watching their pennies more closely and wanting to control operational costs by entering into bareboat leases rather than the German-managed time charters required by the KG market. Another factor maybe the strength of the Euro, in which KG investors are paid their coupon, relative to the dollar, in which freights are collected. Whatever the case, the Germans logged a very respectable Euro 2.5 billion of equity. The Korean leasing market had a big year in 2006. During its three year history, the Korean Ship Investment Company (SIC) Act has seen 23 vessels financed for a total of $1.2 billion, but it wasn’t until 2006 that a SIC transaction was done

for a non-Korean owner (Top Tankers) and did not feature the charterer having a purchase obligation. Put another way, up until the Top Tankers deal, Korean investors have simply been providing domestic companies with very highly leveraged debt. Building on the success of their first Islamic finance fund, mentioned above, Tufton Oceanic moved on to its second fund in 2006 in which equity is sourced from the Middle East writing more than $100 million in leases. Among others, Tufton did a sale and 7-year leaseback of a newbuilding capesize bulk carrier to Geden Lines for $66 million and another transaction for $48 million for the construction finance and 7-year lease to Marsol of two DP2 AHTS vessels for delivery in 2008. Dubai Islamic Bank, which provided the funding for the initial fund, packaged the mezzanine into investment units and sold it to investors during the summer with a projected yield of 8.5%.

The Year in Review
Pretty much all of the trends, and all of the providers, that we describe briefly in the paragraphs above continued throughout 2006, and some

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


total equity raise of $73.5 million in committed capital, $44.1 million of which will be paid in and the balance of which will be uncalled. Of the $73.5 million, the WestfalLarsen Group underwrote $25.7 million. Based on the sale of all vessels after eight years for $156 million, returns for the first tranche of the offering, which is liable for the full $29.4 million of uncalled capital, are estimated at 21% annually, while the other two tranches of the offering, which are not liable for uncalled capital, are anticipated to earn an IRR of 14% per annum. It is worth noting that uncalled capital has not been called into a KS deal for many years. Debt providing heavyweight DnB NOR Bank provided a $240 million first priority mortgage facility, priced it at LIBOR + 75 and gave it a 14 year profile and eight year tenor to make the IRRs work. Figure 6 shows the fleet cost and charter employment. Four

Figure 3 Ship Finance, the bellwether public leasing company, continued to evolve in 2006. The company acquired the jack-up rig Seadrill 3 for a consideration of $210 million and leased it back to the seller for 15 years. Seadrill is to make annual payments to Ship Finance of $41.1 million for the first three years, after which Seadrill has the option to repurchase the rig at $135.5 million. Assuming the repurchase is declined, the subsequent fouryear period will see annual payments of $18.8 million, with annual payments of $14.9 million for the remaining eight years thereafter. It is noteworthy that the lease here essentially “amortizes” heavily over the first three years, helping to burn off the premium of today’s high asset prices. The Norwegian KS Market, like everything involving money and maritime, functioned extremely well in 2006 with record volumes and happy customers. What was as recently as a few years ago an Figure 4 Marine Money insiders project market for smallish deals that were most competitive for vintage vessels, the KS market has blossomed into what we think is the most efficient (and reasonably priced) equity market for ships in the world. There were more deals in 2006 than we can possibly mention in these pages, so we’ll hit a few highlights, such as the largest ever KS deal completed. In just 24 hours, DnB NOR Markets raised a whopping $293 million for Westfal-Larsen in the chemical and product tanker sector. The newly established company used proceeds to acquire four IMO II chemical tankers, two of which are newbuildings with delivery in 2009 and two of which are double hull IMO II/III chemical/product tankers purchased from the Martinos family of Greece at very firm prices. Westfal-Larsen Group, one of the most blue chip shipping companies in Norway, control 35% of the company which gave investors comfort. That deal will have typically high leverage of 85% equating to a

F e b r u a r y / M a r c h 2 0 0 7


2006 KS/DIS Project Volume and Equity Contributions (Amounts in NOK)
Arranger Fearnley Finans Prosjekt a.s. Ness, Risan & Partners AS Pareto Private Equity R.S. Platou Finans a.s.
Source: Ness, Risan & Partners

Total Project Price 3,148,522,650 3,156,222,500 5,550,000,000 5,460,630,000 17,315,375,150

Paid-in Equity 583,529,500 726,132,500 1,130,392,000 1,122,382,000 3,562,436,000 Figure 5

Uncalled Capital 372,325,000 594,950,000 452,650,000 400,912,000 1,820,837,000

Total Committed Capital 955,854,500 1,321,082,500 1,583,042,000 1,523,294,000 5,383,273,000

of the vessels will be on fixed rate bareboat charters to Westfal-Larsen; two of these have a 50/50 profit share agreement on earnings above the fixed rate. The remaining two vessels will earn spot rates. Figure 7 shows forecasts made by Lorentzen-Stemoco that were used in calculating the economics of the deal. There was a lot of talk in market this year about investors and promoters stretching on their end-of-deal residual value assumptions in order to make the numbers work. One of the deals that was the subject of that conversation was a transaction involving MISC subsidiary AET’s sale of four double hull aframax tankers: the 1993-built 102,352 dwt Eagle Auriga, the 1993-built 95,644 dwt Eagle Corona, and the 1992-built 95,644 dwt Eagle Centaurus

and Eagle Carina. The vessels were reportedly sold at a price of $42 million each to a Norwegian KS involving Acta ASA and ABG Sundal Collier. The deal included a five to eight year bareboat back at a price between $15,000 and $16,000 per day. Assuming the eight-year bareboat of $16,000 per day, and an 8% cost of capital, the residual value is about $14 million per vessel, which many people we spoke with thought was pretty aggressive for a 22-year-old aframax tankers considering the charterer keeps all the excess cashflow during the charter period.

billion in 2005 to Euro 2.5 billion in 2006. The volume was down, yes, but it was still outstanding. There were plenty of KG deals done in 2006, too many to talk about, but the real story was that KG entrepreneurs like Tobias König and Torsten Teichert of Konig & Co. and Lloyd Fonds, respectively, proved that they are capable of adapting their products to survive in a market with changing needs and dynamics. As you can read elsewhere in this issue the KG market also gave us two outstanding examples of innovation – Marenave and Open Waters.

German KG Market Sags, but Remains Strong
The German KG market registered a decline in equity fundraising from Euro 2.9

New Names Try Leasing
There is real momentum in the leasing market these days. As a result of the increased number of players offering an increased variety of products, the global

marketing effort for vessel leases has never been greater. As a result, we are very encouraged to see lots of new names from all over the world in just about every asset class using leasing products for the first time – for different reasons. Take for example the highly ambitious West Asia Maritime (WAM), which undertook a 12.5 year bareboat with purchase options on a 54,000 dwt bulk carrier from Mitsui for $33.5 million. Or Naftotrade Group, which sold four of the group’s cement carriers to Navigation Finance Corporation, bareboat chartered them back for eight years and applied the proceeds toward its newbuilding program. First Ship Lease purchased two 19,900-dwt chemical tanker newbuildings with high specifications and 20 stainless steel containers from Berlian Laju Tankers for $90

Westfal-Larsen KS Vessels
Name Mauranger Moldanger Ravnanger Risanger Hull 2061 Hull 2062 Type Built / Delivery 1995 IMO II 1997 IMO II 2000 IMO II/III IMO II/III 2000 2009 IMO II 2009 IMO II Size 40,845 39,200 46,270 46,270 46,000 46,000 Price (USD millions) $38.00 $42.00 $48.00 $48.00 $53.15 $53.15 Figure 6 Marine Money Yard Minami Nippon Minami Nippon Minami Nippon Minami Nippon Minami Nippon Minami Nippon Charter Employment $16,500 BB $16,500 BB Pool/Spot Pool/Spot $14,500 BB + 50/50 profit $14,500 BB + 50/50 profit

F e b r u a r y / M a r c h 2 0 0 7


million and leased them back for 12 years in advance of their Singapore IPO. Then there is Ezra Holdings of Singapore, which liked leasing with NFC so much that after concluding a $78 million deal in 2005, this year the company entered into a $181 million sale/leaseback on seven deepwater anchor handling tug supply vessels and two anchor handling tugs with NFC to fuel its aggressive expansion plans. Bergshav Product KS teamed up with Roxana Shipping of

Greece to do a deal on three small MR tankers. What was interesting about this deal was that it was sold as having a 15year charter comprised of 10 years to Roxana and five more years to be arranged in the market at a future date in order to make the math work. Hong Kong listed handysize bulk carrier operator Pacific Basin continued to use leasing aggressively in 2006, using sale/leasebacks to free up cash and invest it in larger more modern vessels. After doing a

