Shipping Equity Offerings [mUSD] - Marine Money

Pi Private EEquity i ffor Shi Shipping i
An Executive Summary
John F. Imhof Jr., Partner
13th Annual Marine Money Ship Finance Forum – New York
November 15, 2012
wfw.com

The Questions
>What is private equity?
>What is attracting g private p equity q y
to shipping?
>What What kinds of shipping deals is
private equity doing?
>What are some of the issues that
arise in private equity deals and
how are they resolved?
wfw.com 2

What is Private Equity?
wfw.com 3

What is Private Equity?
>Different investment strategies:
–Venture capital
–LBOs LBOs
–Growth capital
–Distressed and special situations
>Gains realized through:
–Initial public offerings
–Mergers Mergers and acquisitions
–Leveraging assets
–Sale of assets
–Operations
wfw.com
4

What is Attracting Private Equity to Shipping?
>What has happened?
–Banking crisis
–Global Global recession
–Large number of vessels under
construction
>Effect on shipping:
–Drop p in charter rates
–Drop in vessel values
–Renegotiations, defaults,
restructurings t t i and d bbankruptcies k t i
wfw.com
5

What is Attracting Private Equity to Shipping?
Bank lending to shipping fell 70% from 2007 to 2009
It recovered, but is still down 40% below 2007, predicated on ECA
guarantees and funding private equity
Source: Dealogic, Marine Money
wfw.com 6

What is Attracting Private Equity to Shipping?
$18,000
$16,000
$14,000
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
$5,671
$9,656
Shipping Equity Offerings
[mUSD]
$2,699
$3,718
$4,037
$1,167
$714
$14
$2,394
$1,432
$757
$329
2007 2008 2009 2010 2011 2012 YTD
Source: Marine Money
wfw.com 7
FO
IPO

What Kinds of Deals is Private Equity Doing?
>Direct investment
>Bridge financing
>Mezzanine financing
>Debtor‐in‐possession financing
>Sale >Sale‐leaseback leaseback transactions
>Joint ventures
wfw.com 8

What is Attracting Private Equity to Shipping?
Recent Private Equity Investment in Shipping
Investor Value (est.) Asset Type Company Shipping Expert Date
Greenbriar Equity Group $100 million Product Tankers Seacove Shipping Partners Anthony Gurnee 2009
Apollo Management $200 Suezmax Tankers Principal Maritime Arthur Regan 2010
First Reserve / Wilbur Ross $900 Product Tankers Diamond S Shipping Craig Stevensen 2011
Sterling Partners $170 US Flag Tankers / Tank barges US Shipping (MBO) Paul Gridley 2009
Blackstone Group/Cerberus $500 US Flag Tankers American Petroleum Tankers Robert Kurz 2008
JP Morgan Asset Mgmt ? Opportunistic Peter Livanos Andrian Dacy 2010
Perella Weinberg ? Product Tankers Prime Marine Michael Chalkias 2012
JP Morgan ? JV, initially ll 10,000dwt d Project Cargo Harren (SUMO U OShipping) h
Harren 2011
Oak Tree 280 Project cargo Beluga / HHL ? 2010
Fortress Investments $100 Handysize bulk carriers Clipper Bulk Gary Vogel 2009
New Mountain Capital, LLC ? Project cargo / US Flag Intermarine Andre Gritkitis 2008
Kelso & Company $200 Supramax bulk Newbuildings Delfin Shipping LLC Sophocles Zoullas 2010
Alterna Capital Partners $100 Product Tankers / Supramax solo/Western Bulk Harry Toll 2010 2010‐12 12
Natural Gas Partners ? Bulk Carriers Lars Peter Madsen 2012
Littlejohn & Company/NSF $100 Container Vessels Soundview Maritime LLC Moritz Middlebach 2010
Kelso & Company ? Container Vessels Poseidon Container Holdings LLC George Yoroukos 2010
Carlyle Group 1,000 Container Vessels CGI (with Seaspan)
Graham Porter/
Gerry Wang 2010
Eton Park/Rhone Capital $175 Container Vessels Euromar Arisitides Pittas 2010
Source: Marine Money
wfw.com 9

What Are the Issues That Arise in Private Equity Deals?
>A vessel owner wants to form a
joint venture with a private
equity fund to purchase vessels
>The vessel owner already owns
vessels essels and pro provides ides commercial
management through an
affiliated management g company p y
>What can the parties expect?
wfw.com 10

What Are the Issues That Arise in Private Equity Deals?
>What the parties can expect to
get out of the joint venture will
depend on:
–The parties’ objectives and
strategies and how closely they
are aligned
–What Wh t th the parties ti contribute tibt tto
the joint venture
wfw.com 11

What Are the Issues That Arise in Private Equity Deals?
>The private equity fund contributes cash
>The vessel owner may y contribute:
–Cash?
–Existing vessels or yard contracts?
–Management Management ser services? ices?
–Construction supervision?
–Knowledge g about the shipping pp g industry? y
>The interests of the private equity fund and the vessel
owner may not be aligned
wfw.com
12

What Are the Issues That Arise in Private Equity Deals?
>What is the purpose of the joint venture?
>How will contributions be made to the joint venture?
>Will the vessel owner provide management services?
>Which party will control the joint venture?
>How will control be exercised?
>How will distributions be made from the joint venture?
>How will profit and loss be allocated between parties?
>How will opportunities be allocated to the joint venture?
>How will deadlock be resolved?
>Will transfers or new issuances of interests be allowed?
>How will a party be protected if the other goes bankrupt?
wfw.com
13

Summary
>Private equity is provided by sophisticated investors and
managed by a fund manager
>Private equity is interested in shipping because it offers an
opportunity to invest in assets with potential upside
>Private Pi equity i iis iinvesting i iin shipping hi i through h h di direct
investment, traditional financing and joint ventures
>What the parties get out of a joint venture depends on the
parties’ objectives and strategies and how they are aligned
>The issues in joint ventures can be complex
wfw.com
14

Contact
New York
John h F. Imhof h f Jr.
Partner
New York
jimhof@wfw.com
+1 212 922 2202
wfw.com 15

All references to ‘Watson, Farley & Williams’ and ‘the firm’ in
this presentation mean Watson, Farley & Williams LLP and/or
its affiliated undertakings. Any reference to a ‘partner’ means
a member of Watson, Farley & Williams LLP, or a member or
partner in an affiliated undertaking, or an employee or consultant
with equivalent standing and qualification. This presentation
constitutes attorney advertising.
© Watson, Farley & Williams 2012
wfw.com