David Marcus - MOI Global · Evermore participated in the March 2016 equity raise (@ $3.00 per...

David Marcus Chief Investment Officer, Evermore Global Advisors

European Investing Summit, October 5-6, 2017

PROPRIETARY AND CONFIDENTIAL – FOR INFORMATIONAL PURPOSES ONLY

European Investing Summit 2017

October 5, 2017

Who We Are

2PROPRIETARY AND CONFIDENTIAL – FOR INFORMATIONAL PURPOSES ONLY

Evermore is a global special situations investment firm that opportunistically invests in companies that are undergoing strategic changes (“catalysts”) and trade at substantial discounts from our assessment of their intrinsic values

PEDIGREE AS INVESTORS & BUSINESS OPERATORS

Founders mentored by renowned value investor Michael Price whose methods serve as the foundation for Evermore’s investment philosophy and process

Portfolio manager with a trusted and extensive global relationship network that provides valuable access and perspective

Founders with significant public and private company operating and restructuring experience provides informed catalyst assessment

LESS CROWDED OPPORTUNITY SET & NON‐CORRELATED RETURN PROFILE

Focus on under‐researched companies that are misunderstood and mispriced Capacity constrained strategy with small‐ and mid‐cap bias leads to high conviction portfolios High Active Share (typically 99+) portfolios indicate little to no overlap or correlation with

benchmarks and peers

COMPLEMENTARY ASSET ALLOCATION Strategy not replicated by passive investments and an excellent potential source of alpha Complementary role within Global, International, European and Alternative portfolios

CATALYST‐DRIVEN APPROACH & REPEATABLE INVESTMENT PROCESS

Catalysts (typically, operational or financial restructurings) drive security selection, shareholder value creation, and help avoid value traps

A nimble and flexible investment approach enables Evermore to identify new opportunities no matter the market environment

Narrow focus on catalyst‐driven ideas results in systematic and repeatable investment process

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Why does the opportunity exist in dry bulk?


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Historically, Evermore has never invested in dry bulk operators, let alone in the maritime sector• Typically avoid commodities and cyclical investments

‒ Dependence on underlying price of oil, energy, commodities, China growth or overall improvement in GDP

However, as global special situations investors, we became interested when the industry was facing:

• Death and carnage … blood in the streets … in this case, blood in the water

• Aggressive financial restructuring and massively dilutive equity raises to shore up balance sheet were needed

• All names (including good key players) indiscriminately traded as if no longer a going concern

• We make exceptions and look at these types of business when panic sets in and investors throw out the gold coins with the gum wrappers

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Baltic Dry Index

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Share Price Performance: SB, SALT, NMM

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Relative Performance: Scorpio Bulkers (SALT) vs BDI Index

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Relative Performance: Safe Bulkers (SB) vs BDI Index

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Dry bulk landscape | early 2016


Asset values at historical trough levels• 5‐year old capesize vessels were trading at a 50% discount to 20‐year average of resale values

• Secondhand vessels (5‐year) values ranged from 55‐65% of newbuild parity

Historically low capesize spot rates• In January 2016, capesize spot rate temporarily touched $1,500 per day

• Unsustainable levels that implied no movement of dry cargo

Accelerated scrapping of older and idled vessels• Scrapping run rate implied an unprecedented negative net fleet growth

• Represented approx. 8% of the total fleet

Small number of remaining deliveries and limited new orders being placed in shipyards• Shipyards are also dealing with their own issues.

Favorable regulatory changes to spur additional scrapping• Water ballast treatment (2018) and sulphur emissions (2020)

During the crisis, we saw the following:

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Historical Asset Values

Dry Bulk Charter Rates ‐ Spot Dry Bulk Charter Rates – 1 Year Time Charter

Source: Wall Street research.

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Newbuild Values ($ mm) Secondhand Asset Values ($ mm)

Delivery Schedule (mm dwt) Fleet Additions vs Removals (mm dwt)

Source: Wall Street research.

