Francois Janson is a senior counsel and Frode Jensen is a partner in our New York office
Shipping companies continued to access the U.S. public equity market to raise capital at a robust pace in 2010. Primary equity offerings by shipping companies in the U.S. public market totaled approximately $3 billion in 2010, a 13% increase over 2009, driven in part by four IPOs and a substantial increase in the number of offerings by tanker operators.
This survey reviews the registration documents filed with the U.S. Securities and Exchange Commission (SEC) in connection with capital-raising transactions in 2010 and the principal terms of the related offerings.1
Highlights of the Survey
- In 2010, there were 28 primary equity offerings by 20 issuers, including four IPOs and 24 follow-on offerings, compared to 21 follow-on offerings by 14 issuers for the same period in 2009.2
- 16 of the 20 issuers were foreign private issuers organized outside the United States; three issuers were foreign corporations with headquarters in the United States. Only one of the offerings was conducted by a U.S. corporation headquartered in the United States.
- 16 issuers were organized as corporations either in the Marshall Islands or in Bermuda; four were Marshall Islands limited partnerships.
- 17 issuers engaged in 24 follow-on transactions. Twenty were firm-commitment underwritings, one was a negotiated purchase transaction and three were at-the-market (ATM) offerings.
- Six issuers came to market more than once in 2010; two issuers completed three separate underwritten follow-on offerings and four issuers completed two offerings.
- All the transactions were primary offerings3 exclusively. None included secondary sales by existing shareholders.
- All of the follow-on offerings except for two were shelf offerings registered with the SEC on Form S-3 or F-3.
Size of Offerings
Primary equity offerings by shipping companies in the U.S. public market (excluding green shoe options, discussed below) totaled approximately $3 billion in 2010, a 13% increase over 2009.4
The average size of the 28 offerings (excluding green shoe options) was $109 million and the median size was $83 million. In 2009, the average size of the 21 offerings was $128 million and the median size was $70 million.
The average size of the four IPO transactions (excluding green shoe options) was $202 million and the median size was $195 million. The largest IPO transaction in 2010 was the $257 million offering by Crude Carriers Corp. in March 2010. The smallest IPO offering was the $160 million offering by Costamare Inc. in November 2010. There were no IPOs completed in 2009.
The average size of the 24 follow-on offerings (excluding green shoe options), was $93 million, and the median size was $78 million. The largest follow-on offering (which was also the largest ATM offering) was the $350 million offering by Dryships Inc. in September 2010. The smallest follow-on offering (which was also the smallest underwritten offering) was the $25 million offering by Seanergy Maritime Holdings Corp. in January 2010.
The average size of the 20 underwritten follow-on offerings (excluding green shoe options) was $87 million, and the median size was $80 million. The largest underwritten follow-on offering was the $207 million offering by General Maritime Corporation in June 2010. The smallest underwritten follow-on offering was the $25 million offering by Seanergy Maritime Holdings Corp. in January 2010.
The average size of the three ATM offerings was $149 million, and the median size was $60 million. The largest ATM offering was the $350 million offering by Dryships Inc. in September 2010. The smallest ATM offering was the $37 million offering by Tsakos Energy Navigation Limited in April 2010.
Jurisdiction of Organization and Principal Place of Business of Issuers
The preferred jurisdiction of organization for shipping companies accessing the U.S. public equity markets continues to be primarily the Republic of the Marshall Islands, and secondarily Bermuda. Of the 20 issuers accessing U.S. markets, only one issuer, Overseas Shipholding Group, Inc. (OSG), was organized in the United States. OSG is a U.S. domestic Jones Act carrier and is therefore required by U.S. law to be organized in the United States.5
Of the remaining 19 issuers, 16 are organized in the Republic of the Marshall Islands and three in Bermuda. Of the 16 issuers organized in the Marshall Islands, 12 are Marshall Islands corporations and four are Marshall Islands limited partnerships. Of these 19 issuers, 16 have executive offices outside the United States located in Bermuda, Greece, Monaco and Canada. Three, Baltic Trading Ltd., Genco Shipping and Trading Limited, and General Maritime Corporation, have executive offices inside the United States.
In general, foreign issuers which access the U.S. public equity markets do not subject themselves to U.S. corporate income taxation. The disclosure documents typically state that: (i) so long as the issuer is incorporated outside the United States and its "shipping income"6 is attributable to transportation exclusively between non-U.S. ports, it will not, solely by reason of offering its securities in the United States, be subject to U.S. income taxation; (ii) under applicable U.S. tax laws, no U.S. tax is imposed on foreign issuers solely because their equity securities have been offered in the United States or because their shareholders may reside in the United States; and (iii) there is no restriction on non-U.S. companies filing registration statements to sell securities in the United States, and the conduct of an offering in, or even a listing on a securities exchange in the United States does not, alone, subject an issuer to U.S. taxation.
