Stolt Nielsen debt up in quarter; company sees no refinancing problem

By Paul Deckelman

New York, July 6 –Stolt-Nielsen Ltd.’s debt level rose in its recently completed 2017 fiscal second quarter as did its ratio of debt as a multiple of tangible net worth.

But the London-based company – which operates tankers that carry bulk chemicals, edible oils, acids and other specialty liquids, produces seafood and transports and stores liquefied natural gas, among other businesses -- says it has ample liquidity, owns assets against which it can borrow and believes that it can refinance short-term maturities without any issues.

“We have access to competitive funding and unencumbered assets available – several terminals that we can use as collateral,” said Niels G. Stolt-Nielsen, the company’s chief executive officer, on a conference call Thursday with analysts following the release for results for the fiscal second quarter and first half ended May 31.

“The group has sufficient liquidity and capex is partly funded.”

The company’s chief financial officer, Jan. Chr. Engelhardtsen, noted that as of the end of the quarter the company had cash of $122 million, borrowing availability under its revolving credit agreement of $247 million, plus uncommitted lines of credit accounting for another $85 million, for combined liquidity “that we could access right now of $454 million.”

Debt balance grows

Engelhardtsen noted that debt on the balance sheet at quarter’s end was $2.53 billion, a $50 million sequential increase from the $2.48 billion seen at the close of the first quarter at the end of February. He said that during the quarter Stolt-Nielsen refinanced the debt associated with its Singapore terminal facility, which was scheduled to mature later this year.

In the process, he said, the company increased the amount of financing “to get a better long-term value on the terminal and that actually was a transaction that was done in the very last few days of the second quarter. But that gave us additional liquidity of some $75 million.”

He also noted that when the company made it known it was in the market for refinancing that Singapore debt, it was approached by a coalition of Asia-based banks “and they told us ‘we want to finance the terminal, we want to do more business with you.’ For us, that was very good, so we don’t always have to rely on the European banks.”

Debt also grew during the quarter with a drawdown on the company’s $48 million facility with the Chinese Export-Import Bank to make the final payment on the Stolt Tenacity, the fourth of five new 38,000-ton stainless steel tankers the company has ordered from the Hudong-Zhonghua Shipbuilding (Group) Co., Ltd. in China.

As a result of the debt increase, Stolt-Nielsen’s ratio of debt-to-tangible net worth is up to 1.6 to 1, “higher actually than what we would like,” the CFO said, versus 1.55 to 1 in the first quarter.

However, he explained that because “we did the refinancing during the last few days of the quarter for the terminal in Singapore, we actually were left with $50 million of cash that we could not utilize to reduce debt, because it was at the end of the quarter and therefore the cash balance was significantly up from what it was at the end of the previous quarter.

“If we had been able to take that excess cash – as we did actually at the end of [last year’s] third quarter – and reduce the debt we would have been down at 1.56 to 1,” which, he said, would be slightly above the company’s 1.5 to 1 target limit, “but nevertheless very much in line with where we were at the end of the first quarter.”

CEO Stolt-Nielsen acknowledged that with the debt-to-net tangible worth ratio having swelled to 1.6 to 1, the company’s focus would have to be “on debt reduction and getting cash flow from the investments we have made.”

He and the CFO outlined steps the company could take to delay capital expenditures or other measures to improve the cash picture and let the company deal with its debt if currently soft markets for tanker services don’t pick up much going forward. Another option he mentioned was possible sales of non-core assets.

Near maturities not a problem

The company has about $200 million of debt coming due later this year in the form of a balloon payment on an older financing. But Engelhardtsen said that it has already repaid half of the $400 million that was originally due “and we are in the process of doing the rest. We don’t really see any problems with that.”

For 2018, it has close to $500 million coming due, including $164 million of 4.75% notes that it sold in March of 2012. The CFO said: “We will test out the market in the second half of ’17 or early ’18.”

There is also $200 million dollars due as a balloon payment on financing the company took out two years ago to finance its acquisition of industry peer JO Tankers.

“We are talking to the banks, talking to the parties involved and we believe that will be done without any issues,” Engelhardtsen said.

He further said that about 70% of the company’s debt is fixed rate, with the rest variable rate, and he declared that “our average interest [rate] for the quarter was 4.4% – and we’re very satisfied with that.”

© 2015 Prospect News.
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