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The Norwegian High Yield Bond Market Marine Finance Forum

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					The Norwegian High Yield Bond Market

Marine Finance Forum
New York, Nov 9, 2010
Highlights


   The international high yield bond markets are active with record issuance volumes and
    decreasing yields

   The traditional shipping and offshore banks continue to be constrained with regards to
    new lending

   Consequently, the bond market is becoming an important source of refinancing and
    capex funding for the shipping and offshore sectors

   The Norwegian bond market is an attractive alternative funding source




                                                                                             2
Cost of capital is returning towards pre-financial crisis levels…
            4000 bp
                                                                                                 Recent shipping bonds performance
            3500 bp                                                                                                              OSG       Teekay     GenMar
                                                                                                 Offering Date                  Mar 2010   Jan 2010   Nov 2009
            3000 bp                                                                              Amount                         $300mm     $450mm     $300mm
                                                                                                 Offer Yield                    8.375%      8.625%    12.500%
                                                                                                 Yield to Maturity - Nov 2010   7.330%      6.800%    11.460%
            2500 bp
   Spread




            2000 bp


            1500 bp


            1000 bp


             500 bp
                      Nov-08




                      Nov-09




                      Nov-10
                      Jan-08




                      Jun-08
                       Jul-08




                      Jan-09




                      Jun-09
                       Jul-09




                      Jan-10




                      Jun-10
                       Jul-10
                      Feb-08
                      Mar-08
                      Apr-08
                      May-08


                      Aug-08
                      Sep-08
                      Oct-08

                      Dec-08

                      Feb-09
                      Mar-09
                      Apr-09
                      May-09


                      Aug-09
                      Sep-09
                      Oct-09

                      Dec-09

                      Feb-10
                      Mar-10
                      Apr-10
                      May-10


                      Aug-10
                      Sep-10
                      Oct-10
                       BB                  B                 CCC                 Pareto                     Pareto
                                                                                 High Yield                 High Yield
                                                                                 (Series 1)                 (Series 2)

     Pareto High Yield (Series 1) contains mainly oil and offshore bonds, including distressed/default credits
    Pareto High Yield (Series 2) includes a larger sample of Norwegian shipping and offshore bonds with no distressed/default credits
Source: Credit Suisse and Pareto Securities AS                                                                                                                   3
             0
                 25
                      50
                           75
                                100
                                      125
                                            150
                                                  175
                                                        200
                                                              225
                                                                    250
    Jun-04
    Sep-04
    Dec-04
    Mar-05
    Jun-05
    Sep-05
    Dec-05
    Mar-06
    Jun-06
    Sep-06
    Dec-06
    Mar-07
    Jun-07
    Sep-07
    Dec-07
    Mar-08
    Jun-08
    Sep-08
    Dec-08
    Mar-09
                                                                          Itraxx Europe Sen. Financials Series 1 - 14




    Jun-09
    Sep-09
    Dec-09
    Mar-10
    Jun-10
    Sep-10
                                                                                                                        …while banks’ funding costs are still at historic high levels




4
…contributing to record US high yield bond issuance volumes


                   USD bn




Source: Credit Suisse and Pareto Securities AS                5
The Norwegian bond market –
An attractive alternative to the US bond market

   Total market size of approximately $11 billion + $5 billion in convertible bonds

   Flexible deal size between $20 million and $1 billion

   Tenors of 2-7 years, with a mix of floating and fixed rates

   55% of transactions denominated in NOK and 45% in USD

   No or limited amortization until maturity

   Shadow credit ratings from banks

   Higher Loan-to-Value (“LTV”) than typically available in the bank market

   Repeat issuance is common




                                                                                       6
Norwegian high yield bond market overview
Norwegian High Yield is a $11bn market

 Approximately 145 bonds and 33 convertible bonds outstanding

 Oil, Offshore and Shipping sectors account for 83% of total volume




    USDbn                   New HY Issues Volume
                                                                                 17 %
     12
                                           10.4
                                                                                                             29 %
     10


      8
                                                                          13 %
                                    5.4
      6
                                                           4.4   5.0


      4                      2.8                                                                              9%
                                                                              13 %
      2
                      0.8                          0.9
            0.5                                                                                    20 %
      0
            2003     2004    2005   2006   2007    2008   2009   2010
                                                                        Rig   FPSO   Oil Service    E&P   Shipping   Other




Source: Pareto research
An international bond market - both in terms of issuers and investors

  Wide spread of Issuers from all over the world               Main Investors

                                                    Geographically located in London, US,
                                                     Scandinavia, Continental Europe,
                                                     Hong Kong and Singapore
                                                    Hedge Funds
                                                    Proprietary trading desks of
                                                     International Investment Banks
                                                    Global Asset Management & High
                                                     Yield Credit funds
                                                    Nordic banks
                                                    Distressed / Special Situation Funds
                                                    PE and Equity Funds
                                                    High net worth individuals




                                                                                             8
Shipping and offshore bonds - Typical Structure


                              Larger, well established companies
  SENIOR UNSEC.               Shipfinance, Seadrill, Prosafe, Acergy, Subsea 7


                              Project financing or take out financing
         1. Lien              Mortgage in assets following delivery from yard
                              Sevan, DDI Holding (Aban), Skeie Drilling &
                               Production, Rubicon, Sea Production, Remedial
         2. Lien               Offshore, Petrojack and more..