Business of Issuers
Of the 20 issuers accessing the U.S. public equity markets in 2010, 12 primarily operate tanker fleets transporting oil, gas and petroleum products,7 seven were primarily operators of dry bulk vessels and one was a container ship operator. By comparison, in 2009, nine of the 14 issuers were operators of dry bulk vessels while the remaining five issuers operated tanker fleets.
The 18 offerings by tanker operators totaled approximately $1.9 billion, while the nine offerings by dry bulk operators totaled approximately $1.0 billion. The one offering by a container ship operator raised $160 million.
Use of Proceeds
The most common use of proceeds from equity offerings in 2010 was to acquire new vessels. In 2009, the most common uses of proceeds from equity offerings were to repay indebtedness and to strengthen the balance sheet in order to remedy or avoid breach of loan covenants, fund external growth and fund newbuilding programs.
Exchange Listings
Of the 20 issuers, 16 list their shares on the New York Stock Exchange (NYSE) and four list their shares on the NASDAQ Global Market.
Type of Registration Forms
Of the four issuers that completed an IPO, three filed long-form registration statements on SEC Form F-1 and one on SEC Form S-1. Of the 24 follow-on offerings, two were filed on a long-form registration statement on SEC Form F-1. The remaining follow-on offerings were done pursuant to short-form shelf registration statements, 19 of which were on SEC Form F-3 while the other three were on SEC Form S-3.
Forms S-1 and S-3 are registration statements that must be used in U.S. offerings by U.S. issuers and issuers not incorporated in the United States that do not qualify as so-called "foreign private issuers."8
Forms F-1 and F-3 are only available to be used by foreign private issuers. Foreign private issuers are subject to certain reduced disclosure requirements, including, specifically, with respect to individual executive compensation and transactions between the company and its directors and other management. In addition, foreign private issuers, inter alia, are not subject to all aspects of Sarbanes-Oxley compliance, are not subject to the short-swing profit prohibition of Section 16 of the Securities Exchange Act of 1934, and are entitled to less onerous accounting and periodic reporting requirements. On the other hand, these issuers are required to make certain additional disclosures regarding home country issues.
Forms S-1 and F-1, or so-called "long-form" registration statements, are the basic registration forms used in U.S. offerings for which no other more specialized form is authorized or prescribed, and call for the highest level of disclosure.
Both Forms S-3 and F-3 are "short-form" or abbreviated registration forms used in U.S. offerings by certain seasoned issuers. Issuers may satisfy the disclosure requirements of these forms by incorporating certain information by reference to their periodic reports filed with the SEC. The series "-3" forms may also be used for shelf registrations. A shelf registration permits a corporation to register multiple types of securities with one single registration document up to two years in advance of the actual public offering. By using a shelf registration, the firm can fulfill all SEC registration-related procedures beforehand and go to market quickly when market conditions become favorable.
Type of Securities
All 28 transactions were offerings of common equity securities. Of the 20 issuers, 16 sold common stock or shares of a corporation and four offered "common units" of limited partnerships.
Type of Offerings
Four of the offerings were IPOs and were primary offerings only, meaning that a public market for the issuer's shares did not exist prior to the offering and also that the shares sold were newly-issued shares of the issuer and not previously issued shares offered by existing shareholders.9
The remaining 24 offerings were primary follow-on offerings, of which only two were done on a long-form registration statement. All of the other 22 follow-on offerings were completed pursuant to shelf registration statements. None of the follow-on offerings included secondary offerings by selling shareholders.
Plans of Distribution
All the transactions in the survey were structured as underwritings, except for one negotiated purchase transaction and three ATM offerings.
Twenty-four offerings by 17 issuers were executed pursuant to firm-commitment underwriting agreements.10 In a firm-commitment underwriting agreement, the underwriters agree to purchase all of the shares offered by the issuer (except for shares subject to the green shoe option) if they purchase any shares and then resell them to the public. In these underwritings the issuer takes no risk that the shares may not be sold. In one of the firm-commitment underwritings, the underwriter agreed to purchase all the shares offered by the issuer at an agreed price and to resell them "at-the-market" subsequently for its own account.11
One offering, the $50 million offering by Teekay LNG Partners L.P., was a negotiated purchase transaction with a single purchaser.
Three issuers sold common stock pursuant to an at-the-market (ATM) offering.12 In an ATM offering, the issuer enters into an equity distribution agreement with a broker-dealer pursuant to which the broker-dealer, as sales agent for the issuer, agrees to use commercially reasonable efforts to sell shares of the issuer through ordinary brokers' transactions on an exchange or otherwise at market prices prevailing at the time of sale, at prices related to the prevailing market prices or at negotiated prices. The agreement generally provides that shares will be offered on a daily basis or otherwise, as shall be agreed to by the issuer and the broker-dealer. The issuer designates the maximum amount and minimum price of shares to be sold on a daily basis or otherwise determines such amounts together with the broker-dealer. Unlike in the case of a firm-commitment underwriting, the issuer bears the risk of how many shares are ultimately sold. The agreement may also provide that the broker-dealer may purchase and resell shares as principal.