Figure 7

R.S. Platou Finans 2006 Shipping Transactions
Fund Norwegian Shipping II DIS SBS Typhoon KS Japan Offshore DIS Ugelstad Supply II KS European Venture DIS NFC Offshore DIS Oceanlink Offshore DIS Panda Chemical Oil DIS Month Jan-06 Jan-06 Apr-06 Apr-06 Apr-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Aug-06 Sep-06 Oct-06 Oct-06 Oct-06 Nov-06 Nov-06 Nov-06 Amount USD 8.000.000 NOK 167.050.000 USD 37.150.000 NOK 155.000.000 USD 46.325.000 USD 74.500.000 USD 13.250.000 USD 19.545.000 EUR 32.775.000 USD 128.500.000 USD 12.000.000 USD 39.075.000 USD 42.046.000 USD 47.340.000 USD 28.500.000 USD 39.200.000 USD 19.500.000 USD 32.890.000 Comments Fund arranged for investment in 7 different shipping projects Purchase of a Plattform Supply Vessel on 7.5 years BB charter to European charterers Purchase of three AHTS vessels with 7 year BB charters back to back against a 10 year TC to Asian Charterers Purchase of a Platform Supply Vessel on 2 year BB charters to European Charterers Purchase of two AHTS vessels with 5 year BB charters to European Charterers Purchase of four newbuilding Offshore Supply Vessels Purchase of a 1984 built AHTS vessel with 5 year BB charters to European Charterers Purchase of a 2004 built IMO II/III chemical tanker with a 5 year BB charter to European Charterers Purchase of three Chemical Tankers with 4-5 year BB charters to European Charterers Purchase of five newbuilding AHTS vessels with 8 year BB charters to Asian Charterers Purchase of a 1983 built AHTS vessel with a 5 year BB charter to European Charterers Purchase of three AHTS vessels with 10 year BB charters back to back against a 10 year TC to Asian Charterers Purchase of two newbuilding offshore supply vessels Purchase of two offshore supply vessels with 10 year BB charters back to back against a 10 year TC Asian Charterers Purchase of two 1983 built AHTS vessels with 5 year BB charters to European Charterers Purchase of two resale Anchor Handling Supply vessels Purchase of two reefer vessels with 6 year BB charters to US charterers Purchase of two Chemical tankers with 8 year BB charters to European Charterers

F e b r u a r y / M a r c h 2 0 0 7

Western Chemical KS Singapore Offshore DIS Oceanlink Offshore II DIS Japan Offshore II DIS NFC Offshore III DIS Japan Offshore III DIS Oceanlink Offshore III DIS Northern Offshore DIS Agder Ocean Reefer II DIS Norwegian Chemical Oil DIS Source: R.S. Platou Finans

Figure 8


Marine Money

Ness, Risan & Partners 2006 Shipping Deals
Project Name Equity (USD) 3,000,000 5,500,000 3,150,000 3,065,000 23,076,923 1,400,000 14,769,231 14,769,231 11,076,923 5,230,769 14,461,538 2,000,000 14,000,000 2,400,000 1,750,000 15,140,000 134,789,615 Ship Price (USD) 7,615,385 32,000,000 20,000,000 14,265,000 6,500,000 64,000,000 53,538,462 47,000,000 23,461,538 63,692,308 9,000,000 56,000,000 20,000,000 11,500,000 57,000,000 485,572,692 Uncalled Capital (USD) 1,538,462 5,000,000 3,700,000 2,500,000 18,461,538 5,250,000 10,000,000 7,692,308 6,923,077 3,076,923 10,000,000 2,000,000 19,600,000 3,000,000 2,250,000 9,000,000 109,992,308 Vessels Segment Lessee Comment

Beta DIS Eastern Reefer DIS E-Tanker DIS Inter Carib II DIS NRP Fleetfinance III Peg Chemical Carrier DIS Rem Forza DIS Rem Norway DIS Rem Odin DIS Rem Provider DIS Rem Songa DIS Ross Container II DIS Shipbond DIS Swetank II DIS Swetank III DIS Thor Dahl Containership III DIS Sum 2006
Source: Ness, Risan & Partners

1 8 1 2 1 1 2 1 1 1 1 1 1 3 25

Offshore Reefer Chemical Bulk Chemical Offshore Offshore Offshore Offshore Offshore Container Chemical Chemical Container

Buksèr & Berging AS Boyang Group E-Ship Inter Caribbean Maritime Ltd Fund Bryggen, Shipping & Trading AS Asset play Asset play Asset play Asset play Asset play Oceanlink Ltd Bonds Svithoid AB Svithoid AB COSCON

Figure 9 suite of ships with Royal Bank of Scotland in the past, this year PacBasin circulated a sale/leaseback on the 1995-built 27,860 dwt bulker Patagonia and the 1994-built 28,429 dwt bulker Ocean Logger. The deals ended up going to Danish K/S Danskib 55 and K/S Danskib 54 for a total consideration of $40.8 million with a charter back for 3.5 years. The sources and uses of proceeds of this deal are typical of why owners enter into such transactions; about $8.2 million of the proceeds were used to repay debt associated with the vessels while about $9.7 million was kept for working capital. The remaining $22.2 million will be used for expansion as it is earmarked to cover 40% of the purchase price

Pareto Private Equity 2006 Shipping Project Overview
Date January February April April April November November November December December December November December December Total Company Name BCT III BCT III OC I PT III BCT IV OC II BD AO TO M&C ST BT TR VI CC Chemical Chemical Container Tank Chemical Container Offshore/Rig Offshore/AHTS Offshore/MPSV Offshore/Seismic Tank/Product Tank/Product Reefer Container Type Number of Vessels 1 1 2 5 1 2 1 4 1 2 10 5 1 2 35 26.5 26.5 73.2 264.7 26.5 62.1 56.0 65.3 60.7 108.1 110.1 85.0 13.0 24.0 1,001.7 NA NA 5 7 NA 5 1+3 10 NA 7 10 NA 3 3 Pool Pool BB BB Pool BB TC BB Asset play TC BB Asset play TC BB Eitzen City Class Chemcial Pool Eitzen City Class Chemcial Pool UK Interests Top Tankers Inc. Eitzen City Class Chemcial Pool UK Interests Marathon/Statoil Asian Interests NA Wavefield Insesis ASA Asian Interests NA Eastwind Schoeller New Project - syndicated in '06 New Project - syndicated in '07 New Project - syndicated in '08 New Project - syndicated in '09 New Project - syndicated in '10 New Project - syndicated in '11 New Project - syndicated in '12 New Project - syndicated in '13 New Project - syndicated in '14 New Project - syndicated in '15 New Project - syndicated in '16 New Project - syndicated in '17 sale of 100% of KS Shares sale of 100% of KS Shares MUSD Years Charterparty Charterer Comments

F e b r u a r y / M a r c h 2 0 0 7

Source: Pareto Private Equity

Figure 10 Marine Money


of the 2000-built 32,800 bulkers Aries Forest and Ocean Melody.

Public Companies
If leasing can be used create valuation arbitrage, then it is no surprise that public companies played a large role in vessel leasing activity. New players on the scene include Danaos Holdings, listed in New York, Pacific Shipping Trust, listed in Singapore, and Omega Navigation, listed in both of those places. These companies raised nearly $1 billion of capital to be used to provide tonnage to third parties on a bareboat and a time charter basis.

to German KG funds that are simply promoters paid for creating deals. Although Danaos made it first investment in shipping in 1963, Dr. Coustas took the company from the rather humble fleet of three multipurpose ships with 2,395 TEU in 1993 to a fleet of 27 ships with 116,115 TEU today – a CAGR of about 35% over a period of time that saw both booms and busts. The company has another 16 ships and 84,704TEU on order that will be financing through this deal, implying a guaranteed growth rate of 73%. It is today a billion dollar company built in 20 years. Serious, smart and aggressive.

four years of additional options. Following the charters, Maersk will have two consecutive oneyear options to re-charter each ship for $22,400 per day for the first year and $21,400 per day for the second year with a further option at $20,400 per day for two additional years. The thing that we found particularly exciting about this deal is that it shows that container lines, or at least Seaspan, are able to locate and execute deals that are accretive to earnings and build shareholder value. In March, Seaspan announced the signing of a contract to build four new 2500 TEU vessels from Jiangsu Yangzijiang Shipbuilding in China. This order will bring the total number of vessels in Seaspan’s fleet to 29. The four new vessels will be delivered between September 2008 and March 2009 and will cost approximately $44.5 million per vessel. In keeping with its strategy, Seaspan simultaneously announced twelve-year charter arrangements for all four vessels to China Shipping Container Lines. CSCL Asia, a subsidiary of CSCL, will pay Seaspan an initial rate of $16,750 per day, increasing to $16,900 per day after six years. China Shipping Container Lines is the world’s sixth largest liner company. In April we saw the role of leasing, and earnings management, in the specter of corporate M&A when BW Gas acquire the 10 vessel ammonia fleet of Yara International for $347 million and then leased the vessels back to Yara for an

average of 11 years. BW Gas paid 8X 2008 EBITDA for the 10 year old fleet. For Yara, the world’s leading player in the ammonia business, the deal was a way to lock in a gain and move away from the non-core business of ownership while maintaining commercial control over the vessels.

