General Maritime Corporation

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General Maritime Corporation

35 West 56th Street
New York, New York 10049
U.S.A.
Telephone: (212) 763-5600
Fax: (212) 763-5602
Web site: http://www.generalmaritimecorp.com

Public Company
Incorporated: 1997 as General Maritime Ship Holdings Ltd.
Employees: 131
Sales: $226.4 million (2002)
Stock Exchanges: New York
Ticker Symbol: GMR
NAIC: 483111 Deep Sea Freight Transportation; 483211 Inland Water Freight Transportation

General Maritime Corporation owns and operates a fleet of close to 50 mid-sized tankers, making it the world's second largest tanker company (based on cargo capacity). The firm contracts with client companies to transport crude oil, principally across the Atlantic. General Maritime serves major worldwide oil companies such as Chevron Corp., Exxon Mobil, Texaco, Phillips Petroleum, and the Citgo Petroleum Corp. Most of its ships are either Aframax or Suezmax tankers, which are medium-sized ships capable of serving most ports. General Maritime finds much of its business on the so-called spot market, where it picks up orders on short notice. General Maritime succeeds in this market because its fleet is primarily young—its ships are on average less than 12 years old—and so considered of high quality and safety. The company also arranges its tanker purchases so that most of its ships have one or two identical "sister ships" that can be used interchangeably. This gives General Maritime great flexibility in fulfilling orders. General Maritime is one of only a handful of publicly owned shipping companies. It is also a large player in a market still dominated by many small companies. The firm was founded by Peter Georgiopoulos, who owns approximately 10 percent of the company's stock.

A Varied Career Leading to Shipping by 1991

Peter Georgiopoulos was born circa 1961 and raised in New York City, where his father was a maritime lawyer. He attended Bronx Science High School, then went to Fordham University in New York, where he played football. He then took a master's degree in business administration from Tuck Business School at Dartmouth University. Georgiopoulos seemed to have grand dreams from early on. While still an undergraduate he was struck by a photograph in a design magazine of a certain antique bed, a luxury item that would have been out of place in a dormitory. He found a similar bed in a Greenwich Village antique dealer's shop, but was unable to purchase it. Years later, his stake in General Maritime worth an estimated $50 million, he was able to purchase the Renaissance Revival bed and pay a decorator to embellish his apartment with gilt furnishings, brocade upholstery, and original oil paintings.

Georgiopoulos's first job out of business school was with a Greek firm, Tsakos Shipping and Trading. Georgiopoulos worked in both the company's New York office and its headquarters in Piraeus, Greece. But during the mid-1980s, the shipping industry was in a downturn, and Georgiopoulos took what might have been a more glamorous job, with the investment firm Drexel Burnham Lambert. Drexel Burnham Lambert was a venerable Wall Street company that had been in something of a slump until it hired a young California native named Michael Milken. Milken is credited with more or less single-handedly building the high-yield bond market, dubbed by him the "junk bond" market, that fueled much of the corporate takeover frenzy of the 1980s. High-yield bonds give high returns because they are high risk. They are issued to companies that for various reasons are unable to secure investment-grade bonds. Drexel Burnham Lambert was the nexus of the junk bond market until the prosecution of Milken triggered a crash in the late 1980s. Drexel Burnham Lambert declared bankruptcy and dissolved in 1990.

With the decline of Drexel, Georgiopoulos moved to a Connecticut brokerage firm, Mallory Jones Lynch. But his education in junk bonds was evidently crucial to his later success. Much of the shipping industry is financed by sub-investment grade bonds, because the industry is typically extremely volatile and unpredictable. The shipping industry is also extremely capital-intensive, as shippers need to expend large amounts to upgrade their fleets or build more carriers. A few banks, such as the German bank Deutsche Schiffsbank, specialized in financing shippers, but other banks stayed away. Georgiopoulos became an expert both in high-yield bonds and in shipping companies, and his ability to finagle financing from wary investors became the key to his success. Georgiopoulos only stayed at Mallory Jones Lynch for a year and a half. Then in 1991, just before his 30th birthday, he started his own company, Maritime Equity Management.

Building the Company in the Early 1990s

Maritime Equity's office was at first just a desk Georgiopoulos rented out of a Manhattan office. But he had valuable contacts in the world of high-yield and hedge fund investing, former clients and business acquaintances who were used to taking some financial risk in order to reap potentially high rewards. Georgiopoulos put together a series of deals that were structured like real estate investment trusts, where several investors went in together on an asset, in this case shares in ships. Maritime Equity's first deal was to purchase half the equity in a Norwegian chemical tanker, the Trollvan. Over the next five years, Maritime Equity put together a dozen deals, sometimes bringing investors a return of 11 times their money. Sometimes the company bought equity in a ship at a discount, and then was able to force a sale at a favorable price. Maritime Equity also hung onto some assets, and by early 1997, the firm owned six ships.

