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Prevailing Ship Financing Methods Applied to Major Dry-Bulk Companies

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Prevailing Ship Financing Methods Applied to Major Dry-Bulk Companies UNIVERSITY OF PIRAEUS DEPARTMENT OF MARITIME STUDIES M.Sc. in Maritime Studies SHIPPING FINANCE Prevailing ship financing methods applied to major dry-bulk companies Angeliki Christodoulou Thesis submitted to the department of maritime studies of the University of Piraeus as part of the requirements for the acquisition of the M.Sc. title with specialization in Shipping. Piraeus September 2015 © Copyright Angeliki Christodoulou 2015 All rights reserved “The individual conducting the present thesis bears the full responsibility to determine the right use of the data, a responsibility stipulated according to the following factors: the scope and nature of the use (commercial, non-profitable or educational), the nature of the data processed (part of text, tables, various charts and graphs, images or maps), the percentage and significance of the part used compared to the whole copyright text and the potential consequences of this use in the market or in the general value of the copyright text.” i Committee’s Approval “The present thesis has been unanimously approved by the Three-member Examination Committee appointed by the Special Purpose General Assembly of the Maritime Studies Department of the University of Piraeus in accordance with the Regulations governing the Master in Science in Shipping. The members of the Committee were: Eleftherios Thalassinos (Supervisor) Andreas Merikas Kwnstantinos Liapis The approval of the thesis by the Maritime Studies’ Department of the University of Piraeus does not indicate the acceptance of the writer’s own opinion.” ii ACKNOWLEDGEMENTS I would like to thank sincerely my supervisor, Professor Eleftherios Thalassinos, that without his valuable assistance I would have not been able to conduct this thesis. I would also like to thank the other members of the supervisory committee, Professors Andreas Merikas and Konstantinos Liapis. Not only have they supported me substantially during the writing of this dissertation but they also provided through their courses the stimulus to love shipping finance and to embark on this specific topic. Apart from the supervisory committee, I would like to thank the Professor of Banking and Finance department of the Piraeus’ University Mr. Antzoulatos who contributed in the research by providing me the access to the Bloomberg terminal, an indispensable tool for my research. Finally, I acknowledge and appreciate the valuable and continuous support of my family and beloved ones. iii Shipping Finance CONTENT Abstract ............................................................................................................................. 1 Introduction ...................................................................................................................... 2 Part One ............................................................................................................................ 7 Financing Types ............................................................................................................... 8 Debt Financing ................................................................................................................. 9 Commercial Loans ........................................................................................................ 9 Critical Points .......................................................................................................... 11 Advantages & Drawbacks ....................................................................................... 16 Current commercial lending market condition........................................................ 19 Panel Companies’ Findings ..................................................................................... 20 Conclusions ............................................................................................................. 22 Bonds .......................................................................................................................... 23 Main Bond Types .................................................................................................... 25 Nominal interest rate determinants ......................................................................... 30 Requirements needed for issuing bonds .................................................................. 31 Advantages & Drawbacks ....................................................................................... 33 Panel companies’ Findings...................................................................................... 35 Conclusions ............................................................................................................. 37 Leasing ........................................................................................................................ 38 Ship-Loan versus Ship-leasing ................................................................................ 40 Conclusions ............................................................................................................. 42 iv Mezzanine Financing ...................................................................................................... 43 Senior Subordinated Debt ........................................................................................... 44 Advantages & Drawbacks ....................................................................................... 45 Convertible Bonds ...................................................................................................... 47 Advantages & Drawbacks ....................................................................................... 49 Panel Findings ......................................................................................................... 51 Convertible Preferred Stock ........................................................................................ 59 Advantages & Drawbacks ....................................................................................... 61 Panel Findings ......................................................................................................... 64 Conclusions ................................................................................................................. 66 Equity Financing ............................................................................................................ 67 Initial Public Offering (IPO) ....................................................................................... 67 IPO requirements..................................................................................................... 67 IPO performance determinants................................................................................ 73 Advantages & Drawbacks ....................................................................................... 75 Panel companies’ Findings...................................................................................... 78 Conclusions ............................................................................................................. 80 Special Purpose Acquisition Company (SPAC) ......................................................... 81 SPAC’s Structure .................................................................................................... 82 Advantages & Drawbacks ....................................................................................... 83 Panel Companies’ Findings ..................................................................................... 85 Private Equity ............................................................................................................. 91 Critical Points for PE Joint Venture ........................................................................ 92 Advantages & Drawbacks ....................................................................................... 94 Panel Companies’ Findings ..................................................................................... 96 Conclusions ........................................................................................................... 100 v Part Two ....................................................................................................................... 104 Panel Companies’ Capital Structure ............................................................................. 105 Key Financial Ratios .................................................................................................... 111 Performance Indicators ............................................................................................. 111 Profitability Ratios .................................................................................................... 113 Liquidity Ratios ........................................................................................................ 117 Solvency Ratios ........................................................................................................ 119 Weighted Average Cost of Capital (WACC) ............................................................... 125 WACC’s Computation .............................................................................................. 125 Estimating the Rate of Debt (rD) ........................................................................... 128 Estimating the Return of preferred stock (RPS) ..................................................... 132 Estimating the Return of Equity (rE) ....................................................................
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