B+H Ocean Carriers Ltd. (BHO)

[makesumgravy]

B+H History: Full article published: 4/29/2002


Chairman, Chief Exec. Officer and Pres

Mr. Hudner: The group started privately in 1978, organized by myself and a Norwegian partner living in Oslo, Arvid Bergvall (he's the B). We were basically picking up other people's problems and organizing partnerships to recapitalize them. And then one thing led to another and we built up a medium size private fleet, 14, 15 ships going into the mid-1980s and in 1987 we did the small public offering through Mabon Nugent, which allowed us to buy, eight ships with sort of special terms and conditions under which we had to distribute out most of the cash flow and we had a 50% share of the profits.

And then we did another company of a similar nature a year later in 1988. There were four underwriters, but the manager was Merrill Lynch. That was B+H Ocean Carriers, which is the company that I'm still involved in and continues to be listed on the American Stock Exchange. We raised $60 million in equity and we had a modest amount of leverage. I think it was $35 million, something like that from a Norwegian bank syndicate.

And we acquired the Canadian Pacific Fleet, which was a combination of handy sized bulk carriers and medium range product tankers. That was our entree into the tanker business. Today the company is almost totally a medium range product tanker company. In 1989, we did one more similar offering and we bought 10 ships there, B+H Maritime Carriers Limited, the assets of which were eventually acquired by Ocean.

And then my partner and I split up in 1992. He basically retired and he took over the original company, B+H bulk. I carried on with the interest that we had of B+H Ocean and B+H Maritime, which was about 30% of each of them. And then in 1995, we got the charters changed, which took a shareholder vote. We needed two- thirds of the outstanding shares to vote in the affirmative to change the charter so that we could start to reinvest and build the business up and not just run it as the functional equivalent of a liquidating trust, which is what we had been doing.

And then a year later I arranged for Ocean to acquire the assets of B+H Maritime, so that gets us to 1996, 1997. We did a high yield bond offering that was led by Credit Suisse First Boston and Jeffries. We raised $125 million. We bought eight ships with that. Fortunately, we chartered them out for four years on average because the whole economic engine of that offering and what we were doing with the money was driven by growth in Asia and it was less than after a month after we closed the offering that the Asian financial crisis started to unfold, so that was an unfortunate period.

We dodged a bullet for about a year and then in the second half of 1998, our marketplace got hit very hard by what was going on in Asia. The rates of the types of ships that we had came down significantly. Half of our ships were ships built in the early 1970s and they were cash flow cows as long as they were running.

But after we got into 1999, it became very difficult to employ them in a soft market. We sold them off, basically scrapped all of them and then we bought six ships from Chevron that were eight or nine years younger on average of the ships we were selling. They were about 20% larger in terms of the cargo capacity and they had been built by Chevron and Mitsubishi which is as good as it gets. So they had a tremendously strong specification and an excellent maintenance history and it was a wonderful addition to our fleet. But they were down about 45% in value from a year earlier when we bought them, so that was a very good piece of business for us. That was in 1999.

We really had to Hoover the business, I mean just suck it dry of cash to finance that acquisition in a very difficult market and we had great support from our banks, I must say. It was a very difficult time. We had to really gut it out. It was done successfully with the help of a lot of people and an increasingly mature and capable organization internally to run this kind of business, which we do principally from Singapore.


And then we were actually assisted in a funny way by the collapse of the telecommunications industry in 2000 because it caused all the high yield bond funds a lot of problems and we were able to buy back 90% of our debt at $.35 on the dollar without ever having been in default. And again, we had tremendous support from our lending banks that stepped up to the plate to help us exploit that market opportunity. So that was 2000.

In the spring of 2001, we saw about the 21-year high earnings for this type of vessel, which never lasts as long as you'd like it to. We chartered ships out as far as we could into the future and generated lots of cash flow, paid down the debts enormously. we've taken a huge amount of debt off of the balance sheet in the last 15 months. Sitting here, I don't remember the numbers exactly, but well over $100 million of debt reduction. And just the bank financing that we had in January 2001, it was $66 million, today it's $40 million and its going to be $35 million in a couple of months.

So we have been cleaning up the balance sheet basically. Now we're in an environment that has changed once again and frankly the market relative to where it was a year ago, it's quite soft, but it's not so soft in historical terms. At the same time, we're looking to expand the business.

We are the 11th largest owner out of about 263 owners of the type of ship that we have, medium range product tankers. We specialize in the transportation of refined petroleum products. So we're actually presently looking for some financing to assist with our acquisition program. Principally sub debt as opposed to equity.