Stolt-Nielsen sees leverage rise from Jo Tanker deal but expects it to “rapidly” come back down

By Paul Deckelman

New York, Oct. 6 – Stolt-Nielsen Ltd.’s debt and leverage ratios will rise as a result of its recently announced $575 million acquisition of the chemical tanker operations of industry peer Jo Tankers – but the company believes that the EBITDA boost that it will get from that deal will result in those levels quickly coming back down.

Niels G. Stolt-Nielsen, chief executive officer of the London-based operator of chemical tankers and other bulk-liquid transportation and storage facilities, liquefied natural gas carriers and commercial fish-raising operations, told analysts Thursday that out of the $575 million enterprise value of the deal, $145 million will be for pending payments for eight new ships that will be delivered to a 50-50 joint venture that Jo had with another company. Stolt-Nielsen will take over that venture, the CEO said. He did not identify the second party to the joint venture.

The CEO’s remarks came during a Thursday conference call following the release of the company’s 2016 fiscal third quarter results. The acquisition was announced on July 18.

“The joint venture has its own separate limited-recourse financing for the eight newbuildings, which will remain in place,” he said.

Some $156 million will be Jo Tanker debt that SNL will assume, leaving a $274 million cost for the equity of the operations being bought.

He said it plans to fund the equity portion of the acquisition with $125 million of bank financing and $149 million of drawdowns on the company’s revolving credit facility.

Stolt-Nielsen said that following the close, his company will have a debt-to-tangible net worth leverage ratio of 1.53-to-1, up from 1.26-to-1 currently, which he said was “still well within our covenant, which is 2-to-1.”

He added, though that “with the incremental cash flow from Jo, this ratio is expected to rapidly decrease.”

He said that one of the reasons SNL decided to buy Jo Tankers – which has 13 existing ships, in addition to the eight under construction – is that this will give the company access to additional tonnage as needed without having to go through the process of having new ships built and arranging funding for them.

“The advantage, of course, is buying when the ships are on the water – they will be generating EBITDA right away.”

He said that under one method of figuring the EBITDA contribution to Stolt-Nielsen from Jo Tankers, EBITDA would rise by $60 million on closing and to $80 million by 2018, when the new ships would be delivered to the 50-50 joint venture.

Using another method, he said that EBITDA would rise by $66 million initially and by $92 million by 2018.

He said that “if you then look at what we paid for the company as a multiple of EBITDA, I think we have done a reasonably good deal.

He further pointed out that even after the anticipated drawdown from the $352 million of borrowing availability the company had under its revolver as of the end of the fiscal third quarter on Aug. 31, it will still have about $300 million of availability, as well as $75 million of cash that was on the balance sheet at the quarter’s end.

The company’s chief financial officer, Jan Chr. Engelhardtsen, said that total debt at Aug 31 was around $1.9 billion, up from $1.85 billion at the end of the fiscal second quarter on May 31 – but the average interest rate had fallen to 4.57% from around 4.9% previously, partly due to the company’s having used $300 million of its liquidity in June to repay its maturing 6.61% SNI01 bonds scheduled to come due that month. That repayment took place on June 22.

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