dm2b

I've just been offered a slot on a new CanAm/PIDC project: it's a new loan they are making for a previous borrower, Aker Philadelphia Shipyards . The previous loan apparently went alright: according to CanAm's track record, all 40 investors got their I-526s, I-829s and repayment of principal.

This time, the loan is more substantial (120 investors totalling $60M), and it will be used to partly fund the construction of 4 oil tankers in the next 22 months. Those tankers are already sold to a US operator (Crowley Petroleum Services) which will then use it to transport oil (specially shale oil) between US ports. After delivery, the ships will be jointly owned by both Aker and Crowley, which will share in the operating profits.

There's a piece of legislation called Jones Act which "requires that all goods transported by water between U.S. ports be carried in U.S.- flag ships, be constructed in the United States, owned by U.S. citizens, and crewed by U.S. workers", which I understand creates a kind of "captive market" for such ships; this, coupled with the demand for intra-US shale-oil transportation, seems to make Aker's risk on the deal quite low.

Aker Philadelphia Shipyards is a US subsidiary part of Aker ASA, a norwegian company existing since 1841. Since the loan is being secured by the norwegian company, this seems to be another factor mitigating risk in the investment.

Can anyone comment on this deal? Is anyone else considering it? It's "urgent" because I'm under a lot of pressure to give an answer to CanAm ASAP, as they apparently have a few million other investors in line and eager for my slot...

Here's a link to the Summary Draft which I have received from CanAm briefly documenting the offer.

Thanks in advance for your considered comments and opinions.

dm2b

Just complementing the above, here's the risk analysis I was able to make so far:

I'm aware of five business risk factors:

1) Eventual repeal, or substantial modification to the Jones Act, opening up the US market for much cheaper ships produced abroad; I've researched the matter and it doesn't seem probable, at least not in the next 5 years or so.

2) Aker may have difficulty building/delivering the ships (due to shortage of labor, materials, etc): this doesn't seem probable for a company that has been doing that for over a century-and-a-half, and that since it started building tankers the US in 2005, has delivered no less than 20 similar ships.

3) A large part (around 60%) of the loan to build each ship is being funded by conventional financing (from Caterpillar Finance); so, it's conceivable that an interest rate hike (which I think will certainly happen with the end of QE3) could make this part of the loan costs prohibitive for Aker, specially if Caterpillar's loan is being provided on a variable-rate basis (I wasn't able to find any details on this part of the deal).

4) Shale oil vs conventional oil prices: I've learned from trusted sources that, if conventional oil prices ever go down the $60/barrel line, shale oil stops being viable and will have its production (and therefore transportation) interrupted. This would make new tankers largely unnecessary and could sour the Aker/Crowley deal, or the joint operation of the ships that they have agreed on afterwards. As the US economy seems to be on a good path to recovery right now (boosting demand, which I think is the main factor affecting conventional oil), and also as conventional oil has been over that mark since May 2007 (except from Oct/2008 to May-2009 due to the sub-prime crisis) , I don't think this is probable either (unless another 2008-like recession hits us in the next 5 years, Heavens forbid).

5) Keystone XL: if Keystone XL is ever built, it could put quite a dent in intra-US maritime oil transportation, and therefore dampen the demand for the ships being built, with the same possible results as #4 above. From what I was able to gather, it seems that Keystone XL is mired in a political and environmental morass, and its approval (and construction) doesn't seem probable under a Democrat's president and senate. If the republicans achieve Senate majority and/or get their man on the White House in 2016, it would be a very different story, tho.

As above, your considered comments and opinions are most welcome.

civilservant

I think it would be a good idea to state what your actual aims are here - since the EB-5 is most often seen as 'buying' a Green Card, and as such what level of risk you are prepared to accept against the investment.

It seems to me that this is inherrantly less risky than the previous proposal that we discussed.

zerlesen

The feeling I've never been able to shake about the EB-5 program is that if these were attractive investments then the fairly extraordinary additional inducement of a green card wouldn't be in the picture. (I have not bothered to substantiate this feeling in any way.)

For what little it's worth, though, this is already the best EB-5 scheme I've heard of, because it doesn't involve buying up a bunch of distressed office space or the like.

dm2b

You are correct. My priorities, in order, are:

1) To get LPR (lawful permanent resident) status in the USA; I want to open a branch of my company there (it being the best market overall for the kind of product that I want to sell), it will take 2-3 years to get it up to speed, and I plan on retiring after about 5 years and to reside in the US afterwards (way better quality of life than where I live); also, my contry (Brazil) has no treaty with the US that would enable me to get an E-1/E-2 visa, so this is out; additionally, I've found that the L-1A visa to be too unreliable for my purposes (I would basically be at the mercy of USCIS every year since the 1st for renewal, which they could just decide to deny, and I was able to find many quite unjustified denials, specially for cases where the beneficiary's company wasn't employing a lot of americans since the 1st year, which would be my case). So, EB-5 it is.

2) To get my initial investment back: I can survive the loss of $500K, but it represents about one fourth of my (very hard) working life's earnings, and also losing it would put quite a dent on my retirement prospects.

3) To get some return on it: CanAm is mentioning (but not guaranteeing) "around 0.50% p.a." for this project, which is a pittance even when compared just to average inflation (~2.5% in the last 10 years), but it's better than nothing...

That said, I don't agree to the view that EB-5 is "buying a green card": I do think that, by choosing the RC and the project very carefully, one can have reasonable expectations to get his/her investment back. But I agree that one must be prepared to lose it, which I am.

Due to my risk assessment above, I think you are correct. And as someone told me, there are no good deals to be had in EB-5: there are only bad deals, and worse deals. So my intention is to get a "as much not-worse as possible" deal... and so far it's looking like this one's it.

Thanks for your comments.

dm2b

Hi Zerlesen,

I think you are correct: as someone told me, there are no good deals to be had in EB-5: there are only bad deals, and worse deals. So my intention is to get a "as much not-worse as possible" deal... and so far it's looking like this one's it.

And it's a loan-based project, with a definite exit strategy, from an RC (CanAm/PIDC) that has a almost blameless track record (apart from nearly 100% I-526 and I-829 approvals, they have so far repaid the principal on the only project that has matured and not paid 100% back to investors is a certain "K.P. Grant", which (according to them) has paid 20% and the rest is still "in progress", whatever that means...

So I'm very tempted by this project, indeed...