Survey of Shipping Industry Primary Equity Offerings in the U.S. Public Market in the First Half of 2010
July 16, 2010
Francois Janson- New York
Frode Jensen - New York
Following a stronger than expected 2009,1 the first six months of 2010 have shown continued momentum for primary equity offerings by shipping companies in the U.S. public market, and notably the return of IPOs, which were absent in 2009.
This survey reviews the registration documents filed with the U.S. Securities and Exchange Commission (SEC) in connection with these transactions and the principal terms of the related offerings.2
Highlights of the Survey
- In total, during the first six months of 2010, there were 14 offerings by 13 issuers, including 3 IPOs and 11 follow-on offerings, compared to 12 follow-on offerings by 10 issuers for the same period in 2009.3
- 10 issuers were foreign private issuers organized outside the United States; two issuers were foreign corporations with headquarters in the United States. Only one issuer was a U.S. corporation headquartered in the United States.
- 10 issuers were organized as corporations; three were limited partnerships.
- 10 issuers engaged in 11 follow-on transactions, nine of which were firm-commitment underwritings and one was pursuant to an at-the-market (ATM) offering.
- One issuer has come to market more than once so far this year, completing two separate underwritten transactions.
- All the transactions were primary offerings. None included secondary sales by existing shareholders.
- All of the follow-on offerings except for one were shelf offerings registered with the SEC on Form S-3 or F-3.
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 the Marshall Islands.
Of the 13 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.4 Of the remaining 12 issuers, 10 are organized in the Republic of the Marshall Islands and two in Bermuda. Of the 10 issuers organized in the Marshall Islands, seven are Marshall Islands corporations and three are Marshall Islands limited partnerships. Of the 12 issuers organized outside the United States, all but two, Baltic Trading Ltd. and General Maritime Corporation, have executive offices outside the United States. The executive offices of these issuers are located in Bermuda, Greece, Monaco and Canada.
The disclosure documents for the non-U.S. issuers typically state that: (i) so long as the issuer is incorporated outside the United States and its “shipping income”5 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
Nine of the 13 issuers primarily own and operate fleets transporting oil, gas and petroleum products. The other four issuers were primarily operators of dry bulk vessels. By comparison, in 2009, nine of the 14 issuers were operators of dry bulk vessels while the remaining five issuers owned and operated fleets transporting oil, gas and petroleum products.
Use of Proceeds
The most common use of proceeds from equity offerings in 2010 was to acquire new vessels. In 2009, on the other hand, 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 new building programs.
Exchange Listings
Of the 13 issuers, 11 list their shares on the New York Stock Exchange (NYSE) and two list their shares on the NASDAQ Global Market.
Type of Registration Forms
Of the three issuers that completed an IPO, two filed long-form registration statements on SEC Form F-1 and one on SEC Form S-1. Of the 11 follow-on offerings, one was 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, eight of which were on SEC Form F-3 while the other two 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.”6
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 14 transactions were offerings of common equity securities.7 Of the 13 issuers, 10 sold common stock or shares of a corporation and three offered “common units” of limited partnerships.
Type of Offerings
Three 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.8
The remaining 11 offerings were primary9 follow-on offerings, of which only one was done on a long form registration statement. All of the other 10 follow-on offerings were completed pursuant to shelf registration statements.
None of the offerings included secondary offerings by selling shareholders.
Plans of Distribution
All the transactions in the survey were structured as traditional firm-commitment underwritings, except for one ATM offering.
Thirteen offerings by 12 issuers were executed pursuant to traditional firm-commitment underwriting agreements.10 In a traditional 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.
One issuer sold common stock pursuant to an at-the-market (ATM) offering.11 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 determine such amounts together with the broker-dealer. The agreement may also provide that the broker-dealer may purchase and resell shares as principal. Unlike in the case of a firm-commitment underwriting, the issuer bears the risk of how many shares are ultimately sold. The ATM offering was conducted through Credit Suisse Securities (USA) LLC.
Size of Offerings
The average size of the 14 offerings (excluding the green shoe options, discussed below) was $116 million and the median size was $90 million.
The average size of the three IPO transactions was $216 million and the median size was $228 million. The largest IPO transaction in 2010 (which was also the largest equity transaction in this survey) was the $257 million offering by Crude Carriers Corp. in March 2010. The smallest IPO offering was the $163 million offering by Scorpio Tankers Inc. in March 2010.
The average size of the 10 underwritten follow-on offerings (excluding the green shoe options, discussed below), was $94 million, and the median size was $83 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 $51 million offering by Capital Product Partners L.P. in February 2010.
The size of the ATM offering was $37 million.
Discounts and Compensation
The average compensation to the broker-dealer for the three IPO transactions was 6.83% 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 10 underwritten follow-on offerings by nine issuers was 4.19% of the total purchase price to the public. The highest underwriting discount was 5.0% and the lowest underwriting discount was 0.37%.
The compensation to the broker-dealer, as agent of the issuer, for sales of shares under the ATM offering was 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.12
Of the three IPOs, all 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 1.8 million shares offered under the green shoe.