Risk Shifting
The most dramatic example of the risk shifting potential of sale and leasing back came in March when Top Tankers sold 13 vessels to the Korea Maritime Fund (KOMARF) and Norwegian KS market for a total of $550 million and took them back on charters ranging from 5-7 years. Although many owners use the proceeds from sale/leasebacks and loan refinancing as a tool to grow, Top used it as way to shrink. Top used $210 million of the $240 million of net proceeds to pay a dividend of up to $7.50 on each of its 29 million outstanding shares – a yield of about 50% for shareholders, based on the price before the announcement and a $25 million divvy for CEO Evangelos Pistiolis-related Kingdom Holdings. There was also a dark side to the financial engineering that is so inseparable with leasing. Just nine months after announcing the sale and leaseback of 13 vessels, Top Tankers announced the resignation of their auditors, Ernst & Young, as a consequence of disagreements over the accounting treatment of the “seller’s credit” related to that transaction.

Danaos Lists – KG Market Faces Competition
In November, a deal that some thought would further threaten the near monopoly that the German KG market has had on providing operating lease financing for the global container industry, Danaos Corporation’s IPO to raise $205-$226 million through the sale of 10,250,000 shares at a target price range of $20-$22 per share was completed. The competition that exists between the KG houses and private owners surfaced in public forums, such as the Marine Money’s Ship Finance Forum in Hamburg last February, when Danaos CEO Coustas playfully John remarked to owners including Rickmers that he was a “real shipowner because I have my own money at risk,” as opposed

Capital Resources for Shipping
Like Ship Finance and Seaspan, transactions such as Danaos show these companies to be capable of using their access to public equity to serve as a capital resource for the shipping industry. AP Moller-Maersk in October completed a sale and five-year leaseback of four containerships to Seaspan, at an identical rate of $23,450 per vessel per day and is showing itself to be acutely interested in the combined availability of capital and containership operating capabilities that both Seaspan and Danaos have demonstrated. Seaspan announced that it had agreed to acquire four vessels for $160 million en bloc and time charter them back to Maersk for five years at $24,450 per ship per day plus

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

MPC 2006 KG Investments
Funds Ship Name Delivery Capacity TEU MS "RIO ARDECHE" (Containership) MS "RIO ARDECHE" MPC "Offen Flotte" (Containerships) MS "SANTA BALBINA" MS "SANTA BELINA" MS "SANTA BETTINA" MS "SANTA BIANCA" MS "SANTA BRUNELLA" MS "SAN ALBANO" MS "SAN ALBERTO" MS "SAN ALLESSANDRO" MS "SAN ALFONSO" MS "SAN ALFREDO" MS "SAN ALVARO" MS "SAN AMERIGO" MS "SAN ANDRES" MS "SAN ANTONIO" MPC "Reefer Flotte" (Reefers) MS "Lombok Strait" MS "Luzon Strait" MS "Comores Stream" MS "Polarstream" MS "Polarlight" MS "Elsebeth" MS "Emerald" MS "Elvira" MS "Esmaralda" MS "Timor Stream" MS "Southern Bay" MS "Eastern Bay" MS "Santa Maria" MS "Santa Lucia" MT "Rio Genoa" (Tanker) MT "Rio Genoa" MPC "LPG Tanker Flotte" (LPG Tanker) MT "Auteuil" PP MT "Deauville" PP MT "Coniston" PP MT "Cheltenham" PP MT "Longchamp" PP MT "Malvem" PP MS "MERKUR SKY" II (via Austria) Total Shipfunds
Source: MPC Münchmeyer Petersen Capital Vermittlung GmbH

Date of Placement 14.02.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 31.03.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 19.04.2006 04.09.2006 13.12.2006 13.12.2006 13.12.2006 13.12.2006 13.12.2006 13.12.2006 08.11.2006

Equity Total Mio. Euro 20.53 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 12.65 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 10.27 23.98 2.06 2.06 2.06 2.06 2.06 2.06 3.60 381.35

Purchace Price (net) Mio. Euro 43.36 39.18 39.13 39.18 38.84 38.84 34.55 34.56 34.71 34.67 34.61 34.29 34.35 34.32 34.35 32.78 32.78 27.22 26.80 24.33 24.33 27.42 27.42 29.07 20.41 20.41 26.60 25.16 26.39 56.05 6.60 6.60 6.60 6.60 6.60 6.60 36.15 1,051.84

11/06 10/06 11/06 11/07 02/08 04/08 08/07 09/07 11/07 12/07 12/07 01/08 02/08 02/08 03/08 2002 2002 2000 1999 1998 1998 2000 2000 1999 1998 1997 1997 1999 1999 10/07 2007 2007 2007 2007 2007 2007 09/97

2,490 2,824 2,824 2,824 2,824 2,824 1,819 1,819 1,819 1,819 1,819 1,819 1,819 1,819 1,819 626.011 cbft. 626.011 cbft. 580.754 cbft. 564.280 cbft. 564.280 cbft. 549.326 cbft. 548.718 cbft. 548.666 cbft. 548.643 cbft. 535.109 cbft. 535.109 cbft. 533.898 cbft. 463.963 cbft. 463.652 cbft. 179.000 m_ 3.516 m_ 3.516 m_ 4.002 m_ 3.208 m_ 3.206 m_ 3.205 m_

MS "MERKUR SKY" II (via Austria) (Containership)

F e b r u a r y / M a r c h 2 0 0 7

Figure 11 Marine Money


Liquidity in “Seasoned” Deals
As primary markets develop, it is not unusual to see secondary markets develop as well, and that is exactly what has been happening in the world of vessel leasing. In 2006 we saw more examples of the trading of so-called “seasoned”, or existing, leasing deals. This is not surprising and such transactions comprise a cottage industry in the mature leasing markets where investors buy and sell leases regularly. One of the main reasons why financial institutions sell performing leases, or ones where the Fair Market Value (FMV) purchase option will be substantially in excess of the balloon payment due at the end of the lease, is to “lock-in” their gain and use the capital gain to produce desired earnings. This action involved a broad range of participants from industry players trading deals amongst themselves to purely financial buyers with a view on the future residual values. In June, US publicly traded equipment fund ICON Capital reemerged onto the shipping scene with a binge when it purchased from Oceanbulk Maritime four product tankers: Spotless, Doubtless, Faithful and Vanguard, all of which are on bareboat charters to Top Tankers with February 2011 expiration. The four product tankers, which were originally sold by Top Tankers in a deal arranged by Fortis this past March, were financed in part through a loan

agreement between ICON Fund Eleven and Fortis that provides for an $80 million non-recourse term loan maturing in June 2011 secured by a first priority mortgage of the vessels. ICON also assumed $10 million of non-recourse indebtedness secured by a second priority mortgage over the vessels in favor of the charterer. The remaining $22.7 million of the purchase price will be paid in cash, reflecting an equity contribution of around 20%. Shortly thereafter, ICON acquired all of the issued and outstanding shares of European Container AS and European Container II AS, as well as limited partnership interests in European Container II KS, resulting in the acquisition of four container vessels: ZIM Japan, ZIM America, ZIM Israel and ZIM Hong Kong. These are currently subject to bareboat charters with ZIM Integrated Shipping Services that expire in November 2010 and February 2011. These four vessels are sister ships to three containerships another ICON fund took from ZIM in 2004 for $71 million. By acquiring the shares in the KS company, rather than the assets themselves, ICON was able to leave the charters in place and assume approximately $93.3 million of nonrecourse indebtedness secured by a first and second priority mortgage in favor of HSH Nordbank, approximately $12 million of non-recourse indebtedness in favor of ZIM Inte-

grated Shipping Services, and a circa 25% equity contribution of $35.9 million in cash. Other maritime investments of ICON currently include the abovementioned ZIM containerships as well as three car-carriers purchased from Wallenius Wilhelmsen for $75.6 million.

