PETITION: You have a lot of experience in the distressed shipping space. That space, however, has been fairly quiet of late with some exceptions (e.g., Toisa, Emas Chiyoda). Danaos Corporation ($DAC) got an out of court deal done. What do you foresee in the near future in the space and what is one factor that not enough people are considering?
The macro risk is the large amount of tonnage still on the Chinese and Korean order books. A lot of that will come on line in the next two years or so. Reaching capacity equilibrium will continue to be a challenge given the building boom that led to the downfall to begin with. If rates tick up for a stretch, the order books will start to fill. If they tick down, then there is too much tonnage chasing too little freight. From a micro perspective, the instability in the Middle East is always a risk, but a lot of the players in that space have shored up their balance sheets, so they should be able to weather such storms (maritime pun intended, of course).
PETITION: With Venezuela struggling and Iran under sanctions, oil has been surging in price. What does this mean for the oil and gas exploration and production industry? Is it completely out of the woods or will there continue to be pockets of distress there over the next year? If the latter, some examples would be appreciated.
With WTI in the $60-$70 range for the last three months, and the tightening supply due to the cluster-(insert NSFW word here) in Venezuela and Iran, I think the E&P space is largely out of the woods from an industry perspective. A lot of the companies that came out of restructuring had post-reorg projections with oil in the $55 to $60 range. There are still one-offs that are candidates for workout, but that will always be the case. I plead the Fifth on what companies might have a future in Delaware or Houston, but I think they are out there.
PETITION: Years ago it seemed like a few large firms dominated all of the company side deals. Then the market share seemed to spread out a bit as firms like Bracewell, Akin Gump and Milbank started filing debtor cases. It now feels like massive concentration is back. In your view, what are the most significant macro trends affecting the industry and are they for better or for worse?
I am not sure the massive concentration ever ceased to be the case. From the Bracewell perspective, a lot of our debtor work was for existing clients, although we did get called in to a few cases due to conflicts or because of our specific expertise in both the shipping and E&P spaces. Shameless plug: one thing that has been helpful to us in positioning in debtor cases is our ability to put very senior and experienced partners on the day-to-day deal team. I had one client whose board of directors insisted she use a ... ahhhh … Big Name Firm. I told her she would probably be working with a partner who wasn’t even in law school back when I was doing mega-cases. She called me many times to lament that I was spot on.
PETITION: What is the best book you've read that's helped guide you in your career?
Is this where I am supposed to say Sun Tzu’s Art of War so I look learned and cultured? Sorry to disappoint, but I’ve never read it. I really think Robert Caro’s three-tome biography on LBJ was one of the most influential. Say what you want about LBJ and his cronies, but they were a very strategic, tactical (and conniving) group of thinkers. I was reading Caro’s books when I was a younger lad and they really shaped my ability to be a strategic, creative thinker (ouch, hurt my arm with that pat on my back).
PETITION Note: No worries, Bob, we pat ourselves on the back all of the time!