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Surfer girls, Philadelphia freedom and newbuilding finance

Surfer girls, Philadelphia freedom and newbuilding finance
Matson Inc, parent of the Hawaii-based US flag containership owner, has successfully tapped the capital markets, raising $100m of 30 year money, in bonds issued to private investors. The interest rate on the unsecured debt, purchased by New York Life Insurance and other institutional investors, is 4.35%.

Matson was long a part of Alexander & Baldwin, better known for its real estate and sugar plantations. In mid 2012, it was spun out as an independent company, so the bond issue is something of a coming out for what’s now a pure player in the container sector. Matson is a leader in the Pacific trades, linking the US West Coast with Hawaii and Guam and other islands, as well as running a service to China.  

The amortization schedule of the bonds, a way for the borrower to gain the low rate by reducing investor exposure over time, gives Matson breathing room to revamp its fleet. Late last year, it ordered two 3,600 teu Jones Act qualifying vessels from Aker Philadelphia at an aggregate price billed as $418m.

Amortization (paydown) of the $100m bond principal will begin in 2021, with a $5m in principal reduction in 2021, followed by a $7.5m paydown in 2022 and 2023, and then $10m from 2024 to 2027. A $8m amortization payment in 2028. Starting in 2029 and in each year thereafter until 2044, annual principal payments will be $2m.

The good fortune of the Aker yard, which also built four containerships for Matson between 2003 and 2006, and a series of product tankers for OSG afterwards, can be seen in its own money-raising efforts. In mid January, the yard raised $60m of equity, placed by Pareto Securities with US investors, also in a private placement.

The newbuild container vessels, to be delivered in Q3 and Q4 2018 are specially designed for Matson’s Hawaii trades. Reflecting a trend also seen with reports of tanker newbuilds, the two “Aloha class” container vessels will be built with dual fuel engines, ready for conversion to LNG propulsion at a later date. In an investor presentation, Matson says that actual conversion to LNG fuelling would require a further $20m per vessel. The yard describes the progress payments from Matson as “cash neutral”.

Meantime, the Aker yard is building four product tankers for a partnership with Crowley Maritime- with deliveries set for 2015 through 2017, with additional options. If those options are exercised, it is not clear what the implications would be for the timing of deliveries to Matson (or Crowley). This presents a high-class problem for the yard, but possibly not for both sets of buyers.

Shipping companies need capital for newbuilds, but some manage to also appease investors with a little cash along the way. Matson also paid a quarterly dividend of $0.16 per share (equating to an annual yield of around 2.5% at the current stock price); it’s made steady distributions in the nearly two years of being an independent company. Cash generation at Matson is healthy enough to absorb additional capex payments; in the first 10 months of 2013, cash increased by approximately $62m, even after dividend payments totaling nearly $20m.

Rumblings about US oil exports continue to provide background noise, with hints emerging from MARAD’s US Merchant Marine Symposium (held earlier this month) that a portion of such exports- if they happen, might be reserved for US built tonnage.

Observers of the Jones Act tanker fleet watch happenings in the US container business closely; Aker is one of two yards, the other being NASSCO in San Diego, that can build deepsea tankers for US coastal employment. Besides the OSG product tankers, it is also building two 115,000 dwt vessels for Seariver, Exxon Mobil’s Jones Act tanker affiliate, to be delivered in 2014.