For example, they are indifferent to book earnings and current income. This makes possible highly leveraged transactions, including call option transactions, whose returns are residual dependent. It wasn’t just financial engineers that bought and sold deals in 2006. A R.S. Platou Finans formed fund controlled by the NFC Fund ordered four PSVs with options for four more for delivery in 2008-9. Within four months of the date of acquisition of the contracts, this company sold the contracts for the vessels to a German KG controlled by a publicly traded Emissionshaus, HCI, Peter Dohle and a Greek shipowner, Basil Papachristidis. The KS earned a profit of approximately $15 million in that short period while retaining control of the optioned vessels. The KG, in turn, fixed the vessels on 10-year charters, also doing a good deal. And the grand master of shipping deals, John Fredriksen paid Torben Jensen $38 million in cash to take over the Clipper Group’s bareboat agreement on five panamax bulkers currently owned by an unnamed third party. Fredriksen’s Golden Ocean will pay to the third party an aggregate bareboat hire of $28,000/day for the five vessels for a 5-year term. At the end of the term Golden Ocean will have the option to purchase the vessels at $6.4 million each from the third party. The Winner: Ship Finance International for Horizon Lines

Cypress Leasing
Cypress Financial Corporation, which has historically been involved in a number of Jones Act transactions, identified the foreign flag vessel market as a growth opportunity in 2006 and made their move into the business in the fourth quarter when they bought all the shares of a KS company that owned two feeder container vessels: the M/V IBN Battotah and the M/V Cape Arago. The vessels were built in Germany in 1993 and 1992 respectively and have a nominal cargo capacity of 1,066 TEU. The investors in Cape Container KS originated the transaction in the first quarter of 2004, having entered into a sale-leaseback transaction with Schoeller Holdings Ltd who agreed to bareboat charter them back for five years. Cypress has been an active investor for over 20 years and manages 14 equipment leasing funds that invest in multiple transportation, industrial and energy asset classes, including shipping investments. Key to its investment profile is structural flexibility and a willingness to look at complex transactions. Specifically, they manage pools of individual investors' capital whose requirements are flexible.

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

Figure 12 When market rumors of this deal came across our desk in March, the first thing we did was scratch our heads and say, “huh?” An international tanker financing vehicle, Ship Finance International, had apparently acquired five Korean newbuilding containership resales from Germans, Rickmers, and Greeks, Tsakos, and put them on 12 year bareboat charters with a three year extension at charters’ option, to a Jones Act operator, Horizon Lines. Que va? We wondered. But as we peeled back the onion, what emerged was what we think makes our marketplace so beautiful – ideal transaction partners are not always obvious and with creativity and a keen understanding of what the various players are trying to achieve, financiers can put together deals that are both economically sensible, but also really interesting. Although everyone may “know everyone” in international ship finance, there are an exponential number of ways the pieces can be put together and the winner of this year’s Deal of the Year Award in the leasing category exemplifies that. The framework of this deal began to come together in late 2005 when Horizon Lines was out in the market looking to expand and rejuvenate its controlled fleet to upgrade its services. As readers may recall, Horizon Lines had to chop its 2005 IPO in half due to slack demand, so its no surprise that the company turned to the leasing market. Horizon hired Jones Act finance guru Martin Gottlieb of the San Franciscobased Argent Group as an advisor, and he set to work putting together an auction process for the financing of the desired vessels. AMA was brought in to help source the equity with the help of Peter Shaerf, with his containership background, and Paul Leand, who sits on the board of Ship Finance International. AMA quickly drew up a list of potentials that included SFL, Seaspan (which just narrowly missed winning the deal), GATX, and AIG, with First Ship Lease and Northern Navigation also as potentials. Fortis provided the debt on the deal. The timing proved ideal for SFL, which had recently announced the purchase and 30-year lease back of the drilling rig Safe Concordia to Consafe Offshore and was keen to let the market know that it could buy more than Fredriksen assets and it could buy more than oil tankers.

about 50%, there was not a lot of cash in the kitty for this single B credit to fund fleet renewal. Of the deal, the CEO Chuck Raymond said, “"Horizon Lines is focused on using capital efficient methods to enhance our service capabilities in our Jones Act markets while at the same time upgrading our service to Guam and Asia with assets that are more appropriate for those trades. This initiative is consistent with our tested strategy of obtaining new tonnage at appropriate costs for the trades we serve.” What Mr. Raymond is referring to is the cascading effect that this deal has on the entire business. As the newly leased newbuildings move into the US flag/non-Jones Act Guam Trade, which should also involve a profitable return voyage from Asia under charter with Maersk, the Jones Act vessels currently in that trade will be able to shift onto Horizon’s other Jones Act routes, allowing the company to either improve service on these routes, retire older vessels, or more likely some combination of the two. If all goes as hoped, Goldman Sachs analyst Jon Shapiro said at the time that he expected the ships could add 10-15% to the company’s current EBITDA level (forecasted at $160.9 million for 2006E) - and Figure 12 indicates that the stock market, the ultimate arbiter of whether a deal is good or bade – demonstrated strong approval.

Why We Picked It
The criteria for all of the Marine Money Deal of the Year Awards is the same – recognize deals that, through the exceptional work of financial advisors, deliver superior results to the clients and this deal was a pure winner for Horizon. First of all, it allowed the company to bring down the average age of its 29-year-old fleet by a third – and do it without the use of cash equity. Having been forced to cut its 2005 IPO by

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


Selected 2006 Lease Transactions
Lessee OOIL Lessor(s)/Advisor(s) HSH Nordbank Amount (US$ M) $480.0 Structure / Pricing / Comments Sale and leaseback of 8 x containerships to SPCs funded by OOIL, HSH, ING Schoeller Holdings Cypress Financial Not disclosed Purchase of Cape Container KS, which owns 2 x early 1990s vessels of 1,066 TEU Norient Product Pool Marenave Schiffharts AG $47.5 Purchase of 2005 37,300 dwt product and chemicals tanker Dec-06 from Interorient Navigation w/ continued pool deployment Marine Logistics Solutions (Marsol) Alislami Oceanic Shipping Company II Limited (managed by Tufton Oceanic) Geden Lines Alislami Oceanic Shipping Company II Limited (managed by Tufton Oceanic) Clipper Group Westfal-Larsen Lloyd Fond KG DnB NOR Markets $100.0 $293.0 4 x 1996-98 built handysize bulk carriers Largest KS deal ever on 2 x product tankers, 2 x product tanker newbuildings, and 2 x chemical tankers AP Moller-Maersk AET (MISC) Danaos Corporation ABG Sundal Collier KS funds $126.5 $165.0 Sale and 7-yr bareboat back of 4 x 90s-blt double hull aframax tankers at $15,000 per ship per day AET (MISC) MC Shipping Allocean Polar Marine MPC Capital KG Pareto $20.0 $52.0 $61.0 Sale and 3-yr TC back Sale and 4-year leaseback of 6 x LPG carriers Sale and 5-yr bareboat back of 2 x 1999-blt 1,733 teu container vessels at $9,650 HMM Euronav Dr. Peters Danish $190.0 $86.0 Sale and charter back of 2 x 1997-blt 301,000 dwt tankers Sale of 290,927 dwt 1993-blt tanker with 5-yr bareboat back and repurchase options Naftotrade Group NFC / Eurofin (advisor to Naftotrade) Maersk Seaspan $160.0 Sale and 5-yr leaseback of 4 x 4,800 TEU vessels at $23,450 per vessel per day ESL Shipping SEB Leasing $32.0 1 x 18,800 bulker to be delivered 2008 w/ 10-yr bareboat back Pacific Basin K/S Danskib 55 & 54 $40.8 Sale and 3.5-year charterback on 2 x 90s built handysize bulk carriers CMA CGM Roxana Shipping KG Union Marine Finance (Berghshav) Seatrans RS Platou Finans KS $41.0 $102.0 $130.8 Sale of 8,200 TEU newbuilding with 9-year TC at $35,000 3 x 35,000 dwt modern product tankers w/ bareboat back at $13,250/day 3 x 4,700-5,800 dwt stainless steel chemical carriers on 3-5 year bareboat back at E3,500-E4,550 per day Aug-06 Aug-06 Aug-06 Sep-06 Sep-06 Oct-06 $60.0 Sale & Leaseback of 4 x specialised cement carrier vessels Oct-06 Oct-06 Oct-06 Nov-06 Nov-06 Oct-06 Nov-06 Nov-06 Nov-06 Nov-06 $66.0 Sale and 7-yr leaseback of newbuilding capesize bulk carrier Nov-06 $48.0 Construction finance and 7-yr lease of 2 x DP2 AHTS vessels for delivery in 2008 Nov-06 Dec-06 Month Dec-06

