Navios Maritime Looks To Exchange Preferreds

| About: Navios Maritime (NM)
This article is now exclusive for PRO subscribers.

Summary

Navios couldn't get what they wanted from their tender and consent offer last year.

They are now trying to exchange preferred shares for common shares at a 20% premium.

While there is no consent involved, liquidity could become an issue.

My thoughts on the offer.

Navios Maritime Holdings Inc. (NM) is back in the preferred exchange mode. From the release (any emphasis mine):

Navios Maritime Holdings Inc. (“Navios Holdings” or the “Company”) [NM] announced today that it commenced an offer to exchange newly issued shares of Common Stock of Navios Holdings (“Common Stock”), for any and all outstanding American Depositary Shares, each representing 1/100th of a share of either 8.75% Series G Cumulative Redeemable Perpetual Preferred Stock (the “Series G ADSs”), or 8.625% Series H Cumulative Redeemable Perpetual Preferred Stock (the “Series H ADSs”).

The Company is offering to exchange, upon the terms and subject to the conditions of the Exchange Offer, newly issued shares of Common Stock to all holders of any and all issued and outstanding shares of the Series G ADSs and Series H ADSs as follows:

For every Series G ADS surrendered, the Company is offering –

  • 8.25 shares of Common Stock, with a value of $14.61 (as of March 20, 2017) $2.36 premium to the $12.25 closing price (as of March 20, 2017)

For every Series H ADS surrendered, the Company is offering –

  • 8.11 shares of Common Stock, with a value of $14.36 (as of March 20, 2017) $2.24 premium to the $12.12 closing price (as of March 20, 2017)

The consideration to be paid for the Series G ADSs and the Series H ADSs represents a premium of approximately 19% to the March 20, 2017 closing price of each such Series

Why

The exchange of Series G ADSs or Series H ADSs for shares of Common Stock, under this Exchange Offer, will eliminate the Company’s large and growing financial obligation to the holders of the Series G ADSs or Series H ADSs, which the Company believes impedes growth, access to capital and strategic opportunities that may otherwise be available to it and has a negative impact on cash available to all stockholders in the future. Unlike the Preferred Shares, the Common Stock does not have a cumulative dividend feature.

In other words, we don't want to pay it, we haven't been paying it and as a result, it is a growing liability. Yup, that's a fact.

Recall that last year, the company did something similar. The key difference is that last year's tender had the following (emphasis mine):

Concurrently with the Offer to Exchange, we are also soliciting consents from holders of the Preferred Shares to amend and restate the certificates of designation under which the Preferred Shares were issued to eliminate substantially all of the voting rights and restrictive covenants (the “Consent Solicitation” and, together with the Offer to Exchange, the “Exchange Offer”). The tender by a holder of Series G ADSs or Series H ADSs pursuant to this Exchange Offer will constitute the granting of consent by such holder to the proposed amended and restated Series G Preferred or Series H Preferred certificate of designation, as applicable. Such consent will be provided as an instruction to The Bank of New York Mellon, the Depositary, as the only “holder” of Preferred Shares, to vote the tendered Preferred Shares in favor of the proposed amended and restated certificates of designation. However, the proposed amended and restated certificates of designation will not become effective until the Exchange Offer is completed and the amended and restated certificates of designation approved by the holders of the majority of our outstanding Common Stock.

Here's the thing: The company will keep trying to reduce the number of preferred shares outstanding through purchases (public and private) until they are delisted. This will make them illiquid, which should affect some holders. Further, until such time as they want to declare a dividend on their common stock, they won't pay a dividend on the preferreds (and they will have reduced the number/amount further). Finally, as I explained in my last note on the company, preferred stock holders (as a group) will not be getting a vote on the board any time soon.

Here's a look at the preferred:

Graphically, we see the prices as follows:

Year-to-date:

Bottom line: Preferred holders are not being viewed as stakeholders by the company or its management. Management wants them gone and their accumulating liability with them. I believe the company will keep picking off holders until the liability is low enough that it is inconsequential. As such, the upside in the name is not significant from current levels. That said, if they can reduce the outstanding shares enough, then they can come in with a higher price to mop up all the remaining holders. In this case, the price could go higher. The question is, are you willing to wait?

The follow up exchange offer shows that the preferreds continue to be a thorn in the side of the company, they want holders to go away, and honestly, the cat and mouse with the holders is distracting them for larger issues.

Schedule TO here (SEC filing on the offer)

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.