July 20, 2006
U.S. Shipping in $1 billion NASSCO product tanker deal
According to an SEC filing, USS Product Carriers LLC, a newly created wholly-owned subsidiary of U.S. Shipping Partners L.P., has entered into a contract with NASSCO, a subsidiary of General Dynamics Corporation, for the construction of nine 49,000 dwt double-hulled tankers, and the option to construct five additional tankers.
General Dynamics has agreed to provide a performance guarantee to Product Carriers in respect of the obligations of NASSCO under the construction contract.
NASSCO is scheduled to deliver the first tanker in the second quarter of 2009, with subsequent tankers delivered every six to eight months. U.S. Shipping says it expects the current cost to construct these nine tankers to aggregate approximately $1.0 billion.
In the filing, U.S. Shipping Partners says "We are currently finalizing the terms of a joint venture, USS Product Investors LLC, or the Joint Venture, for the construction of the first five petroleum tankers by NASSCO. Formation of the Joint Venture is contingent upon raising sufficient financing. In addition, the formation and funding of the Joint Venture is a condition to the concurrent financings described below. As of June 30, 2006, we have paid NASSCO $5.0 million, of which $2.6 million of this amount is refundable through July 21, 2006, with the amount being refundable decreasing by an additional $300,000 per week during the remainder of the month of July if we elect not to proceed with the construction of the tankers under the contract with NASSCO. If the Joint Venture is formed, our $5.0 million payment will be credited against our commitment to provide $70.0 million of equity capital to the Joint Venture. In addition, if we do not proceed with the Joint Venture, we estimate that we will incur an additional $3.5 million in deal related expenses. "
The filing says "we have received commitment letters (subject to certain conditions) from affiliates of The Blackstone Group and Lehman Brothers to provide an aggregate of $105.0 million of equity financing and $325.0 million of debt financing to the Joint Venture. These commitments expire if we do not form the Joint Venture in accordance with the terms of the commitment letters by August 15, 2006. We will commit to provide $70.0 million of equity financing to the Joint Venture, including the $5.0 million which has been paid through June 30, 2006. As tankers are constructed, we will have the right to purchase completed tankers at specified prices (except in certain limited circumstances). The Joint Venture will use the proceeds from the sale of tankers to U.S. Shipping Partners, or to third parties if we do not exercise our purchase option, to, among other things, repay debt and to fund future milestone payments to NASSCO relating to the construction of the remaining tankers and ultimately to make distributions to the Joint Venture's equity holders. We anticipate that the $500 million of capital committed to the Joint Venture, together with anticipated proceeds from the sale of tankers by the Joint Venture to us or to third parties, will be sufficient to fund the construction of all of the tankers."