Merrill's Neptune deal ends up in court

Merrill's Neptune deal ends up in court - The high-profile deal between shipping company Neptune Marine and a group of investors introduced by Merrill Lynch, hits an unexpected legal roadblock. [Finance Asia]

.....The structure of the CELLS used in the Neptune transaction is similar to a convertible bond, with a basic bond-like return of Libor plus 900bp and equity upside on top. As the deal is subordinated, the equity component carry much more weight than the credit element, which is obvious as the investors will have access to the potential equity upside for up to 10 years even though the maturity of the bonds is only two years.

Under the deal terms, the equity upside will be realised through either an initial public offering, a high-yield debt recapitalisation scenario or through a trade sell. Merrill Lynch bankers involved in the deal say the structure is such that the investors should be able to achieve an internal rate of return of at least 20%. The proportion of the equity upside that investors will get will also increase gradually from 25% in the first two years to 30% after two years and 35% after four years.....

Neptune’s business plan is to buy old drilling ships cheap, refurbish them so that they become state of the art vessels and then lease them out to oil companies on a full-service basis, with crew and all. It first ship is in service with a Vietnam unit of Russia’s Gazprom, while the second one will be rented out to India’s Reliance Petroleum under a three-year operating contract. The company is also currently looking at another acquisition project.....