 Asset focused market – Newbuilding financing is an important component
 Structurally: Bond issued in parent (often listed company) with mortgage in assets
  owned by operating company and guarantees from operating company (or vice versa)




                                                                                       9
Secured rig bonds – Spread to LTV diagram
         16,0 %




         14,0 %
                                                                                                                                                   BassDrill Alpha Ltd
                                                                                                  Jasper Explorer

                                                                                                                           PSOS Finance Ltd
         12,0 %                                                                                                                               MEJACK



         10,0 %

                                                                                                                                                 Issuer
Spread




                                                                                           DDI Holding Jan
          8,0 %
                                                                                                                                                 Type of asset
                                                                                        DDI Holding April

                                                          DDI Holding FRN
                                                                                                                DDI Holding 10%
                                                                                                                                                 Corporate guarantees
          6,0 %
                                                                                                                                                 Structure

          4,0 %
                                                                                                                                                 LTV
                                                                                                                                                 Contracts
          2,0 %




          0,0 %
               0%             10 %              20 %                30 %               40 %                  50 %                 60 %                 70 %              80 %

                    1. Lien Security   2. Lien Security
                                                                   Loan to Value @ current price (Charter Free)



                                                                        Tenors are 2-4 years
                                                                                                                                                                                10
Illustrative recent Norwegian bond transactions



                          Offshore Drilling      Ship and Rig Leasing               E+P
Sector                                                                    10% stake in producing
                                                                         offshore Brazilian gas field

                           October 2010            September 2010              October 2010
Offering Date
                       Senior Unsecured Bonds   Senior Unsecured Bonds    Senior Secured 1st Lien
Security Description          due 2015                 due 2014              Bonds due 2018

                          USD 350 million          NOK 500 million            USD 105 million
Offering Size                                                                 NOK 205 million
                          6.50% Fixed rate       3m NIBOR + 400 bps             Fixed rate
Coupon                                          Swapped to USD with a      12.00% NOK tranche
                                                 5.32% p.a. fixed rate     13.50% USD tranche
                         General Corporate        General Corporate      Refinance existing bank
                            Purposes                 Purposes            and bond loans to better
Use of Proceeds                                                          align amortization profile
                                                                         with company’s cash flow
Pareto Role              Joint Lead Manager       Sole Lead Manager         Joint Lead Manager

                                                                                                        11
Where will we see the demand for new high yield issuance… ?

                        Refinancing of bank debt – partly or entirely
                        Refinancing of bond debt
    Refinancing
                        Focus on assets becoming available for encumbrance from old facility




                        Take out financing to pay last yard installment (shipping and offshore)
                        Limited willingness to take construction risk unless equity upside
 Newbuild financing     LTV of up to 70-80% depending on assets and contract situation
    (Secured bonds)
                        Amortization schedule and strong call protection may be required




                        To be considered more on a case by case basis
                        Name recognition and market reputation is important
 Corporate financing
   (Unsecured bonds)    Cash flow cases depending on cash flow visibility, leverage, legal- and
                         financial structures
                        For well established cash flow positive companies it’s a matter of price

                                                                                                    12
A structured process is key to achieve a successful bond placement




    Preparation phase                    Pre-launch phase                  Execution phase

  Indicative proposal from           Preparation of sales material    Public launch in the market
   Pareto Securities                   (company presentation etc.)
                                                                        Closing of sales period and
  Discussion regarding               Discussions and meetings          allocation
   structure                           with key investors if
                                       necessary                        Signing of loan agreement
  Final term sheet to be
   agreed                                                               Disbursement date

  Mandate agreement signed

          1-2 weeks                             ~2 week                       ~2-3 weeks


                      The whole process can be completed in four to six weeks




                                                                                                       13
Pareto is dominating the Nordic high yield market

                                        Market share Norwegian high yield issues (2006 - YTD 2010)

 Pareto has been manager for a          70 %
                                                 62 %
  total issue volume of about USD        60 %

