The Oslo bond market is definitely open again after investors backed two shipowners with $331m in two days — but the bounty on offer could prove short-lived.
Product tanker owner American Shipping Co (AMSC) succeeded in selling $200m of debt on Wednesday, following chemical tanker owner Stolt-Nielsen's deal for NOK 1.25bn ($131m) on Tuesday.
A number of Oslo-listed shipowners had previously said the market appeared closed following the last burst of activity in February, before coronavirus turmoil hit stock exchanges worldwide.
"The great thing about this Norwegian bond market is you have these windows that open from time to time. It's definitely open now. They typically open on very short notice and sometimes close on very short notice," AMSC boss Pal Magnussen told TradeWinds.
"You have to be very quick, but as long as you're prepared in advance it is possible to launch a transaction in just a few days. You have to be ready."
AMSC had engaged financial advisors to explore options to refinance its outstanding $220m bond last Wednesday.
The new $200m issue was sold to Nordic and international investors with a coupon of 7.75% and a tenor of five years.
The existing bond does not expire until February 2022, but carries interest of 9.25%.
"We've been monitoring this for a few weeks and we could tell that investor sentiment had been improving every week," Magnussen said.
"Last Thursday was a very rough day in financial markets, Friday it kind of bounced back and Monday was a bit shaky, but Tuesday and Wednesday were good. You're going to have to hit the right timing."
He added that the company was drawing from an investor following in Oslo, London and New York.
Asked if the company could have raised more, Magnussen said: "We targeted $200m, that was the amount that we wanted. We could have sold more, but that doesn't work for us."
It already had cash in place to pay for the rest of the bond through an April loan worth $305m that also refinanced nine of its 10 Jones Act product tankers on charter to US tanker owner Overseas Shipholding Group.
The company has been able to reduce interest costs over the last few months.
"For us, the pricing is probably slightly better but pretty similar to back in February if you look at how the bonds were trading back then. 7.75% is much better than 9.25% and that's part of the motivation for us," Magnussen added.
"We still have a year and a half till expiry on the existing bond, but when you can save 1.5% on the coupon, that's obviously attractive, and at the same time get a longer tenor. It's a good opportunity."
The company viewed waiting until nearer to maturity as too risky.
'Bad place' avoided
Magnussen said: "We could have waited nine months or even 12 months, but you're certainly hoping that you have a good market at that time because if you're going to miss that window, you start to have a short time, and that's a bad place to be when you want raise money."
Arctic Securities, Clarksons Platou Securities, Pareto Securities and SEB were joint lead managers for the transaction. Fearnley Securities and Sparebank 1 Markets had been retained as co-managers.
Fearnley Securities said the deal reduces AMSC's annual interest expenses by up to $5m.
"For the equity story, alleviating the uncertainty on the bond refinance is in our view key to return to former pricing," analysts Espen Landmark Fjermestad, Peder Nicolai Jarlsby and Ulrik Mannhart said.
Charters should be renewed
Among investors, the biggest concern in addition to the bond refinancing seems to be OSG not renewing the options on the five vessels up for renewal in December 2022 on the back of lower volumes from the US Gulf, they added.
"In our view, this is a highly unlikely event as the vessels in question are probably the cheapest vessels available", with a bareboat rate of about $24,000 per day, the analysts said.
US production volumes should grow, certainly by 2022, and the market is still tight and likely facing negative fleet growth over the coming years, they added.
"Should the equity trade on par with historical pricing this is a NOK 35-plus share, in our view," the analysts said.
The stock was trading at NOK 25.50, up 2.4%, on Thursday.