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

Selected 2006 Lease Transactions continued
Lessee Pacific Star Lessor(s)/Advisor(s) Dr. Peters Amount (US$ M) $115.3 Structure / Pricing / Comments Sale and 11.4-yr leaseback of 305,000 dwt VLCC to Ghandour co at circa $49,480 per day Mitsui OSK Lines Seaspan $334.0 Sale and 12-yr leaseback at $28,880/day of 4 x 5,100 teu ships to be delivered in 2009 Berlian Laju Tankers First Ship Lease $45.0 12-year sale/leaseback of 19,900 dwt chemical tanker newbuilding Ezra Holdings Navigation Finance Corp $181.3 Sale/leaseback of 7 x anchor-handling supply ships and 2 x anchor-handling tugs Seadrill Ship Finance International $210.0 15-yr sale/leaseback of jack-up rig w/ annual lease payments ranging from $14.9m-$41.1m Golden Ocean Group Ship Finance International $28.4 GOGL purchase of 1997 panamax w/ simultaneous sale to SFL & 10-yr bareboat back at $8,250-$10,000/day w/ $10.4m/$12.5m put/call option Golden Ocean Group NFC $30.0 10-year lease w/ bareboat back at $9,300 day of 1999-blt panamax and put/call options at $12.2m/$14.2m ZIM ICON Capital $141.2 4 x containerships purchased from Old course Investors with bareboat to ZIM until 2010-2011 Top Tankers ICON Capital $112.7 4 x product tankers purchased from Oceanbulk on bareboat to Top until 2011 Cosmos Shipping Fearnley Finans $22.5 2 x 25-year-old handymax bulkers purchased from Panker Maritime on bareboat for 4.5 years at $8,300 Berlian Laju Tankers First Ship Lease $90.0 2 x 19,900 dwt chemical tanker newbuildings + 20 x stainless steel containers w/ 12-year charterback Perseveranza di Navigazione Evergreen Technomar $98.0 V. Ships $32.0 Rumor; 1 x 40,000 dwt products tanker w/ 7-yr bareboat back at $10,750 2 x 4,229 TEU containerships with 10-year bareboat back at $16,100 Horizon Lines Ship Finance International as lessor; AMA as advisors OMI Top Tankers Fortis as arrangers, KOMARF as buyers Top Tankers Torvald Klaveness as manager Zodiac Consafe Offshore Dr. Peters Ship Finance International $400.0 $185.0 Pareto Ness, Risan & Partners Circa $250.0 $20.0 $89.0 Circa $300.0 $280.0 5 x US flag 2800 TEU container newbuildings on 12-year charter Sale and bareboat back of 2 x 2003 panamax product tankers 5-year sale and bareboat back of 4 x suezmaxes and 4 x product tankers 7-year sale and bareboat back of 5 x 1990s suezmaxes Sale & 8-year bareboat charterback of 8,600 dwt chemical tanker at $6,500/day 5 containerships; 5.5 years t/c back at $30,750 Sale & 30-year leaseback of rig "Safe Concordia" w/ profit sharing options - WITHDRAWN Nanjing Tanker Corp Great Eastern Shipping $134.0 Sale & charterback of 2 x aframaxes at $24,500/day Jan-06 Feb-06 Jan-06 Mar-06 Mar-06 Mar-06 Mar-06 Mar-06 May-06 May-06 Jun-06 Jun-06 Jun-06 Jun-06 Jun-06 Jul-06 Jul-06 Jul-06 Jul-06 Aug-06 Month Aug-06

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


I can get it for you wholesale -

Award for Innovation
here is no limit to the creativity of people in this industry. From the time when bilaterals ruled to today’s emphasis on capital markets, there is seemingly an endless toolbox of financial structures to provide capital to the industry. It was therefore very difficult to choose a transaction that epitomized the concept of innovation or, by definition, a new idea, method or device. Nonetheless, our attention was drawn to Germany, which historically was able to deliver what appeared to be infinite amounts of equity to the KG system with or without tax benefits.


mizing maintenance requirements in the early years. Utilizing unhedged yen financing for part of the debt also kept expenses down thereby allowing more cash to flow to investors. However, these were mere band-aids on the problem. The solution was to attract a new type of investor at a lower cost, hence the need for an innovative solution. Institutions were an obvious target, but there were barriers to their investment in this industry. König & Cie. and Lloyd Fonds approached the problem in different ways and, in response, created respectively Marenave Schiffahrts AG (“Marenave”) and LP Open Waters OP (“Open Waters”). Both have targeted institutional investors with products that provide an option to invest in what Lloyd Fonds terms “floating growth companies” as well as a means to diversify their portfolios from a risk perspective. It was also a means for the KG sponsors to tap into the extraordinary liquidity in the marketplace. Both transactions are truly innovative, but one, in our mind, broke more new ground taking the award by the slightest of margins. The sponsors’ key focus was on developing an attractive shipping investment vehicle for institutions. The two key

requirements for institutions are an ability to get in and out of the investment on a daily basis and an ability to evaluate the investment also on a daily basis. In the historic KG model, the projects were long-term and an investor’s capital was tied up for its duration, although a secondary market has recently developed creating some liquidity in the shares. In addition, once the investment was made it was impossible to value it. The answer clearly lies in the public markets.

traditional KG funds, Marenave will take advantage of the tonnage tax scheme. Initially, they intend to focus on container ships of 2,700 TEU as well as panamax and suezmax tankers. Although its initial acquisitions were two MR product carriers, it subsequently acquired two LR2 product tankers.

Open Waters
Combining worldwide shipping and banking expertise, Lloyd Fonds AG together with Oppenheim Pramerica formed the first open-ended shipping fund in the world called LF Open Waters OP (“Open Waters”) at the end of last year. Resident in Luxemburg, Open Waters takes the form of a Société d’Investissement à Capital Variable (“SICAV”), a structure which makes the fund open-ended and allows the return of shares to the fund to allow investors to realize their gains. With a SICAV, the purchase and redemption of shares leads to a “breathing” equity or a “constant IPO” structure, which means that the equity accounts will increase or decrease depending on the net trading activity. In short, the fund is fully flexible and designed for day-to-day trading. To accommodate the structure and to service any major share redemptions, the fund will keep a liquidity reserve of 20 % relating to its

Together with HSH Nordbank and HSH Gudme Corporate Finance, König & Cie. created and sold Marenave, which is the first listed ship investment company in Germany. Shares of Marenave trade on the Hamburg Stock Exchange. With the stated purpose being the acquisition and development of a ship portfolio through limited shipping partnerships, König raised Euro150 million, against an original target of Euro 250 million, in equity through the sale of shares to various institutions. Although in certain respects similar to the typical KG project, the business model resembles a SPAC (i.e. blind pool) with definition and provides for the acquisition and operation of oceangoing vessels, which will be chartered out to other shipping companies. Like

F e b r u a r y / M a r c h 2 0 0 7

In the orderly world of Germany, competitive forces have wrought change in one of the most successful ship financing models extant. Pressed to compete effectively with the leasing companies or operating lessors such as Seaspan and Danaos, the KG market had to find a way to reduce the front-end sales costs that burdened their transactions. Even the low equity return requirement could not offset the impact of the higher capitalized cost on cash flow resulting in less attractive returns. To combat this problem, new asset classes, including reefers and OSVs, that were less price sensitive were considered. A focus on newbuildings helped by mini-


Marine Money

"CIC advertised here in the hard copy this month and reached the most influential readers of our industry, why don't you? Interested? Please contact, for more information!"

equity, either by means of liquid assets or an unclaimed debt facility. Although the fund is being marketed to both individual and institutional investors, the sponsors’ key focus was on developing an attractive shipping investment vehicle for institutional investors. As mentioned previously, the two key requirements for institutions are liquidity and daily pricing. In the KG model, for example, the projects are longterm and usually an investor’s capital is tied up for its duration although a growing secondary market has recently developed creating more liquidity in the shares. In addition, once the investment is made, there is no method to value it. Open Waters meets these two requirements through its SICAV structure and the calculation of a daily price. The latter is not a ”market price” but is instead calculated daily in accordance with the fund’s NAV by using a valuation method that combines the vessels’ market value with a DCF-calculation. The latter imputes value to charter employment for time-chartered vessels as well as future market prospects. Unlike most stocks, Open Waters’ shares cannot trade below NAV. The fund does not pay dividends but retains profits instead like a growth company. From a cost perspective, the fund charges no upfront soft costs making it a competitive investment solution. All in all, for institutional investors, Open Waters opens

up the opportunity to invest in the shipping markets with the prospect of excellent returns as well as a means of diversifying their portfolios from a risk perspective. The fund is aiming for a widely diversified shipping portfolio by investing in ships of varying sizes and classes. The preferred investments are mid-sized container vessels, bulkcarriers and tankers. Unlike any other fund, Open Waters follows an asset play strategy. Reflecting one of the original concepts of shipping in which owners earn more from buying and selling rather than from trading vessels, the fund’s explicit strategy is to sell ships after holding them for some three to four years. As a consequence, active fund management and the allocation of profitable investments are essential to the success of the fund. Lloyd Fonds AG in its role as investment advisors to the fund provides investment consultation services accordingly. Structurally, Open Waters is a holding company domiciled in Luxemburg. It, in turn, owns the single purpose ship owning companies in Singapore where technical and commercial operations are based. The Singapore location optimizes taxes for the investors in the fund through tax exemption of the single purpose ship owning companies. The holding company is a self managed SICAV with Lloyd Fonds AG being the fund’s investment advisors and the corporate work overseen by Oppenheim Pramerica Asset

