Costamare's watershed private equity deal with York Capital

The joint venture will invest in individual vessel transactions, within the scope of these capital commitments.

The broad template here most resembles a smaller tie-up (pegged at $175m, the majority coming from PE funding) three years ago in the container space, between the NASDAQ listed company Euroseas and a pair of PE funds- Eton Park Capital and Rhone Capital. In this type of a model, the investment company is separate from the listed company- though technical management often goes with an arm of the established shipping entity.

In this latest deal, vessels will be managed by Costamare Shipping, which is already handling management of ships owned by Costamare Inc. After all, PE investing is very much about the synergies between financial packagers and shipping veterans who find ships and manage them- that’s what we have here.

York, with billionaire Jamie Dinan at its helm, is circumspect about disclosing anything, but, in a few public utterances, Dinan has emphasised the importance of doing fundamental research and synthesising information. The firm describes its goal as “…generating attractive risk-adjusted returns across business and market cycles.” Shipping, if nothing else, is about market cycles. Containership owners, like others, are plagued by various visages of overcapacity. One New York money man who spoke to Seatrade Global said that shipping investors look for “reversions to the mean”- in other words they should “buy” assets which are priced below some metric of “normal, over time”.

Importantly, the money manager stressed that the container sector provides one wrinkle not present in bulk carrier and tanker investing, noting that containership owners feel that they gain “efficiency and scale” by building bigger vessels- with lower costs/slot. The York/Costamare joint venture does not specify precise vessel types/ sizes, but Costamare, in recent years, has been building steadily larger vessels. Its fleet includes a group of 8,800 – 9,400 tey capacity vessels slated for deliveries from Asian yards in 2013 and 2014.

The Costamare/ York deal is structured in a way that supports opportunistic vessel sales or other forms of “strategic” exits (such as a public offering) over its six-year lifespan, provided that the two shareholder groups agree. The “Framework Deed” governing the venture delineates in extreme detail how individual vessels are to be housed in separate companies (incorporated in the Marshall Islands), each with their own Boards of Directors- not too different from a nimble shipowner’s set-up.

For owners of shares in Costamare Inc, the listed company- the joint venture got a thumbs up. Morgan Stanley shipping equities analyst Fotis Giannokoullis told clients: “We view the JV as part of Costamare’s strategy to expand counter-cyclically taking advantage the historical low asset values,” calculating that the JV could possibly buy up to $2bn of vessels (assuming 75% leverage). Giannokoullis also stressed the possibility of higher dividends to Costamare’s holders.

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