Discounts and Compensation
The average total compensation to the underwriters for the four IPO transactions was 6.81% of the gross sales price of shares sold. The highest IPO fee was 7.0% and the lowest fee was 6.5%.
The average underwriting discount (or commission) for the 20 underwritten follow-on offerings by 14 issuers was 4.38% of the total purchase price to the public. The highest underwriting discount was 7.0% and the lowest underwriting discount was 0.37%.
The compensation to the broker-dealer, as agent of the issuer, for sales of shares in the three ATM offerings was in each case 2.0% of the gross sales price of shares sold.
Green Shoe
A common feature of U.S. equity offerings is the so-called "green shoe" (or over-allotment) option.13
Each of the four IPOs included a green shoe option. However, only the underwriters in the IPO by Scorpio Tankers Inc. exercised the option (in part) by purchasing 450,000 of the 1.9 million shares offered under the green shoe.
Of the 20 underwritten follow-on offerings, all but one14 included a green shoe option. Of the 19 underwritten follow-on offerings in which a green shoe was included, the underwriters exercised the option in full or in part in all but five of the offerings.15 ATM offerings generally do not contemplate or include a green shoe option.
Lock-Ups
Another common feature of U.S. equity offerings is the so-called shareholder "lock-up."16 All the underwritten follow-on offerings and all four IPOs included a lock-up provision. Two of the three ATM offerings did contain a lock-up.
The lock-up period for all four IPOs was 180 days. Of the 20 underwritten follow-on offerings that included lock-ups, 12 had a lock-up period of 90 days, seven had a lock-up period of 60 days and one had a lock-up period of 45 days. Of the two ATM offerings that included lock-ups, one had a lock-up period of 180 days and the other had a lock-up period of 90 days.
Expenses of Offering
SEC rules require issuers to disclose the estimated costs and expenses of public offerings, in addition to the underwriting discount. The average estimated costs and expenses disclosed in the 25 offerings for which those fees and expenses were disclosed was $803,653.17 The average estimated costs and expenses disclosed in the IPOs was $2.4 million. The average estimated costs and expenses disclosed in the underwritten follow-on offerings was $504,607. The average estimated costs and expenses disclosed in the ATM offerings was $446,667. The highest amount of estimated costs and expenses disclosed was $3 million, in the IPO of Baltic Trading Ltd., and the lowest amount was $140,000, in the ATM offering by Tsakos Energy Navigation Ltd.
The average estimated accounting fees and expenses of the 22 offerings for which those fees and expenses were disclosed was $158,295. The average estimated accounting costs and expenses disclosed in the IPOs was $296,250. The average estimated accounting costs and expenses disclosed in the underwritten follow-on offerings was $138,833. The average estimated accounting costs and expenses disclosed in the ATM offerings was $71,667.
The average estimated legal fees and expenses of the 22 offerings for which those fees and expenses were disclosed was $369,077. The average estimated legal costs and expenses disclosed in the IPO transactions was $1,057,425. The average estimated legal costs and expenses disclosed in the underwritten follow-on offerings was $240,667.18 The average estimated legal costs and expenses disclosed in the ATM transactions was $93,333.
Registration fees charged by the SEC are based on the value of securities proposed to be sold. The registration fee rate is frequently adjusted by the SEC. From December 2009 until November 2010, the registration fee was computed at the rate of $71.30 per million dollars of securities registered based on the estimated maximum offering price. In December 2010, the registration fee increased to $116.10 per million dollars of securities registered.
Additional fees are required to be paid to the Financial Industry Regulatory Authority (FINRA) in connection with an evaluation of the fairness of the underwriting compensation and to the stock exchange for listing fees.
Underwriting
Citigroup and BofA Merrill Lynch were each lead manager in nine offerings, Morgan Stanley in seven offerings and UBS in six offerings. UBS, BofA Merrill Lynch, and Wells Fargo served as the lead managers on the largest offering, the $257 million IPO transaction by Crude Carriers Corp. in March 2010. Goldman Sachs, Dahlman Rose & Co., Jefferies & Co., and JP Morgan were the lead managers on the largest underwritten follow-on offering, the $207 million offering by General Maritime Corporation in June 2010.
Conclusion
Shipping companies, including new issuers, wishing to raise equity experienced favorable market conditions in the U.S. public market in 2010. Twenty companies engaged in 28 primary equity offerings (of which four were IPOs), as compared to 21 offerings by 14 companies (of which none was an IPO) in 2009. This represents a 14% increase in the number of follow-on offerings, and a 33% increase in the total number of deals for the year.
