Scorpio Tankers is set to use $25m raised from a “baby bond” issuance on Tuesday to pay down other obligations and will not add to its total debt position, president Robert Bugbee told TradeWinds.
The New York-listed shipowner also is pleased with the 7% interest coupon it was able to negotiate on the notes, which are unsecured and mature in five years.
“We wanted a solid deal that was well priced, and 7% is pretty good in this market,” Bugbee said. “Our overall debt level does not increase on a net debt-to-equity basis as we will simply use the proceeds to pay down a credit line.”
He said it was good to have different sources of debt finance amid uncertainty.
“And besides, one of the key drivers was that we could do 7% and we do not believe many of our product tanker competitors could issue a bond at all, let alone at 7%,” Bugbee said.
Tuesday’s deal is the fourth baby bond — issued in denominations of $25 — done by Scorpio in its decade as a public company. It is smaller than the others, which came to $160m in aggregate.
But, as Bugbee said, it is a different market in 2020 amid the coronavirus impact and uncertain times in all shipping sectors.
“There is therefore some value in us doing this deal simply to demonstrate that we could do it,” Bugbee said.
The sale was led by US investment bank B Riley FBR, whose shipping team includes Ernie Dahlman, the co-founder of former New York boutique shipping bank Dahlman Rose.
The owner has granted the underwriters a 30-day option to purchase up to an additional $3.75m in notes.
Overall debt at some $3bn has been an issue for Scorpio Tankers and one identified by Bugbee himself in recent public comments, as he noted that “long only” institutional investors had encouraged the company to bring down its leverage.
Bugbee said that priority remains intact regardless of Tuesday’s raise.
“Very importantly, we’re not changing our commitment to use present cash flow to reduce net debt to equity,” he said.
Scorpio is the world’s largest product tanker owner with 137 vessels under ownership or control. It has recorded near-record earnings in the first and second quarters. But, like the rest of the tanker market, it is bracing for a destocking of inventories that will dent rates for third-quarter bookings and beyond.
