In International Shipping News 15/05/2015
Oaktree Capital Management is well known for savvy investment strategies that squeeze value from industries plagued with distress. Most recently the fund has carved a niche in the global shipping industry by taking advantage of deals found in of bankruptcies.
While the overall financial success of the strategy is difficult to pinpoint given Oaktree’s propensity for not just taking over entire companies but also grabbing up privately held single-asset vessels, one recent transaction shows that investing in the sector doesn’t always mean smooth sailing.
On April 28, the Maersk Tigris, a cargo container co-owned by Oaktree and the German shipping firm Rickmers Group, was seized by the Iranian navy in the culmination of a long-standing commercial dispute between an Iranian company and shipping giant Maersk. The Iranians claim to have obtained an order from a Tehran court to seize the ship, which Maersk operates on behalf of its owners.
The incident made international headlines and drew the attention of the U.S. military, though Iran agreed to release the ship after about 10 days.
Given Oaktree’s rapidly growing fleet, headaches are par for the course. The firm now owns at least 45 vessels across the oceans, together worth nearly $1.1 billion, according to VesselsValue.com, and its expansion efforts show little sign of relenting.
The hedge fund’s investment thesis in the sector has been focused on acquiring vessels or shipping firms in a subdued market, with a view toward healthy returns in a recovery scenario where the supply demand dynamic normalizes alongside an increase in shipping rates. For evidence of the pricing weakness, particularly in dry bulk shipping, look no further than the Baltic Dry Index. BDI, the most reliable price index for dry bulk rates, has fallen to record low levels in the last few months, and is standing at $573 per day as of today.
To capitalize on the demand lull and the current price environment, Oaktree has pursued its expansion through various means, including teaming up with experienced ship operators and directly taking equity stakes. Oaktree acquired of Beluga Shipping in 2011, and initiated a partnership with Rickmers through pooling of 16 vessels.
To be sure, Oaktree never shies away from taking the reign through debt restructurings. It took over General Maritimeby investing $175 million in that company’s Chapter 11 bankruptcy, acquired a significant equity stake in Eagle Bulk Shipping through a prepackaged Chapter 11 plan, and built a majority position in dry bulk carrier Star Bulk’s equity.
For its part, debt-saddled Torm is in the final stages of a balance sheet restructuring that will see Oaktree take the lion’s share of the equity in exchange for provision of 31 new vessels, six of which are yet to be built. The current owners will be all but wiped out, while creditors to the Danish shipper will take the remaining shares in exchange for writing off parts of their claims. Torm’s debt pile, which stands at about $1.4 billion now, is set to shrink to around $850 million in a first step, in line with the company’s latest estimated fleet value, and then further shrink by up to $250 million to around $600 million through a debt for equity swap conversion.
