IMO ENVIRONMENTAL REGULATIONS
Are IMO regulations tough enough to keep national governments from imposing stricter measures?

Yes--Mostly
Only partly
No--expect a slew of regional regs!

Marine Log

August 19, 2007

Apollo Management takes $1 billion stake in NCL

Star Cruises Limited (HKSE: 678) says that private equity group Apollo Management LP has agreed to make a $1 billion cash equity investment in NCL Corporation Ltd ("NCL"), a wholly-owned subsidiary of Star Cruises Ltd in return for 50 percent equity shares in NCL.

Apollo Management will have three seats on the NCL Board and Star Cruises will have two seats. These five seats are in addition to the non-voting status of the Chief Executive Officer. Apollo will have control of the board and will exert its influence primarily in strategy development and financial management through the board's interaction with the CEO and Executive Committee who will remain responsible for the day-to-day running of the company.

Star has several key consent rights regarding the most important decisions to be taken at the board level.

Apollo Management has over $33 billion of assets under management. Earlier this year it announced the acquisition of Harrahs Entertainment. Its cruise interests include Oceania Cruises brand, also aquired this year. Since buying the line, Apollo has supported the ordering of two new ships worth approximately $1 billion.

The proceeds of the Apollo investment will be used to refinance the existing NCL indebtedness, greatly increasing the liquidity available to fund a continuation of a newbuilding program that has seen the introduction of eight purpose-built Freestyle Cruising ships in just six years. The NCL owned fleet today (excluding four chartered ships) stands at 17,600 berths, with another 15,000 berths under construction and under option, including the new Norwegian Gem due for delivery in October this year.

As part of Apollo's investment in NCL, Apollo and Star have entered into a sub- agreement relating to NCL's U.S. flagged Hawaii operations under the NCL America brand ("NCLA"). According to Star Cruises, this sub-agreement is designed to support the business of NCLA in the near term and permit NCLA time to realize the benefits of various measures recently implemented to raise revenue yields and to lower crew turnover and payroll costs.

In April, NCL announced the temporary withdrawal of Pride of Hawaii from the Hawaii market effective February 2008 to help address the overcapacity in the Hawaii trade. In addition to the capacity reduction, NCL America has benefited from recent federal legislation allowing the company important hiring flexibility for a portion of the hotel crew who were formerly required to be green card holders and which will now allow for experienced international crew from the rest of the NCL fleet to join the NCL America ships. NCL says this will address the other major challenge relating to the U.S. flagged operation, which has been unacceptably high crew turnover. This measure is expected to lower crew turnover and reduce manning costs.

The sub-agreement provides for a deferred distribution with a value of approximately $500 million being made to Star by NCL during 2008, as results of the recent measures materialize.

Taken together with Apollo's $1 billion payment for 50 percent of the expanded equity, this added element of the transaction implies an approximate total pre-money enterprise valuation of NCL of $4 billion, based on $2.5 billion of NCL net debt as at 31 March 2007.

Completion of the transaction is expected early in Q4 2007 and is subject to customary conditions, including regulatory approval, Star Cruises shareholder approval, and Star and NCL lender consents.

"Apollo's investment in the common stock of NCL means we have an equal partner who believes in the business as much as we do as evidenced by the significant financial commitment being made alongside Star Cruises," said Star Cruises Chairman and CEO Tan Sri K T Lim.

President of Star Cruises David Chua stated "We are indeed pleased with the proposed transaction, particularly as it enables NCL to put in place a strong capital structure that matches its long term growth strategy, while Star Cruises Asia will focus on its well established Asian franchise and its proven track record as the No. 1 cruise line in Asia Pacific. Equally important is our vast experience in Greater China after having called more than 10 ports since inception, such as Shanghai, Dalian, Qingdao, Xiamen, Sanya, Haikou and others. This will provide us with the opportunities to capitalize on our inherent strength in Asia."

Steve Martinez, Partner at Apollo Management LP added, "We are very excited to be forming this partnership with Star Cruises and are in full support of the existing NCL management team. Our investment will help NCL complete its transition into the youngest fleet in the cruise industry, with a truly original next generation product with its F3 concept ships. We believe the NCL brand has significant growth potential over many years to come."

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