Management S.a.r.l. A Lloyd Fonds AG subsidiary, Lloyd Fonds Singapore Pte Ltd, handles commercial and technical management of the vessels, which also distinguishes this product from the standard KG fund, which is required to use ship management based in Germany. For investment purposes the fund has agreed a debt facility with HSH Nordbank of up to 50 % of the total investment volume. Open Waters’ first acquisition were 4 x 29,500 DWT openhatch, box-shaped conbulkers, the so-called Clipper Fantasy class, which are presently timechartered to third parties on periods ranging from six months to three years.

We have provided further details of these transaction in the comparative “Guts of the Deals” as shown in Figure 1. We congratulate both Marenave and Open Waters for their respective creative solutions to a vexing problem. As these companies grow, the landscape of German financing should broaden further extending the life of this market.

Teekay Offshore
However, we would be utterly remiss if we did not give a very strong honorable mention to Teekay Offshore Partner L.P. (“TOO”) led by Citigroup and Merrill Lynch for the innovative structure that opened up MLPs to institutional buyers thereby expanding the investor pool. Like the KG, the MLP is largely a retail product. The MLP is particularly attractive in these frothy markets given the long-term contracted revenues with full distribution of cash to shareholders. Unfortunately, given the fact that these are partnerships, the income is taxable to the shareholder, who receives a K-1 form, which is filed with his individual return. Institutions were not willing to deal with K-1s and hence would, generally, not consider investing in these vehicles. This is where the ingenious investment bankers stepped in. Instead of being a partnership for both legal and tax purposes, TOO chose to be a partnership for legal purposes and a “C” corporation (taxed at the corporate level) for tax purposes. So, instead of getting a K-1, investors receive a Form 1099,

And the Winner…
The winner by a nose is Open Waters. Although both Marenave and Open Waters met the institutions need for liquidity and pricing, Open Waters accomplished it with an innovative structure and an unusual pricing methodology while broadening the potential investor base beyond Germany. Through a direct investment in the vessels rather than in a KG, Open Waters is able to value the vessels directly based upon NAV and discounted cash flow. In effect, it takes market sentiment out of the equation for better or worse. And finally given its asset play strategy a shareholder benefits from the trading side of the shipping investment equation.

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

Guts of the Deal
Number of Shares Maximum Offering Price Deal Size Number of Vessels Average Age of Fleet Dividend Policy Management Company Credit Facility Commercial Banks Primary Shares Secondary Shares Selling Shareholder % Retained Use of Proceeds HSH Nordbank All None Konig & Cie. 0.40% Acquisition and development of a ship portfolio through limited shipping partnerships. Initial focus will be on container ships (2,700 teu) & tankers (Panamax & Suezmax) $80,000,000 HSH Nordbank, HSH Gudme Corporate Finance, Konig & Cie. Ernst & Young AG Germany Prof. Dr. Berthold Volk & Clarksons Research Hamburg Stock Exchange M5S Marenave Schiffahrts AG Up to 250,000 € 1,000 € 250,000,000 First Investments: Two MR and two LR2 product carriers TBD Annual. Determined by Supervisory Board Konig & Cie. LF Open Waters OP Unlimited (breathing equity) Net Asset Value Unlimited First Investments: Four Second-Hand Open-Hatch, Box-Shaped Conbulkers acquired, more vessels to follow. Generally not older then 15 years at the time of acquisition. Profits to be retained Self managed SICAV / Adviser: Lloyd Fonds AG / Ship Management by Lloyd Fonds Singapore 50 % of investments will be provided as credit via the bank HSH Nordbank and/or others Two classes: institutional + retail None n/a n/a Acquisition and development of a ship portfolio through limited partnerships, second hand tonnage of all segments of the shipping market. TBD Sal. Oppenheim Luxemburg Ernst & Young AG SICAV in Luxemburg, limited partnerships in Singapore Clarksons Research, R.S. Platou Shipbrokers a.s, Maersk Broker n/a n/a

Annual EBITDA Investment Banks Accountants Incorporation Industry Information Exchange Ticker

Figure 1 F e b r u a r y / M a r c h 2 0 0 7

which reports dividends paid and is much easier to deal with. In fact, as a consequence, the increased institutional share of the offering was 12 times oversubscribed. In addition, the transaction incorporates for the first time a “drop-down” structure, which gives investors the opportunity to increase their investment. Currently, the MLP and TK

own 26% and 74% respectively of “OPCO” which owns all the assets. TK has agreed to offer exclusively to TOO holders the 74% it owns accretively over time enabling them to increase their investment up to three times. Together these changes may pave the way for greater utilization of the MLP structure in the future. TK has led the way

in utilizing the MLP structure to develop a niche business and then sell it to investors while retaining a significant interest and upside as well as shifting the risk. It will likely be a more important vehicle for shifting risk in the future and it would be no surprise, for example, to find these same bankers selling the concept to Morten Arntzen at OSG for his post-Maritrans US fleet.

Although creative, we did not believe that the impact was as significant to the market as the German transaction, but nonetheless it is certainly noteworthy today and the future beckons. We congratulate all involved.

Marine Money


Editor’s Choice: Nakilat
Brings Back Project Finance
n 1997, when the Government of Qatar established Qatar Gas Transport Corp. to coordinate all of the transportation requirements for Qatar Petroleum, it was clear that there was going to be a mother lode of financing and transactional activity associated with the project – about $68 billion’s worth between QP and its partners at ExxonMobil and ConocoPhillips as they sought to produce $15 billion per year in revenue by 2010 by developing a 77 MTA LNG supply chain. When QGTC then formed a 100% subsidiary called Nakilat to undertake the construction, ownership and operation of up to 27 state of the art newbuilding LNG vessels the deals were close at hand.


and QFLEX sized vessels to be built at Daewoo, Hyundai and Samsung and delivered between 2008 and 2010. Nakilat then entered into fixed priced, date certain shipbuilding contracts with these shipyards backed by refund guarantees provided by Korean Government supported banks KEXIM and KDB. Simultaneous with signing the construction contract, Nakilat entered into back-to-back 25year timecharter contracts with the Qatargas LNG trains. The financing involved here is one of the most complex we have ever seen, comprising a collection of senior bonds, junior bonds and export credit. The $4.7 billion financing, completed in December 2006, will be used to fund the construction of the first 16 LNG vessels for which Nakilat

has entered into construction contracts. The total size of the financing was approximately $4.7 billion, consisting of (i) $850 million of Senior Bonds and $300 million of subordinated bonds with a 27 year final maturity sold in a 144A offering (24% of total financing); (ii) $2.4 billion bank facility with a final maturity of 19 years (51%); (iii) $725 million of Korean Export Credit Agency financing provided by KEXIM and KEIC (15%); and (iv) $474 million of equity (10%). All of the Senior Debt is pari passu. There were loads of interesting features about every tranche of this massive project/ship financing. First off, kudos go to Lehman Brothers who acted as Nakilat's sole Ratings Agency advisor and Joint-Bookrunner Left / Deal Quarterback for the Bond Offering. Lehman helped Nakilat successfully land a Aa3/A+ rating (the highest possible rating based on Qatar’s sovereign rating) from Moody’s and S&P despite the high leverage and limited recourse by positioning the company as a critical component of QP and the State of Qatar's efforts to develop its 77 mta LNG program, rather than a traditional shipping company. This always helps pricing. As for the bonds, they priced at 145 basis points above the 30-

year Treasury, which was only 8 basis points wide of the RasGasII/3 2027 bonds, despite an increase of four years in the average life of the bonds relative to RasGasII/3 and being a new issue. The bonds tightened only 3 basis points on the break, demonstrating near perfect pricing of the offering; (iii) the Subordinated Bonds, which were rated A1/A-/A-, were priced only 20 basis points wide of the Senior Bonds, which is the tightest spread ever for a Senior / Subordinated bond project finance deal. Barclays Capital, BNP Paribas, DnB NOR, and Gulf International Bank worked as bookrunners on the $2,615 million commercial tranche. Export credit agencies KEIC and KEXIM together provided around $725 million in additional debt.

