Judging Nordic American Tankers’ (NAT) announcement of a new $306m credit facility with a US bank may be the classic example of whether one sees the glass half empty or half full.
Half full: Herbjorn Hansson’s company found a pocket of capital that will see it through the next five years at a time when bank lending is constrained.
Half empty: The loan comes from Texas-based Beal Bank, which is little known in shipping, and raises the question of whether NAT has slipped from the ranks of owners who can attract financing from traditional maritime banks.
Half full: NAT says it has secured a lower interest rate than it was paying on its existing facility and also lower than it might have achieved in the Oslo bond market, had it chosen that route.
Half empty: The suezmax specialist, nonetheless, is paying an estimated 8.5% interest, which is expensive money compared to what favoured competitors may win from ship lenders.
Which view is closer to the truth may come to light in the following week as NAT was set to report fourth-quarter earnings on 19 February and hold a rare investor conference call that may flesh out details of the barebones announcement.
Hansson did not reply to a request for comment on this story.
NAT called the agreement “a major breakthrough”, saying it has a 20-year amortisation profile and a five-year maturity. It did not disclose the interest rate.
One equity analyst’s reaction to the deal — “I’ve never heard of Beal Bank” — was typical of many shipping observers.
Experienced personnel
However, finance sources told TradeWinds this week that Beal Bank’s shipping efforts are headed up by Andy Longhurst, a former director of ship finance for Lloyds Banking Group in London from 1996 to 2008.
Longhurst confirmed his part in an interview with TradeWinds this week, as did Patrick Cook, a senior managing director with Beal affiliate CSG Investments, who explained what attracted Beal Bank to NAT and Hansson.
“Shipping is a great fit for us — it’s one of the sectors that we like a lot,” Cook said. “The vessels we’ve financed for Nordic American are durable, valuable assets that we think are run by a great company.”
Longhurst added: “We like assets that are pretty liquid, and a fleet of suezmax tankers is something that we can quite easily attach value to."
Longhurst departed Lloyds before the bank began dismantling its shipping operations following the world financial crisis in 2008.
Following a stint with Maroil Trading, Longhurst moved to Beal Bank in October 2013 as director for shipping and, sources indicate, he has been quietly seeking ship-finance deals ever since.
“They’ve been trying to do deals for five years, but they’ve had a tough time for a couple of reasons," said one banking veteran, who did not want to be named.
“First, it’s not cheap money — probably in that range of 6% to 8% or even higher. Second, they’re known to [be] very inflexible on terms and conditions. They’ve made pre-payment of the debt either impossible or prohibitively expensive, for example, and that’s been a problem for owners who are just looking for a bridge until they can get cheaper money.”
Yet flexibility is also being hailed as one of the advantages of NAT’s new deal with Beal.
Equity analyst Gregory Lewis of BTIG said this week that the facility is covenant-light, with only minimum-cash and loan-to-value mandates.
Perhaps most important for Hansson and NAT, it provides significantly more flexibility for the Norwegian owner to pay its trademark shareholder dividend, which it has furnished for 86 consecutive quarters.
NAT was limited to a maximum $0.03 dividend under its current financing, and had paid only $0.01, $0.02 and $0.01 in the last three quarters of 2018.
Lewis said in an interview with TradeWinds this week that the new facility carries no such caps.
I give them [NAT] full credit. I think they worked hard and were able to find this facility at a time when traditional shipping banks are pulling back financing to the industry. I'd never heard of Beal Bank, but here they are with a $300m loan
Gregory Lewis, equity analyst at BTIG
"I give them full credit," he said of NAT. “I think they worked hard and were able to find this facility at a time when traditional shipping banks are pulling back financing to the industry. I'd never heard of Beal Bank, but here they are with a $300m loan.”
Lewis estimated in a client note earlier in the week that the likely interest rate was 8% but, in his later conversation with TradeWinds, said he had bumped up the estimate to 8.5%.
This is still below the 10% NAT is believed to be paying under its current revolving loan, which will be retired. It is also less than the maximum 10.5% it could have paid under a $375m "backstop" facility it had been offered by DNB.
'Encouraging' step
Lewis argued that even 8.5% interest is not so different from a company such as Scorpio Tankers carrying out a “baby bond” at 8% interest, or Euronav issuing bonds in Oslo at 8.5% — although both of those deals are unsecured.
“It’s encouraging that there was a non-traditional lender willing to step up and give NAT money at that rate,” Lewis said.
However, the unnamed banking veteran pointed out another major difference. While Scorpio and Euronav may have bonds at 8% or more as one part of their capital structure, they are only one piece. The owners also have senior borrowings in the range of 200 basis points over Libor.
“For NAT, that’s pretty expensive money to be making up your entire capital structure,” he said. “But I’m not sure they had much choice as it does appear that traditional shipping banks are no longer willing to lend to them.
“DNB made it very clear that NAT was an exit customer by the tough terms of the backstop and by the fact that they forced him to sell ships last year.”
NAT has raised around $100m from the scrap sale of 10 older vessels in the past year, reducing its fleet to 23 tankers.