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Our approach to the situation


Started diligence process in late 2015/early 2016 at the height of the commodities downturn

Attended various shipping conferences (Capital Link, Marine Money)

“Nevermore” vs “Evermore”

Affirmation of very grim mood and bleak sentiment from all participants

Immersed ourselves in dry bulk. Multiple meetings with senior management of dry bulk operators

Our analyses focused on:• Age of the fleet and quality of assets

• Remaining newbuild /capex program

• Cash breakeven levels

• Balance sheet assessment – debt analysis (vessel by vessel)

• Liquidity runway

• Quality of management

From newbies to a sector to becoming a central ax for maritime‐related deals• Do the work ahead of anticipated equity raise. Be patient and extremely selective!

We helped to recap when: 1) insiders participated and 2) we believed it was the last round of dilution

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Current investment ideas


Company (Ticker) Scorpio Bulkers (Bloomberg: SALT)

Price (at time of investment) March 2016 equity raise: $3.00 per shareJune 2016 equity raise: $3.05 per share

Current Price $7.30 (as of 10/4/17)

Current Market Cap $550 million

Company (Ticker) Safe Bulkers (Bloomberg: SB)

Price (at time of investment) December 2016 equity raise: $1.10 per share



Company (Ticker) Navios Maritime Partners (Bloomberg: NMM)

Price (at time of investment) March 2017 equity raise: $2.10 per share



Company (Ticker) Songa Bulk (Bloomberg: SBULK NO)

Price (at time of investment) February 2017 equity raise: NOK 42 per share

Current Price NOK 41.70 (as of 10/4/17)

Current Market Cap NOK 1.5 billion / $188 million (NOK/USD: 7.96)

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Illustrative example: SALT


Founded in March 2013, owner and operator of modern mid‐ to large‐size dry bulk vessels (Kamsarmax and Ultramax)

Incorporated in the Marshall Islands. Headquartered in Monaco and also based in New York

Management attempted to replicate its past successes (tankers and LNG) with dry bulk

Bottom line: company was making vessel acquisitions into a worsening dry bulk market which led to covenant breaches

Description / Situation Overview

Share Price Performance (since listing to current) Company (Ticker) Scorpio Bulkers (Bloomberg: SALT)

Price(at time of investment)

March 2016 equity raise: $3.00 per shareJune 2016 equity raise: $3.05 per share



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One of youngest fleet of highly fuel efficient, mid‐size vessels. All vessels are eco‐design (20% higher efficiency, lower bunker consumption, high cargo intake)

• At the time of our initial investment, total of 48 vessels, of which 33 owned vessels on the water (14 Kamsarmaxes and 19 Ultramaxes) + 15 newbuilds under construction

Strong, proven management team: Emanuele Lauro (Chairman/CEO) and Robert Bugbee (President)

• Already has taken proactive, aggressive measures to strengthen balance sheet to weather dry bulk market downturn

• Renegotiated with lenders for amortization holidays, lowered coverage / minimum liquidity levels, pushed out covenant tests

• Sold existing vessels and reduced capex obligations

• Cancelled future deliveries without recourse, delayed taking deliveries and renegotiated remaining payments to reduce future capex obligations

Remaining deliveries were fully covered – financed with cash and existing credit facility

Evermore participated in the March 2016 equity raise (@ $3.00 per share)

• Management and insiders subscribed to 24% of the total offering

• At $3.00 per share, implicitly creating SALT at 0.35x Price to NAV

• In comparison, comparable peers (including operators with older fleet) were trading within a range of 0.8x to 1.0x

Why do we own this stock?

