It is about always able to get into shipping deals at the bottom of the cycle, rather than at the top…not that lenders want to gain equity positions “the old fashioned way”. Nevertheless, creative asset based ship financiers have been able to create owning positions through kickers on debt, or on conversions of debt into equity.So, now we have another top name finance player splashing into the waters, as the lack of bank finance becomes a swirling maelstrom and sucks in some of the biggest fish around.
Kohlberg Kravis Roberts (KKR) announced that it would be setting an entity known as “Maritime Finance”, sized initially at $580m. According to reports, 45% of the funding will come in from KKR and affiliates and the balance from other investors, including hedge funds and highly specialised investors.
The executive team heading up Maritime Finance comes out of Helios Advisors. The corporate DNA is very impressive and Helios has an extremely good track record in alternative investments aimed at family offices, in other words running money for rich families. Helios’s management team, in turn, includes professionals who once worked alongside legendary distressed investors such as Leon Levy and Jack Nash, who, sadly, lacked the patience to participate in shipping recoveries with an abortive foray into the predecessor of conventional tanker companies that became very successful for Oaktree Capital.
This new company will be more about the offshore marine sector, where quality charterers can support structured finance (including securitisation of debt) than about conventional shipping, which is mainly a commodity play and therefore requiring doses of patience and luck.
KKR's official release says: “The company will originate, structure, underwrite, invest in and distribute debt financings secured by high-quality maritime assets, including drilling rigs, development and production assets, subsea construction vessels and other traditional shipping assets.” The wording of the release is important. It suggests that privately held assets, maybe in Norway, and perhaps in the US offshore marine sector, will likely be targets for funding from Maritime Finance.
The crop of new offshore marine deals will require complex financial solutions. Consider, for example, that a US affiliate of Norwegian DOF has recently taken delivery of a DP-2 Multipurpose Construction Vessel - under a four-year long term charter deal, from privately held (for now) Harvey Gulf International Marine. Harvey Gulf’s recent refinancing has included debt with a rating to facilitate trading.
According to news releases: “DOF Subsea will immediately commence the planned mobilization, comprising of structural reinforcement of the back deck to allow rapid mobilization of project specific equipment, repositioning of the crane boom rest, expansion of deck utilities, integration of two new XLX ROV system and installation of on-line /off-line survey systems.”
The published announcement from KKR suggest that a $200bn plus void in the ship finance landscape is attractive to KKR; undoubtedly, that is true, but don’t hold your breath that conventional finance will be offered on conventional assets. History provides guidance that KKR will be shooting for the corners. In late 2007- the time of a booming economy, KKR made an equity investment in a Turkish ro-ro operator, backed with finance from a group of Turkish banks, hoping to capitalize on trade in the eastern Mediterranean and Baltic regions which has been pulled down in a different vortex- the vicissitudes of the debt crisis. Climbing aboard the back of the train, in a debt position, at a more attractive entry point, is offers the potential to realise the outsized returns sought on alternative investments.
Significantly, KKR has also just announced that it would be buying a 27% stake in the communications provider RigNet, which describes itself as a specialist in what it calls “oil field digitalization”- a discipline that takes advantage of the capabilities of vessels such as Harvey Gulf’s high-tech newbuild now on charter to a Norwegian player.
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