As the first step in this process, QG ordered a series of QMAX

Nakilat Inc.
F e b r u a r y / M a r c h 2 0 0 7
Purchaser’s guarantee

There are a variety of reasons in addition to its sheer size that we considered this transaction worthy of our Editor’s Choice award. For one thing its complex structure alone defies categorization. The deal represents the first time in the history of LNG shipping a where program approach has been employed to finance the acquisition of vessels as opposed to debt being raised on a vessel- by-vessel basis. This is also the first LNG shipping

Qatar Gas Transport Co. Ltd. (parent)

Deeds of guarantee

Qatar Gas Transportation Co. Ltd. Undertaking and subordination agreement

STASCO (international manager)
Master services Master services agreement agreement

Finance parties

Nakilat Inc. (issuer)

intercompany loan agreement

Qatar Gas Transport Co. Ltd. (shipping company manager)
Vessel-management agreements

Refund guarantors

Refund guarantors

Vessel owners (subsidiary guarantors)

Shipping Contracts

Time Charterers



Figure 1 Marine Money


transaction of which we are aware to integrate debt from commercial banks, ECAs and capital markets – together comprising 90% of the project cost with a tenor of up to 27 years. Eighty percent of the debt is senior. The transaction also marks the first instance of an LNG shipping transaction

having raised funding from the bond market. Figure 1 shows how Nakilat’s structure works. Needless to say, the successful closure of a deal like this requires a host of committed and talented bankers and advisors. SMBC served as overall financial advisors, while Credit

Suisse First Boston and Lehman Brothers led the bond issue. Barclays Capital, BNP Paribas, DnB NOR and Gulf International Bank worked as bookrunners on the commercial debt tranche, and KEIC and KEXIM provided export credit. Latham & Watkins advised the sponsor on legal

matters while Skadden, Arps, Slate, Meagher & Flom advised the lender. Independent consultants on the deal included Lloyd’s Register EMEA, Drewery Shipping Consultants, Marsh Ltd, and Stone & Webster Consultants.

Dealmaker of the Year: Axel Eitzen
ince the day Camillo Eitzen (CECO) went public in Oslo in 2004 after its split from Tschudi & Eitzen, Axel Eitzen’s aspirations to be a consolidator were on the table. Raising just $40 million in its IPO, his multi-sector operator quickly began to use its shares as currency in the acquisitions of Naviera Quimica and a holding in Sigloo Gas. Not afraid to start small, Axel Eitzen has grown the company steadily


over the past few years with a host of acquisitions as can be seen in Figure 1. The company also did not strictly limit itself by sector, having listed with a bulk fleet Mr. Eitzen went on to acquire anything from gas and chemical tankers to an insurance broker. By 2006 he had built up a formidable operation and could afford to think bigger. In January he moved to acquire

the remaining 50% of the Sigloo Gas KS for $100 million. Then he began to hone in on the chemical tanker segment, an important growth area in advance of the revisions to MARPOL Annex II and the IBC Code that would come into effect on January 1, 2007. In the spring Camillo Eitzen signed a letter of intent for the $276 million acquisition of French chemical tanker

company Fouquet Sacop. The modern fleet included 12 chemical tankers ranging in size from 3,900 to 19,000 DWT with an average age of just 2.5 years. The transaction, executed with the help of AMA Capital Partners, brought CECO’s owned or controlled chemical fleet to 37 vessels and spurred rumors of a pending chemical tanker IPO. Had Mr. Eitzen chosen to go down this path in the spring, it most likely would

Camillo Eitzen's Exponential Growth
2003 2004 Camillo Eitzen & Co AS is re-established following the de-merger of Tschudi & Eitzen Holding AS Purchase of Bergesen's Igloo gas fleet and establishment of Sigloo Gas KS Camillo Eitzen & CO ASA lists on the Oslo Stock Exchange Acquisition of Naveale Francaise SA in France Acquisition of Naviera Quimica SA Acquisition of Gibson Gas Tankers Ltd in Scotland Acquisition of remaining 50% of TESMA AS Purchase of Polaris Insurance Brokers AS in Oslo Acquisition of remaining 49.25% of Sigloo Gas KS Establishment of Eitzen Maritime Services ASA (EMS) through reversed takeover of Stromme ASA Acquisition of Fouqet Sacop in France Acquisition of remaining 50% of Sigas Kosan A/S in Denmark Acquisition of Songa Shipholding Formation of Eitzen Chemical and listing on Oslo Stock Exchange Figure 1 Marine Money



F e b r u a r y / M a r c h 2 0 0 7

Source: Company website


The Eitzen Group
Eitzen Holding AS
Shipping 52.7% Non-shipping 100%

Eitzen Bulk Eitzen Gas Eitzen OBO Eitzen Tank

Camillo Eitzen & Co ASA
80.9% 44.7%

Eitzen & Invest AS

By the end of the year, Axel Eitzen had worked with no fewer than 25 financial institutions to grow the world’s largest chemical tanker company virtually overnight while continuing to develop a formidable shipping and investment empire as shown in Figure 2. Sometimes it is tempting to pay most attention to whoever moves around the greatest amount of money. But in truth the most interesting and most telling time in the history of a company is when it takes that leap from being a modest operator to being a major global player. It is there where leadership and every capability, from creative financial engineering to maintaining quality management over a fleet that is growing by orders of magnitude, is tested. And it is there where the future world market leaders are created. While it is too early too tell where Mr. Eitzen’s empire will go in the future, we have been privileged to watch him build up an impressive group of companies over a broad range of sectors in the space of only a few years. And we watched with excitement in 2006 as he created one of the largest and most modern chemical tanker fleets in the world even while growing the other areas of his business, all with a distinct smoothness of execution and clarity of purpose. And, even while so many around him flocked to the oil production and services sectors, Mr. Eitzen remained committed to shipping.

Eitzen Maritime Services ASA
100% TESMA Stromme Polaris

Eitzen Chemical ASA
100% Eitzen Chemical (Denmark) Eitzen Chemical (Singapore) Eitzen Chemical (Spain) Fouquet Sacop Navale Francaise

Camillo Industry Camillo Energy Camillo Marine Camillo Trading Camillo Real Estate Camillo Art

Source: Company Website

Figure 2 and that its shares were trading at a discount to NAV of about 35%. So clearly some financial engineering would be required to make the deal work. But Axel Eitzen certainly understands how to access Norwegian capital, and with the help of some talented bankers, he and his group of companies completed one elegantly interlinked transaction after another Mr. Eitzen was clear in his intention to spin off Eitzen Chemical as a separate company based on the premise that the company’s clear chemical tanker focus would allow it to trade at a better valuation, and shares in the new company were used to fund part of the acquisition price. Carnegie and Pareto then brought in other investors, raising approximately $302 million with an equity placement for Eitzen Chemical. Shortly after the new company was listed separately on the Oslo Børs, in conjunction with which Carnegie and Pareto placed an additional $20 million in equity. Pareto and Nordea put together a bond issue for ECHEM that raised approximately $100 million altogether. The issue comprised a NOK 520 million tranche priced at 3-month NIBOR + 3.5% and a $25 million tranche priced at 3-month LIBOR + 3.5%. That left the bank debt component of the financing, a key role in the transaction played by Nordea. Nordea, as advisor to Songa, had actually come into the deal prior to its being finalized by providing a $510 million credit facility for Songa Shipholding. This facility consolidated all of the indebtedness for the company while providing long-term financing for its significant newbuilding program and streamlining its capital structure ahead of being acquired. Nordea also provided to Eitzen Chemical a $265 million 7-year secured facility as well as a $75 million bridge loan.

have been a very good deal, unlocking value from shares trading at a discount to NAV. But he was not content with that. In August, CECO announced an acquisition that would nearly double the size of its owned or controlled chemical fleet (including newbuildings) by taking control of Arne Blystad-controlled Songa Shipholding AS for a price of $1,280 million. The fleet included 49 chemical tanker vessels and newbuilding contracts, ranging from 8,750 dwt to 40,000 dwt. It also included Songa’s commercial and technical operations, with offices in Glasgow and Westport, CT. Carnegie and Pareto Securities acted as advisors to CECO, while Nordea Corporate Finance acted as advisor to the owners of Songa. Analysts at ABG Sundal Collier estimated that at that time Camillo Eitzen’s chemical fleet was worth around $740 million

F e b r u a r y / M a r c h 2 0 0 7


Marine Money

Deal of the Year –
DP World and P&O Ports
o deal during 2006 generated more copy, more hot air or more political posturing than the DP World and P&O Ports transactions. We intend to continue the process by giving that deal from start to finish our Deal of the Year Award.


