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Navios MLP Prices at Midpoint in Troubled Market Dated : 15-11-2007

Advisors, who advised International Shipping Enterprises on its SPAC IPO, and DVB, who also provided the debt on the deal and whow has worked on a handful of IPOs in recent months since getting licensed and establishing a full compliance platform.
NMP is being formed to acquire from parent company Navios six panamax and one capesize vessel, the initial fleet shown in the table that accompanies this article, with two additional newbuildings to be acquired in 2008 and 2009. Upon the delivery of the first of these vessels the fleet will have an average age of just 5.5 years and average charter duration of 5.2 years. Major charter counterparties for the ships in recent years include Cargill, Sanko Steamship, Mitsui OSK, Augustea Imprese Maritime e di Salvataggi, American Bulk Transport and COSCO Bulk Carrier Corp.
The fleet will be purchased from Navios using proceeds from the IPO in the expected amount of $193.3 million together with a $160 million draw-down under the company’s new credit facility. The parent company Navios will also receive a 2% general partner interest in the company and another 41.2% interest in the form of subordinated shares. These are particularly important facets of the deal as they serve to keep the interests of Navios the parent company and Navios the MLP inline, as the general partner interest includes incentive rights while the subordinated shares will prevent the parent from collecting its 40%+ share of dividends until public shareholders have been paid the promised amount plus arrearages. However for the purposes of estimating value we assign these shares the same $20 price as the common shares, implying a value of $156.6 million for the stake. Together with the cash payments to be made by the MLP, this amounts to a price of $510 million for the fleet. This represents a discount to the steel value of the vessels, commensurate with the below-market long-term charters. The economics result in a forecast yield of $1.40 per year, or 7%, with built-in growth as the two newbuildings are delivered.
The success of the deal in the current market environment is a testament to the ability and reputation of Angeliki Frangou as well as
her deal team. It is also an interesting commentary on structure. In 2005 the shipping IPO was “the new black”. In 2007 the shipping MLP may be, well, the new shipping IPO. Navios Maritime Partners and OSG America are just the two latest editions and at least one more, Teekay Tankers, is said to be in the wings. Teekay of course already has Teekay LNG Partners and Teekay Offshore Partners. And Capital Product Partners successfully debuted this past spring.
But the movement is broader than just MLPs. It includes all companies that are formed to own assets with stable cash flows, from Ship Finance International to Seaspan and Danaos and the structure of Global Ship Lease. The fact is bankers and investors are beginning to be able to apply the same layering technology to equity that they have been applying to debt for years. Equity with visible, predictable, stable returns requires less of a risk premium than the unpredictable higher risk portion, and many companies have both types. The more stable “tranche” can attain a commensurately lower cost of capital, if it is broken out properly. The value for Navios was clear: according to Omar Nokta of Dahlman Rose the MLP with long-term cash flow visibility priced at 11x EBITDA while the parent company is trading closer to 6.7x 2008 EBITDA.
Source: Freshly Minted Weekly, 15 Nov 2007
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