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March 2016 equity raise provided two‐year liquidity runway to weather the downturn. 2Q 2018 based on our estimates

Bleak sentiment has led investors to overlook Scorpio’s balance sheet strength

• Based on our assessment, of the 15 newbuilds to be delivered, 8 vessels had non‐recourse loans

• Of the 8 vessels, 6 newbuilds were currently under construction at the same shipyard

• Bottom line: we estimated that management could eliminate an incremental $120 million in capex obligations by canceling and/or renegotiating the contracts with shipyards. Margin of safety if the dry bulk market deteriorated further from current levels

We also participated in the June 2016 equity raise ($3.05 per share) along with management

• Proceeds were used to: 1) take advantage of compelling secondhand vessels coming to the market from distressed sellers and 2) extend the liquidity to 2020 (more as a preemptive measure vs reaction to market direction)

• Evermore also got involved in the 2019 7.5% senior bond (baby bond), which was yielding over 20% at the time

• Today, the bond has appreciated to par (25)

Why do we own this stock?

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Dry bulk landscape | Today


Low hanging “easy money” has already been made• However, dry bulk names are coming off an extremely low base

We have higher conviction today given the lower risk profile• Secondhand asset values and charter rates (spot and 1 year TC) have both increased

• Historically low order book

• Supply visibility

Improvement in structural demand• At the time of our entry, we assumed declining growth in our assumptions

• Despite fears of China slowing down, dry bulk demand has been growing steadily

• Demand growth underpinned by domestic Chinese stimulus (One Road and One Belt) and regulatory policies that favor low cost suppliers of high‐quality iron ore and coal

Australian and Brazilian iron ore exporters still have cost advantage over Chinese producers• Longer ton miles bode well for dry bulk

Management insiders have been recent buyers at current levels

Where are we today?

Mr. Marcus has more than 25 years of experience in the investment management business. Beginning his investment management career in 1987 as an intern at Mutual Series Fund, where he was mentored by renowned value investor Michael Price, Mr. Marcus rose to manage the Mutual European Fund and co‐manage the Mutual Shares and Mutual Discovery Funds, representing over $14 billion in assets. He also served as Director of European Investments for Franklin Mutual Advisers, LLC. After leaving Mutual in 2000, Mr. Marcus founded Marcstone Capital Management, LP, a long‐short Europe‐focused equity manager, largely funded by Swedish financier Jan Stenbeck. After Mr. Stenbeck passed away in 2002, Mr. Marcus closed Marcstone, co‐founded a family office for the Stenbeck family, and advised on the restructuring of a number of the public and private companies the family controlled. He later founded and served as managing partner of MarCap Investors L.P., which was seeded by Dan Stern of Reservoir Capital. At MarCap, Mr. Marcus managed a European small cap special situations fund from 2004 to 2009. Additionally, Mr. Marcus has gained significant operating experience from his active involvement on a number of corporate boards. Mr. Marcus graduated from Northeastern University in 1988 with a B.S. in Finance.

David Marcus

18PROPRIETARY AND CONFIDENTIAL – FOR INFORMATIONAL PURPOSES ONLY

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Disclosures:

©2017 Evermore Global Advisors (“Evermore”) is a registered investment adviser. The information herein is intended to be informationalin nature and for discussion purposes only. It is not intended to be investment advice nor is it intended to convey any specific investment recommendations or make any implied or express recommendations regarding the manner in which a client’s accounts should or wouldbe handled, as appropriate investment decisions depend upon the client’s specific investment objectives, risk tolerances, and financial situation.

All investments are subject to risks. Past performance is not an indicator of future results. It should not be assumed that any of the securities holdings discussed herein were or will prove to be profitable, or that the investment recommendations or decisions we make in the future will be profitable or will equal the investment performance of the securities discussed herein.

This information reflects the opinion of Evermore on the date written and is subject to change at any time without notice. Due to various factors, including changing market conditions, the content may no longer reflect our current opinions or positions. Any market observations and data provided are for informational purposes only. Where data is presented that is prepared by third parties, such information will be cited, and these sources have been deemed to be reliable. However, Evermore does not warrant the accuracy of or independently verify this information. Evermore and any third parties listed herein are separate and unaffiliated and are not responsible for each other’s policies, products or services.


David Marcus - MOI Global · Evermore participated in the March 2016 equity raise (@ $3.00 per...

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