Stolt-Nielsen reports strong liquidity after completing June bond deal

By Paul Deckelman

New York, July 7 - Stolt-Nielsen Ltd. ended the 2011 fiscal second quarter and fiscal first half with "a strong balance sheet and also strong liquidity," the shipping and seafood company's chief executive officer declared on Thursday.

CEO Niels G. Stolt-Nielsen and the company's chief financial officer, Jan C. Engelhardtsen, speaking on the company's conference call with investors and analysts following the release of the results for the fiscal quarter and half ended May 31, noted that one of the key events of the first part of the year - even though it technically occurred after the fiscal quarter and first half ended - was the company's successful $300 million equivalent bond issue in June.

The company initially sold NOK 1.6 billion of floating-rate notes due 2016, which priced at par on June 9 to yield 475 basis points over the Norwegian InterBank Offered Rate. The company had originally envisioned a two-part deal consisting of both kroner- and dollar-denominated notes, but it ultimately opted for just the local-currency tranche.

The company then swapped the bond issue into a $300 million dollar-denominated obligation at a fixed interest rate of 6.63% for the entire loan period. Proceeds were expected to be used for funding expansion opportunities and general corporate purposes.

The CEO said that the bond deal "provides us with additional liquidity on attractive terms and gives Stolt-Nielsen added financial flexibility for investments without having to rely solely on secured bank financing."

Engelhardtsen said that the big bond deal was one facet of "a very busy" spring and early summer on the financing front for the company, which was founded in Norway in 1959 by the current CEO's father, Jacob Stolt-Nielsen. It is officially based in London and largely operates out of Rotterdam, the Netherlands. In May, the company drew $200 million down on a seven-year Libor-based term loan facility with four banks secured by six second-hand ships that it bought between November 2010 and April.

In March, the company entered into a facility with four banks for a six-year S$280 million ($226.1 million) term loan facility for the financing of a shipping terminal it is constructing in Singapore. It drew down S$40 million ($32.3 million) from that facility during the fiscal first half, with second and third drawdowns totaling S$30 million ($24.23 million) in June.

The CFO also announced the closing on Wednesday of a $175 million non-recourse facility for Stolt-Nielsen's 50%-owned Avance Gas Holding Ltd. joint venture, the proceeds of which will be used for the repayment of shareholder loans, "so that will come in and increase the liquidity base of Stolt-Nielsen Ltd." in addition to the earlier financing transactions.

More debt, but at a lower cost

Engelhardtsen asserted that "we continue to put a value on protecting our balance sheet." He said that as of the end of the quarter, outstanding debt totaled $1.39 billion, a $200 million increase over the previous quarter, with the proceeds mostly going for ship purchases and construction work on the company's terminals. However, he said that "the debt was taken on during the quarter gradually" and that because it used revolver borrowings and overdraft facilities that are "enjoying very low interest rates," the company's average interest cost declined to 3.69% from 3.9% in the previous quarter, which ended Feb. 28.

With the company's tangible net worth at the end of the quarter at $1.49 billion, its ratio of debt to tangible net worth stood at 0.93 to 1, while EBITDA was 7.2 times its interest obligations. "These are the two most important covenants that we have with our banks - and we are well below any limitations in those ratios," the CFO said.

Deal boosts liquidity

Engelhardtsen said that at the end of the quarter, the company had $197 million of availability under its revolving credit facilities as well as $65 million of cash and equivalents, which was up from $49 million of cash the quarter before. He said that some of the proceeds from the June bond deal were used to pay down revolver debt, "so as we speak, we have more than half a billion worth of committed liquidity reserves."

He projected that during the current fiscal third quarter, which began on June 1 and runs through Aug. 30, interest costs will likely amount to $15 million, versus $11.9 million in the second quarter and $11.5 million in the first quarter, reflecting the full impact of borrowings to fund capital expenditures and the new bonds.

The company said that as of the quarter's end, it "remains in compliance with all financial covenants and believes that it will be able to satisfy working capital, capital expenditures and debt requirements for at least the next 12 months from July 7, 2011."

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