  15 billion, representing 62% of all    50 %

  Norwegian high yield issues over       40 %

  the last 5 years                       30 %


 The majority of the volume is from     20 %                14 %
                                                                             7%        6%
  asset backed deals in the oil &        10 %                                                          5%          5%

  offshore sector                         0%
                                                 Pareto      Other         Dnb NOR     First       Fearnley       Nordea
                                                 Source: Pareto Securities / Norsk Tillitsmann
 Largest high yield trading desk in
  the Nordic region providing           Undisputed #1 secondary market bond broker
  invaluable market intelligence        Estimated share of relevant market (12 months rolling)
                                        100%
 Global sales force with offices in
                                         80%                                 73%     70%
  Oslo, New York and Singapore                  61%       63%        60%
                                                                                                 67%        65%
                                                                                                                   58%
                                         60%

                                         40%

                                         20%

                                          0%
                                                1Q '08 2Q '08 3Q '08 4Q '08 1Q '09 2Q '09 3Q '09 4Q '09
                                                 Source: Finanstilsynet / Pareto Securities. Share of Norwegian debt brokerage
                                                 revenues


                                                                                                                                 14
Pareto Securities contact details and disclaimer

Oslo (Norway)                          Stavanger (Norway)                     Bergen (Norway)                        Kristiansand (Norway)                  Trondheim (Norway)
Pareto Securities AS                   Pareto Securities AS                   Pareto Securities AS                   Pareto Securities AS                   Pareto Securities AS
Dronning Mauds gate 3                  Haakon VIIs gate 8                     Olav Kyrres gate 22                    Vestre Strandgate 19A                  Nordre gate 11
PO Box 1411 Vika                       PO Box 163                             PO Box 933                             N-4611 Kristiansand                    PO Box 971 Sentrum
N-0115 Oslo                            N-4001 Stavanger                       N-5808 Bergen                          NORWAY                                 N-7410 Trondheim
NORWAY                                 NORWAY                                 NORWAY                                                                        NORWAY

Tel:   +47 22 87 87 00                 Tel:   +47 51 83 63 00                 Tel:    +47 55 55 15 00                Tel:    +47 21 50 74 20                Tel:    +47 21 50 74 60
Fax:   +47 22 87 87 10                 Fax:   +47 51 83 63 51                 Fax:    +47 55 55 15 50                Fax:    +47 21 50 74 99                Fax:    +47 21 50 74 61




New York (US)                          Singapore                              Pareto Offshore AS                     Pareto Shipbrokers AS
Pareto Securities Inc                  Pareto Securities Asia Pte Ltd         Dronning Mauds gate 3                  Dronning Mauds gate 3
150 East 52nd Street, 29th Floor       16 Collyer Quay #27-02                 PO Box 1411 Vika                       PO Box 1411 Vika
New York NY 10022                      Hitachi Tower                          N-0115 Oslo                            N-0115 Oslo
USA                                    Singapore 049318                       NORWAY                                 NORWAY
                                       SINGAPORE
                                                                                                                                                            Website:   www.pareto.no
Tel:   +1 212 829-4200                 Tel:   +65 6408 9800                   Tel:    +47 22 87 87 00                Tel:    +47 22 87 87 00                Bloomberg: PASE (go)
Fax:   +1 212 829-4201                 Fax:   +65 6408 9819                   Fax:    +47 22 87 87 10                Fax:    +47 22 87 87 10                Reuters:   PARETO


Disclaimer
These materials have been prepared by Pareto Securities AS and/or its affiliates (together “Pareto”) exclusively for the benefit and internal use of the client named on the cover in
order to indicate, on a preliminary basis, the feasibility of one or more potential transactions. The materials may not be used for any other purpose and may not be copied or
disclosed, in whole or in part, to any third party without the prior written consent of Pareto.
The materials contain information which has been sourced from third parties, without independent verification. The information reflects prevailing conditions and Pareto’s views as of
the date of hereof, and may be subject to corrections and change at any time without notice. Pareto does not intend to, and the delivery of these materials shall not create any
implication that Pareto assumes any obligation to, update or correct the materials.
Pareto, its directors and employees or clients may have or have had positions in securities or other financial instruments referred to herein, and may at any time make
purchases/sales of such securities or other financial instruments without notice. Pareto may have or have had or assume relationship(s) with or engagement(s) for or related to the
relevant companies or matters referred to herein.
The materials are not intended to be and should not replace or be construed as legal, tax, accounting or investment advice or a recommendation. No investment, divestment or other
financial decisions or actions should be based solely on the material, and no representations or warranties are made as to the accuracy, correctness, reliability or completeness of
the material or its contents. Neither Pareto, nor any of its affiliates, directors and employees accept any liability relating to or resulting from the reliance upon or the use of all or parts
of the materials.

                                                                                                                                                                                                   15

				
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