Of the 10 underwritten follow-on offerings, all but one13 included a green shoe option. Of the nine underwritten follow-on offerings in which a green shoe was included, the underwriters exercised the option in full or in part in all but three of the offerings.14
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.”15 Nine of the 10 underwritten follow-on offerings and all three IPOs included a lock-up provision. The ATM offering did not contain a lock-up.
The lock-up period for all three IPOs was 180 days. Of the nine underwritten follow-on offerings that included lock-ups, five had a lock-up period of 90 days, three had a lock-up period of 60 days and one had a lock-up period of 45 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 all the offerings was $1 million.16 The average estimated costs and expenses disclosed in the IPOs was $2.3 million. The average estimated costs and expenses disclosed in the underwritten follow-on offerings was $558,117. The estimated costs and expenses disclosed in the ATM offering was $140,000. The highest amount of estimated costs and expenses disclosed was $3 million, in the IPO of Baltic Trading Ltd., and the lowest amount $320,000, in two separate underwritten follow-on offerings by Navios Maritime Partners L.P.
The average estimated accounting fees and expenses of the 11 offerings for which those fees and expenses were disclosed was $161,587. The average estimated accounting costs and expenses disclosed in the IPOs was $278,333. The average estimated accounting costs and expenses disclosed in the underwritten follow-on offerings was $166,429. The estimated accounting costs and expenses disclosed in the ATM offering was $40,000.
The average estimated legal fees and expenses of the 11 offerings for which those fees and expenses were disclosed was $419,887. The average estimated legal costs and expenses disclosed in the IPO transactions was $943,233. The average estimated legal costs and expenses disclosed in the underwritten follow-on offerings was $236,429. The estimated legal costs and expenses disclosed in the ATM transaction was $80,000.
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. Since December 2009, the registration fee has been computed at the rate of $71.30 per million dollars, but will increase to $116.10 effective October 1, 2010, or five days after the date on which the SEC receives its fiscal year 2011 regular appropriation, whichever date comes later.
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.
Conclusion
Shipping companies, including new issuers, wishing to raise equity have so far experienced favorable market conditions in the U.S. public market in 2010. Thirteen companies have engaged in 14 primary equity offerings (of which three were IPOs) in the first six months of the year, as compared to 13 offerings by 10 companies (of which none was an IPO) for the same period in 2009. It remains to be seen whether conditions will remain sufficiently robust to allow for continued momentum in the market for the rest of the year.
The authors gratefully acknowledge the assistance of Holland & Knight associate Danielle J. Kirby in the preparation of this survey.
1 Despite the difficult economic environment in 2009, 14 companies completed 21 primary equity offerings in the U.S. public market. See Holland & Knight Maritime Alert: Survey of Shipping Primary Equity Offerings in the 2009 U.S. Public Market (June 3, 2010), available at http://www.hklaw.com/id24660/PublicationId2903/ReturnId31/contentid54907.
2 This survey reviews equity offerings conducted by issuers during the period January 1 to June 30, 2010 which have filed registration statements or prospectuses with the SEC under Standard Industrial Classification Codes 4400 (Water Transportation) and 4412 (Deep Sea Foreign Transportation of Freight). This survey does not include 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.
3 See Holland & Knight Alert, supra note 1.
4 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.
5 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.
6 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.).
7 One issuer, DryShips Inc., sold $220 and $150 million, respectively, of convertible bonds in two separate offerings during the period. As part of these offerings, DryShips Inc. delivered to the underwriter 20 million shares of its common stock, 10 million shares for each offering, in settlement of certain hedging transactions relating to the sale of the convertible bonds. This transaction is not included in the 14 transactions covered by this survey.
8 These issuers were Baltic Trading Ltd.; Crude Carriers Corp.; and Scorpio Tankers Inc.
9 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.
10 These issuers were Baltic Trading Ltd.; Crude Carriers Corp.; Scorpio Tankers Inc.; Seanergy Maritime Holdings Corp.; Capital Products Partners L.P.; General Maritime Corporation; Navios Maritime Partners L.P.; Nordic American Tanker Shipping Ltd.; Overseas Shipholding Group, Inc.; Safe Bulkers, Inc.; Teekay Offshore Partners L.P.; and Teekay Tankers Ltd.
11 This issuer was Tsakos Energy Navigation Ltd. (TEN). This transaction is included in this survey because TEN reported selling shares under its ATM program in the first six months of 2010. The registration documents regarding the ATM program of TEN were filed in 2009.
12 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.
13 The offering by Overseas Shipholding Group, Inc. did not include a “green shoe” option.
14 The underwriters of the offerings by General Maritime Corporation, Nordic American Tanker Shipping Ltd., and Teekay Tankers Ltd. did not exercise the “green shoe” option.
15 A lock-up agreement restricts certain shareholders, generally insiders, from liquidating positions for a specified period of time following the offering date.
16 The estimated amount of offering expenses disclosed in registration statements is frequently underestimated by substantial amounts.
Related Practices