Capital Link’s recent “New York Maritime Forum” last week came at a time of major financing initiatives from listed companies, and with the whiff of merger transactions in the air. Speaker Mark Friedman, Senior Managing Director at Evercore, a long-time shipping banker, told the room, “Despite the scarcity of headlines, there’s actually a fair amount of consolidation that may be in the works.” He also suggested that: “In a capital constrained market, M & A is alive and well.”
Star Bulk, with its fleet of 111 vessels aggregating 12.7m dwt, listed with symbol SBLK, has been newsworthy on multiple fronts. It has indeed proven to be a successful “consolidator” (another regular topic) with its ship purchases using shares and cash. This is a big deal, demonstrating a major tenet of consolidation’s virtuous loop- that bigger companies’ shares are more liquid and thus highly regarded, and can be used as a currency to further increase the size of the company.
Star Bulk’s President, ex-banker Hamish Norton said that: “Our recent acquisitions have been driven much more by trying to serve the needs of investors, than by trying to develop internal synergies.” He continued: “What we would hope to do is to become a mid-cap company,” which defined as being “ideally $2 - $3bn of equity value being maintained through a down cycle.” Norton acknowledged that SBLK is not there yet. In the present part of the cycle, trending upward, the company’s market cap is approximately $1.4bn, based on recent share prices.
Very importantly, Star Bulk also proved another aspect of the virtuous loop, that the prospects for raising finance are better for larger companies. A just announced debt raise by SBLK, is also important because of its ties to SBLK’s decision to retrofit its fleet with scrubbers. The loan is described as a “$310 million loan agreement, which includes a $70 million tranche (the “Green Loan”) that will exclusively finance the procurement and retrofitting of scrubbers for up to approx. 50 vessels in Star Bulk’s fleet.”
Star Bulk explained that the majority of the facility, some $240m, went towards refinancing outstanding debt on 26 ships in its fleet, running the gamut in size from supramax to newcastlemax. They said that the more newsworthy Green Loan Tranche has a margin of LIBOR + 280 basis points, and an amortization profile of four and half years.
Green Loans are a new development, with bankers having agreed on Green Loan Principles (GLP) earlier this year, which will hopefully bring standardisation that will enable the market to grow. Class Society DNV certified that the $70m tranche was in compliance with the GLPs.
Elsewhere the intersection of financing and scrubbers for listed companies also figures into the activities of Scorpio Bulk (SALT) and Scorpio Tankers (STNG). Shortly after announcing a major push to outfit its vessels with scrubbers, Scorpio Tankers then announced an equity raise of $300m- with its dry bulk cousin- SALT, curiously taking $100m of shares.
Evercore’s equity analyst Jon Chappell wrote, in a discussion of the equity raise, wrote: “Although the investment may prove shrewd, coming at a massive discount to STNG’s NAV at what we believe to be the trough of the product tanker cycle, SALT is now no longer a pure-play on the dry bulk shipping market recovery that we forecast, and for that reason we no longer believe that the shares deserve a premium multiple to the peer group.”