VLCC owner DHT Holdings continues to move proactively to buttress its balance sheet with today’s announcement that it has taken out $67.5m of the $105.9m convertible notes due to mature in October 2019 through an exchange offer.
DHT said holders have agreed to exchange the $67.5m piece for for $74.2m in new convertible notes maturing in 2021, effectively buying the tanker owner two more years of runway on repayment. Both series of notes are priced at 4.5% interest.
DHT also has built a fresh liquidity pile by separately issuing a further $44.7m in 2021 notes to investors, yielding proceeds of $41.6m. The balance will be used for general corporate purposes, DHT said.
The financing moves leave $38.4m of the 2019 notes still outstanding, but this no doubt will be seen as a manageable sum with 14 months remaining until maturity.
The convertible obligation has been on the radar of equity analysts following the company, which is led by co-chief executives Svein Moxnes Harfjeld and Trygve Munthe.
However, the pundits have shown little concern about DHT’s ability to manage the upcoming payment. The Norwegian owner’s early action is likely to increase that comfort level.
Clarksons Platou analysts Frode Morkedal and Herman Hildan were among the first to weigh in. While the deal doesn't change their view of balance-sheet risk or valuation, it should be viewed as positive for the company and investors, they said.
"While the refinancing could be viewed as somewhat on the expensive side in light of the strong balance sheet, it is with the currently challenging tanker market prudent to address the 2019 maturity today as it would likely be more expensive if the recovery fails to materialize as expected," they wrote.
"Furthermore it should help remove any perceived refinancing risk in the stock market which has been a key theme in (questions) on the last conference calls. Overall we thus view the refinancing to be good news for the equity, as investors should be able to have a longer term view on the optionality in the company."
Noting the convertible obligation in a client note earlier this month, Maxim’s James Jang mentioned that DHT already had repurchased about $44.2m of the original principal amount.
“We believe management could look to retire the notes through a combination of cash on hand, funds from the newly minted undrawn revolving credit facility ($57 million), and/or the sale of the two non-core aframax assets,” Jang said at the time.
Munthe had expressed similar confidence on a quarterly earnings call in May, saying various repayment options included the prospect that a modest rise in ship valuations might allow the company to meet the strike price on the notes.
Better earnings could generate free cash to make the payment, he added.
“Then of course, we could sell ships, be it outright or on a sale and leaseback basis. And finally, we have a [revolving credit facility] now of $57m. That could be used in combination with increased earnings, sale and leasebacks, or outright sales," Munthe said.
“We, quite frankly, think we have sufficient ways to deal with the maturity of the convertible in October next year.”
The original note was for $150m and issued in 2014.
DHT in the second quarter refinanced its credit facilities, merging four lines totaling $460.5m into a new $485m facility, extending maturities into 2024 in a lending led by ABN Amro.
The new convertible notes carry a strike price of about $6.26 per share — a 49% premium to Wednesday’s closing price on the New York Stock Exchange.
The share was trading at $4.18 today, down $0.02 on the day or less than 1%.
