It was a busy day in the shipping sector Thursday from my point of view. I must have received at least a dozen emails informing me about Paulson and Company's 19.5% stake in Overseas Shipholding Groups (OSGIQ).
Paulson's fund acquired those shares via the bankruptcy process, no doubt swapping debt securities purchased at a discount for its new equity position. With the bankruptcy in the past, the tanker company will be issuing new shares that will be traded here in the U.S. I will be watching the initial pricing very carefully when the new shares hit the market.
I have done well with shares in companies that have exited a bankruptcy organization over the years. The company has a large fleet of tankers to carry petroleum and related products and has one of the largest U.S.-flagged Jones Act fleets of tankers. I will be delving into the filings and bankruptcy paperwork this weekend in anticipation of the relisting.
I had barely moved on from considering this situation when I got yet another email announcing that one of my favorite holdings, International Shipholding (ISH) would present at a conference this week. The investment banking firm Imperial Capital is holding its Global Opportunities Conference next Thursday at the Waldorf Astoria.
This conference is attended by a lot of people in the equity business, including analysts and fund managers. There are usually many attendees from the private equity and high-yield side of the business. Occasionally, a decent presentation can be a market-moving event as large investors wake up to solid opportunity. Even if that doesn't happen, the rebroadcasts on corporate Web sites are usually pretty informative.
International Shipholding was also a presenter at the Euro Pacific Global Conference this past Tuesday. Reviewing the presentation in the investor relations part of the Web site reinforced my conviction about this stock. They have been around since 1947, so they have seen the ups and downs of the shipping and economic cycles and have weathered the storms pretty successfully.
ISH's fleet is fairly diverse and they can serve some niche markets like rail‐ferry and pre-car truck carriers. They also have nine ships flagged under the Jones Act and are allowed to carry cargo between U.S. ports. They are the largest Jones Act dry bulk operator by capacity and cargos are primarily coal related. They do also carry things like petroleum coke, phosphate rock, limestone and fertilizer
The rest of the fleet carries a wide range of cargos that include coal, cars, trucks, mining supplies, railcars and chemical around the world. International Shipholding is the only operator of Rail Ferries between the U.S. and the international market right now.
Most of their ships are under what the company calls medium-to long-term contracts. The customer base is pretty high quality and includes government agencies like the Department of Agriculture, Department of Defense and U.S. Agency of International Development. They also do business with large corporations like International Paper (IP), Dow Chemical (DOW) and Mosaic (MOS).
This type of dependable, contracted cash flow allows management to remain committed to their dividend policy and the shares currently yield a healthy 4.84%. The stock is certainly cheap enough right now, trading at just 50% of book value.
Global Ship Leasing (GSL) is another holding that will be presenting at the Imperial Conference Thursday. The U.K.-based company owns and leases containerships under long-term fixed-rate charters to container shipping companies and currently has a fleet of 17 vessels. All 17 vessels are currently fixed on time charters.The average remaining term of the charters is 6.2 years, or 7.3 years on a weighted basis.
The refinancing activities of Global Ship Lease have overshadowed the fact that the company's business is not too bad in what is a difficult marketplace for container ships. The stock is trading at just 56% of book value right now, so it is certainly a bargain. I will be interested to see what management has to say this week and if it moves the stock price at all.
I waded into shipping stocks last year when I noticed that private equity firms and distressed investors were starting to tip toe into the space. As evidenced by Paulson's recent moves, the tip toeing is becoming a spring. Investors are looking to get involved in the sector before we get an economic recovery that lifts demand and pushes rates and profits higher. There are still plenty of cheap shipping stocks and long-term patient investors could see huge profits over the next several years.