Star Bulk scotches Eagle Bulk takeover scenario - 22/08/2014

No Oaktree affiliates in the crosshairs but supersized bulker owner will continue to hunt ‘good deals’

Pappas: “We will continue to monitor and assess the market for further accretive growth opportunities.”

SPECULATION that Star Bulk Carriers may absorb the fleet of Eagle Bulk as an encore to its deal, unveiled this week, to acquire the 34 bulkers of Excel Maritime Carriers has been deflated by comments from a senior officer of the company.

Star Bulk, which is majority-owned by Oaktree Capital Management, is on an expansion binge that has seen it gobble up other Oaktree-controlled bulker ventures Oceanbulk Shipping and Oceanbulk Carriers prior to the Excel fleet in which Oaktree is also a major shareholder.

Some pundits have seen Eagle Bulk as next line for consolidation. The New York-based supramax owner is now in the throes of a pre-packaged Chapter 11 reorganisation in the US that envisages Oaktree and other funds securing virtually total ownership.

But on Wednesday Star Bulk president Hamish Norton told a conference call with analysts that the company had “no intention of pursuing the acquisition of any other Oaktree-affiliated shipping companies”.

For good measure, Mr Norton added: “I don’t think that situation is likely to change”.

Mr Norton also said that the fleet being acquired from Excel “complements our existing fleet and sizes where we had little exposure”, particularly the 14 Tsuneishi-built sister kamsarmax vessels that, he said, accounted for 42% of the $635m purchase price.

“We believe that this will enable us to better service our customers’ needs commercially,” he said. While kamsarmaxes were a segment that Star Bulk liked, it saw older panamaxes that were part of the Excel fleet as having an “embedded optionality”.

Mr Norton said: “They can provide us with cash flow in a prompt market upturn, but they can also become potential sale candidates if we feel that it is an opportune time to sell them in the sale and purchase market.”

Although the merits or demerits of the Eagle Bulk fleet were not discussed, its supramax fleet is unlikely to be seen as such a good fit.

Following the absorption of the Excel fleet, which is expected to be completed step-by-step by the end of this year as vessels arrive in port and discharge their cargoes, Star Bulk will have an “increasingly diverse shareholder base”, said Mr Norton.

The Excel deal will reduce Oaktree’s majority stake in Star Bulk from 61.3% to 57.3%.

Chief executive Petros Pappas and family will remain the second-largest shareholding group but will see its holding fall from 12.6% to 9.3%.

Other key shareholders are Monarch Alternative Capital with a 5.4% stake after the transaction, down from 7.4% today, and Angelo Gordon that will hold 7.8% by virtue of shares issued for its stake in Excel.

Mr Norton also explained the countercyclical logic of the purchase, saying Excel’s kamsarmax and panamax bulkers were obtained at “historically low prices” and a full 21% below their peak this year in April.

Although Excel’s fleet does not consist of eco-vessels, Star Bulk reiterated its belief in the advantages of the newer design vessels, saying that fuel-efficient new eco-ships will still represent 57% of the combined fleet by value.

“The average cost per vessel for the acquisition fleet comes to about $18.6m per ship versus current prices of $33m and $62m for new Japanese-built eco-kamsarmax and capesize vessels respectively,” said Mr Norton.

“We view this as an attractive trade-off of price versus the fuel savings.”

Despite the apparent ruling out of a grab for Eagle Bulk, Star Bulk is keen to grow further if the right opportunities present themselves, said Mr Pappas.

“We will keep on monitoring the market for further acquisition opportunities and to further consolidate the industry,” he said. “We intend to continue to selectively acquire high quality fleets and vessels at attractive prices.

“We are keen to expand when we see an opportunity to do accretive acquisitions," said Mr Pappas. “It is not the number of vessels. We have the ability to handle more vessels but only if they are good deals.”

The acquisition of the Excel fleet promises to boost Star Bulk’s armada to 103 vessels by end-2014.

Executives said that they expect to take delivery of an average of three to four bulkers per week from Excel in the coming months.

The company aims to continue trading the fleet in the spot market until a recovery in freight rates, said Mr Pappas. “We expect the freight market to improve in the months to come,” he said.

in 20/08/2014