Not in fact because of all the hot air and political caterwauling, but because in its entirety it reflects value creation, strong management, investment banking skill, strategic investor confidence and perseverance. Taken as a whole this enormous deal broke new ground for which every participant and deserves recognition. As a marine finance journal and for the sake of the Award, we recognized that no deal was more public, bigger, politically sensitive and therefore more challenging than DP World's acquisition of P&O and subsequent announcement of the pending sale of P&O Ports North America to AIG Global Investment Group. As part of these two deals, we first salute Deutsche Bank, which represented the buyer and Citigroup for its job representing the seller on DP World’s acquisition of P&O for GBP 5.2 billion. On the DP World / P&O portion of the transaction, we specifically acknowledge the hard work of Deutsche Bank's Iain Macleod and his

European based infrastructure team and Michael Borch and his team at Citigroup. Second, we salute Deutsche Bank’s Craig Fuehrer and his North American based infrastructure team and Brian Moon and his M&A team who, under Iain Macleod’s DP World relationship leadership, handled the sensitive sale of P&O Ports North America to AIG, which was advised by Lehman Brothers. Of course, these two deals were only possible because of those who built the P&O franchise that was acquired and the strategic vision and foresight of Sultan Ahmed Bin Sulayem, DP World’s Chairman and Mohammed Sharaf, DP World’s CEO, so with all due respect we also congratulate the two companies involved in the transaction, P&O and DP World. Through its acquisition of P&O, DP World became the acquirer of one of the most respected and long-standing companies operating in the port sector and a Top 3 global ports operator. The transaction not only accelerated DP World’s growth but also gave it more than 70 million of TEU capacity by 2010. Equally important it puts DP World in a strong position as a consolidator adding significant capacity in key growth markets to service its liner shipping customer base, which is also

undergoing a consolidation wave itself. Before getting to some of the more interesting details about the two DP World and P&O related deals, it is important to recognize that in 2006 there were many worthy deals that might in another year have taken top honors. Morgan Stanley's acquisition of Heidmar created a stir for the rumored price paid for the Pool business created by Per Heidenreich, his talented team in Connecticut along with the owners who saw the value of the idea. But really for Morgan Stanley the price paid reflected a value multiple in complete synch with that firm’s commodity, freight, jet fuel supply and energy trading practices. As we and the investment banking community have argued from time to time, service companies, or at least those service companies that can claim some title to logistics, have been able to command higher

multiples that those involved with just pure steel based vessel operating companies. Lazard who advised Heidmar on the transaction delivered the multiple and Morgan Stanley stands perched on the edge of redefining shipping and commodity trading. No doubt a deal worthy of mention. Or one could look at the sale by OOIL of a portion of their Ports business to the Ontario Teachers Pension Plan, another enormous deal. In this case a private equity pool saw long term value in the port business and paid $2.41 billion for assets that it believes are well in synch with their long term pension liabilities. In this deal UBS representing the sellers and HSBC representing the buyers did a splendid job of finding that match. The Ontario Teachers Pension Plan found the stable cash flows, loyal customer base, long leases, container trade projections,

2005 • A subsidiary of Babcock & Brown acquires PD Ports for GBP 566 million or 12.4x EBITDA • Dubai Ports buys CSX World Terminals from CSX Corp for $1.35 billion or approximately 15x EBITDA 2006 • DP World buys P&O in 2006 for GBP 5.2 billion or approximately 15x 2006 EBITDA • A consortium of Goldman Sachs International, Borealis Infrastructure and GIC Special Investments Pte Ltd purchases Associated British Ports for GBP 3.4 billion or almost 17x EBITDA • Singapore's PSA International bought 20% stake in Ports Unit of HK's Hutchison Whampoa in 2006 for $4.39 billion or an implied multiple of 17x EBITDA • Ontario Teachers' Pension Plan purchases four North American terminals from OOIL for $2.41 billion or 22x EBITDA • AIG Global Investment Group bought DP World's US port assets in 2006 for an undisclosed price

F e b r u a r y / M a r c h 2 0 0 7

Marine Money


importance of Vancouver a port and finite property element which makes many infrastructure assets unique, the sort of value worthy a purchase price of approximately 22x EBITDA. We find the marriage of long term private equity with longlived infrastructure worthy of special commendation. Teekay, the Fredriksen group, OSG, Horizon Lines, Norway Inc. and its Bond market are all extraordinary examples of creativity on behalf of the industry, investors and shareholders. But the simple fact is that no deal was more public, bigger and therefore more challenging than DP World's acquisition of P&O and subsequent announced sale of P&O Ports North America to AIG. Advised by Citigroup and Rothschilds, P&O initially announced a recommended sale to DP World on November 29, 2005. A counter bid by PSA resulted in the GBP 5.2 billion sale to DP World which closed on March 9, 2006. The final price represented a 71% premium to the pre-speculation share price. The deal would prove to be the largest ports sector transaction to date. Citigroup had a compelling story with P&O, whom they had been advising for some time on transactions such as the merger of P&O Princess with Carnival in 2003, the sale of a 25% stake in P&O Nedlloyd to Royal Nedlloyd in 2004, and later the sale of the remaining

25% stake in P&O Nedlloyd to A.P. Moller Maersk in 2005. The long-term relationship meant Citigroup readily understood the strengths of P&O - a leading ports operator with 29 container terminals and logistics operations in over 100 ports and a presence in 18 countries. P&O’s core ports business had half its port assets located in the fastest growing Asian markets, with terminals in key countries such as India and China. Prior to the initial announcement of the sale, P&O Ports had some 1.3 billion pounds invested in a portfolio of ports through its regional offices in Mumbai, Sydney, Newark, New Jersey, Manila and Antwerp. Over at DP World where Deutsche Bank acted as sole buyside M&A advisor and joint acquisition financier, the opportunity was clear but the path contested. It is worth mentioning that DP World (previously DPA and DPI) was just six years old at the time of its offer and had only completed the $1.35 billion acquisition of CSX World Terminals some nine months earlier, again advised and financed by Deutsche Bank. While the support of the Dubai Government meant it was perceived to have deep pockets, it was only in the swift and effective management of the bid tactics that DP World finally came out victorious. DP World initially announced a recommended cash offer of 443 pence - a 46% premium to pre-speculation price. Then on

January 26, 2006 PSA, one of DP World’s principal port competitors, offered 470 pence, a 55% premium. This bid though was trumped on the same day by DP World's revised offer of 520 pence, which represented a 71% premium. It was clear that DP World's decisive and swift response to PSA's counter bid ensured strong backing from both the P&O Board and its shareholders. All seemed fine at the time for DP World and P&O. However, prior to closing its GBP 5.2 billion acquisition, the deal became the subject of a front page media surge and political fire storm that raised significant US security concerns about an Arab state-owned company seemingly taking over key US ports. Connecticut Congressman Christopher Shays told Marine Money at a special dinner of maritime executives that even if he understood the safeguards and actual working ways of the US port system, it was much too complicated to explain to Ma and Pa Smith on Main Street America. Far easier for Congress to cry out in dismay and threaten to block the acquisition. That part of the story is well known, and we will not belabor it here. Suffice it to say that DP World, showing a diplomatic and pragmatic understanding of the situation in Washington DC, acted graciously and opted to divest itself of the US portion of the acquisition which included port operating assets in key markets such as

New York / New Jersey, Baltimore, Philadelphia, Tampa, Miami and New Orleans. This decision led to the Deutsche managed auction process for P&O Ports North America. The P&O Ports North America auction process commenced in March 2006 with ultimately over 100 expressions of interest from interested buyers. The process concluded in December 2006 with the announcement of the pending sale to AIG Global Investment Group. While a specific price was not disclosed for the P&O Ports North America business, it is keenly interesting to note that while DP World paid a 15- 16x EBITDA for P&O in March 2006, in December, DP World received a price that it deemed to be consistent with other recent transactions in the ports sector. In the end it was AIG Global Investment Group, advised by Lehman Brothers, which won the highly contested auction and topped other rumored bidders such as The Carlyle Group and Morgan Stanley, which was rumored to have teamed up with CMACGM on formulating a bid. So we come to the end of a great year of value creation in the port infrastructure world. We tip our hats to both Deutsche Bank and Citigroup for their professional skills and committed presence in this most dynamic maritime related sector and to Deutsche Bank for professionally handling the politically charged North American ports divestiture.

F e b r u a r y / M a r c h 2 0 0 7


Marine Money