The authors gratefully acknowledge the assistance of Holland & Knight Associate Matthew Blumenstyk and Annette Lund of the Oslo bar in the preparation of this survey.
Footnotes
1. This survey reviews equity offerings conducted by issuers which have filed registration statements or prospectuses with the SEC in 2010 under Standard Industrial Classification Codes 4400 (Water Transportation) and 4412 (Deep Sea Foreign Transportation of Freight). As this survey is primarily concerned with equity capital-raising activities, it does not include exchange offers, secondary offerings, spin-offs, offerings of convertible debt, rights offerings, issuances of warrants, shares issued as dividends or offerings under incentive plans during the period. All information provided in this survey is derived from public filings available on the SEC Edgar database. Amounts in this survey expressed as "$" refer to United States dollars.
2. See Holland & Knight's June 3, 2010 Maritime Alert, Survey of Shipping Primary Equity Offerings in the 2009 U.S. Public Market.
3. A primary offering is an original sale of a company's securities, in which the proceeds from the sale are received directly by the company. A secondary offering, on the other hand, is a sale of a company's securities in which one or more major shareholders in the company sell all or a large portion of their holdings and the proceeds from the sale are received by the selling shareholders.
4. Including amounts sold pursuant to exercised green shoe options and amounts reported to have been sold in 2010 under ATM programs included in this survey, the total amount raised in 2010 net of underwriting fees and commissions was $3.1 billion.
5. Under the Jones Act, trade between United States ports ("coastwise trade") is, subject to limitations, reserved for U.S.-owned and organized companies operating U.S.-built, operated and flagged vessels manned by U.S. citizen crews.
6. Shipping income generally is defined as income attributable from the use of a vessel, or the hiring or leasing of a vessel for use on a time or voyage charter basis, or from the performance of services directly related to the use of a vessel.
7. The business of Knightsbridge Tankers Limited, historically primarily a tanker operator, is now split between tankers and dry bulk.
8. Any issuer that is incorporated in a jurisdiction other than the U.S. qualifies as a foreign private issuer unless (i) it has more than 50% of its shareholders resident in the U.S., and (ii) it is deemed to be based in the U.S. (which will be the case if any of the following is true: (1) a majority of the executive officers or directors of the issuer are U.S. citizens or residents; (2) more than 50% of the assets of the issuer are located in the U.S.; or (3) the business of the issuer is administered principally in the U.S.).
9. These issuers were Baltic Trading Ltd.; Crude Carriers Corp.; Scorpio Tankers Inc.; and Costamare Inc.
10. These issuers were Baltic Trading Ltd.; Crude Carriers Corp.; Scorpio Tankers Inc.; Costamare Inc.; Seanergy Maritime Holdings Corp.; Capital Products Partners L.P.; Genco Shipping and Trading Limited; General Maritime Corporation; Knightsbridge Tankers Limited; Navios Maritime Acquisition Corporation; Navios Maritime Partners L.P.; Nordic American Tanker Shipping Ltd.; Overseas Shipholding Group, Inc.; Safe Bulkers, Inc.; Teekay LNG Partners L.P.; Teekay Offshore Partners L.P.; Teekay Tankers Ltd.; and Tsakos Energy Navigation Ltd. (TEN).
11. The issuer was TEN and the underwriter Credit Suisse Securities (USA) LLC.
12. These issuers were TEN, DryShips Inc. and Paragon Shipping Inc. Although the registration documents regarding the ATM program of TEN were filed in 2009, this transaction is included in this survey because TEN reported selling shares under its ATM program in 2010. Subsequently, TEN completed a separate firm-commitment underwriting in which the underwriter purchased shares of TEN and agreed to resell them "at-the-market" after closing.
13. The "green shoe" option refers to a clause contained in the underwriting agreement. The option, which is also often referred to as an over-allotment provision, allows the underwriting syndicate to buy up to an additional 15% of the shares at the offering price if public demand for the shares exceeds expectations.
14. The underwritten offering by Overseas Shipholding Group, Inc. did not include a "green shoe" option.
15. The underwriters of the offerings by General Maritime Corporation, Navios Maritime Acquisition Corporation, Nordic American Tanker Shipping Ltd., Teekay Tankers Ltd. and Tsakos Energy Navigation Limited did not exercise the "green shoe" option.
16. A lock-up agreement restricts certain shareholders, generally insiders, from liquidating positions for a specified period of time following the offering date.
17. The estimated amount of offering expenses disclosed in registration statements is frequently underestimated by substantial amounts.
18. The average estimated legal costs were $204,063 for shelf follow-on offerings and $312,500 for other follow-on offerings.
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