Tankers: fund managers put their money on an upturn

Ridgebury 2.0 has similarities to the IPO that was scuttled by downdrafts in the equity markets two and a half years ago the entity was talking closely with Teekay, at the time, about purchasing three suezmax tankers that were to have been operated in a Heidmar pool.

There are also important differences: the 2010 prospectus emphasized the operation of high quality tankers, in a good pool, with a good manager (Bernard Schulte). The stock market vicissitudes and the lingering recession may have done Burke and his team of ex-GE Capital colleagues a favor; IPOs from the late stages of the previous shipping cycle have not fared so well, because sparks of recovery proved to be a false dawn.

Ironically, the years of weak tanker markets, where ship values have been clobbered, have enabled Ridgebury to be repositioned as an asset play. Indeed, five-year old suezmaxes were worth approximately $60m each in Q4 2010; now, brokers are estimating similar vessels to be worth $40m. With hedge funds throwing out jargon like “reversion to the norm”, probabilities suggest that ship values are now more likely to rise than fall.

So, this time around, instead of a public markets offering that could have reached as high as $250m in 2010, the 2013 investment, by the privately held Riverstone fund (which, in turn, raises money from institutional investors), is sized at “up to $200m.”

There is no prospectus this time, so we can only be guided by carefully crafted announcements. Last time, it was mainly about suezmaxes; this time, Ridgebury is still looking at that category, where high quality ships are certainly available, Teekay Corporation has a number of spot suezmazes, for example. The announcements also mention another hot and sexy sector- product tankers; enough has been written about Wilbur Ross, Scorpio, Navios Acquisition and even Teekay, who have all made moves on the products sector.

Private equity investments are about timing- the Riverstone announcements hinted that “…the next 12 – 24 months will present an attractive entry point for an investment…” in modern vessels currently on the water, or soon to be delivered re-sales. History may provide some hints on likely holding periods.  In mid 2002, Riverstone, at that time working alongside the Carlyle Group, had invested in Seabulk International (active in the now thriving Jones Act product tanker sector), at that time burdened with over-investment in oil service vessels. In late 2005 into early 2006, Riverstone “exited” their investment through multiple transactions with Seacor International.