That year, Georgiopoulos decided to move up. His expertise in the financing of shipping had been quite lucrative. But his goal now was to become a fleet owner. In 1997 he launched General Maritime Ship Holdings Ltd., a private company consisting of Maritime Equity's small fleet. He wanted to grow bigger fast, but even with his contacts it was difficult to break into the major leagues. Georgiopoulos contracted the management of his ships to Universe Tankships and traded on that company's reputation to wangle contracts with big oil companies. Universe Tankships was founded in 1947 by Daniel K. Ludwig, a self-educated Michigan native who became a billionaire by building bigger and bigger tankers. Ludwig was considered the father of the so-called supertanker, and his company had a formidable standing in the world of oil transportation. Georgiopoulos convinced some of Universe Tankships' executives to come work for him, and piggybacked his young company on the shoulders of the older one. According to an interview with Forbes magazine (September 29, 2003), when he went to speak to oil company executives about using General Maritime's ships, he told them, "Basically, I'm Universe Tankships." Universe Tankships was known for the technical management of its ships, and evidently its name opened doors for General Maritime. By 2000 the company had put together a fleet of 14 ships, all of the mid-sized tankers known as Suezmaxes and Aframaxes.

The General Maritime ships operated principally in what is known as the spot market. This means that instead of holding long-term contracts to move oil for certain customers, the ships would contract for specific trips, usually at short notice, and at wildly varying rates. In the 1970s, oil companies ran their own ships, but gradually the industry changed, and by the end of the century as much as 70 percent of oil transportation went to independent shippers. Many shippers held steady contracts. The spot market was potentially more lucrative, though it was extremely volatile. Rates on the spot market fluctuated according to decisions taken by OPEC (the Organization of Petroleum Exporting Countries) and due to other factors. Depending on the direction of the market, General Maritime could make or lose thousands of dollars per day per ship. For the most part, General Maritime did very well. "We made a fortune," Georgiopoulos told Forbes. But in 1998 the spot market dropped, just after General Maritime had spent $160 million for four ships without long-term contracts. These ships began losing approximately $5,000 every single day, and General Maritime ended up being pressured by its lenders to recapitalize $20 million in loans. Eventually the company was bailed out by Oaktree Capital Management, an investment group that had faith in Georgiopoulos's ability to negotiate the ups and downs of the shipping industry for long-term gains.

General Maritime continued to grow after its 1998 debacle, while many competitors defaulted. The oil tanker industry was extremely fragmented, with hundreds of companies, most owning only a small number of tankers, continually bidding to move the millions of barrels of crude oil produced around the world each day. The years 1997 and 1998 were seen as boom years for tanker companies, and many shippers raised money with high-yield bond issues at that time. The decline in the spot market was a disaster for many of these companies, and in many cases the banks that had lent them money felt burned. According to an analysis in Euromoney (August 2003), a basic problem was that the shippers and their banks "failed to understand each other's markets." This seemed to be where Georgiopoulos stood out from the crowd. He understood both the difficult financing that kept shippers going and the nuts and bolts of running a fleet. He also was able to convince investors like Oaktree that he knew what he was doing.

Over the next few years, the company tried to build its fleet more quickly with a large acquisition. Several potential deals fell through, however. General Maritime bid $400 million in 1999 to buy the Norwegian company Benor Tankers, only to pull out of the deal when Benor's ships proved to be of lower quality than expected. It also tried to buy another company, Bona Shipping, which went instead to a large competitor, Teekay Shipping Corp. But with smaller acquisitions here and there, General Maritime built up its fleet to almost 30 ships by the time it went public in 2001.

Company Perspectives:

General Maritime Corporation is a leading provider of international seaborne crude oil transportation services, owning and operating one of the largest tanker fleets in the world.

Public Company After 2001

Sales reached $72 million for General Maritime in 1999, with a loss of close to $5 million. The next year, the company brought in $132 million, a significant jump, and earnings stood at $30 million. Such volatility was part of the shipping market, especially for a company like General Maritime, which derived as much as 80 percent of its business from the spot market. Georgiopoulos had long aimed to take the company public. Public companies are required to disclose a host of figures, including expenses and debt levels. Georgiopoulos was comfortable with exposing the intricacies of General Maritime's finances, feeling that it helped his big investors understand the business. General Maritime was listed on the New York Stock Exchange in April 2001. Hundreds of companies had gone public every year in the late 1990s and in 2000. When General Maritime debuted, it was only the 14th company that year to go public. But four of its competitors had already had their initial public offerings in 2001, and the oil industry was considered to be growing, while much of the rest of the economy stagnated. Consequently, General Maritime did very well, raising some $144 million as its shares sold near the top of their expected range.

General Maritime kept its expenses low. Georgiopoulos operated with such a small staff at his Manhattan office that he had to answer his own phone. General Maritime's fleet had a few distinct competitive advantages. For the most part, its ships were young—less than 12 years old, and so were considered safer and more reliable than older ships. In November 2002 the aging tanker Prestige spilled 70,000 tons of oil off the coast of Spain, which only pointed out the advantages of newer, smaller ships such as General Maritime's. The company also bought ships in pairs or triplets, which gave it more flexibility on the spot market. It was able to substitute these sister ships for their siblings at short notice, since the ships were virtually identical, so General Maritime was able to respond quickly to its customers' demands.

In January 2003 General Maritime increased its fleet substantially when it spent $525 million for the 19-ship Greek firm Metrostar Management. The company took on heavy debt to swing the deal, but was able to pay it down very quickly. The purchase of Metrostar gave General Maritime access to the Black Sea for the first time, and it soon signed contracts to transport oil for the large Russian oil producer Lukoil. General Maritime posted record earnings for the first half of 2003, and expected to have a very good year. With the addition of Metrostar's ships to its fleet, General Maritime became the second largest tanker company in the world. This was a very rapid rise for the company, which had started only six years earlier with six ships.