Living on the Edge – Cash Management Lessons From Eagle Bulk Shipping

Eagle Bulk Shipping Inc. (NASDAQ:EGLE) ended the third quarter of 2011 in a very precarious financial condition. With the stock price closing at $1.57, its market capitalization stood at approximately $100 million. Yet its debt outstanding was over $1,100 million.

Its total cash reserves were just a nod above $29 million. With the imminent delivery of its last new-building vessel M/V SANDPIPER (the vessel was delivered on October 19th), the company would have to make the final installment payment of about $21 million and risk seeing its cash reserves falling below what would have been the minimum cash threshold of $22.5 million required by its lenders.

Except only a few days earlier, the management of EGLE had put in place a last-minute agreement with its lenders, that had temporarily suspended its minimum liquidity covenant until January 30th, 2012, and had further modified the minimum required amount until April 30th, 2012.

Now a seven-month reprieve to put your house in order may seem too little too late, but in the highly volatile world of shipping it may be the difference between living to see another day or going under.

In this brief, we will analyze the effects of the latest loan amendment on the company over the next five quarters. We will forecast the company’s cash position on a pro-forma basis under a base case scenario. We will evaluate the company’s ability to continue meeting its minimum liquidity covenant after April 30th, 2012. Finally we will examine alternative strategies for EGLE to boost its cash position and service its debt.

We built our base case scenario for the next five quarters on the following assumptions: First, we assume that EGLE will not raise any funds from investing or financing activities, i.e. it will not dispose of any assets or issue any securities. We made this assumption because we wanted to analyze the company’s ability to service its debt with cash generated from operations or from the existing credit revolving facility.

Second, we assume that EGLE will generate on average a quarterly operating cash flow of $12.5 million. This figure is in line with the average quarterly cash flow from operations for the first nine months of this year. But we must stress that EGLE operates more than 50% of its vessels in the spot market or on market-related time charters, and its operating cash flow is subject to freight market volatility.

We also took into consideration the company’s projected capital expenditures (namely the $21.9 million final installment for M/V SANDPIPER & the scheduled loan payment of $32 million in July 2012), and the company’s undrawn amount under the current credit facility of $21.9 million.

According to our base-case scenario, EGLE will comfortably meet its minimum liquidity requirements until the end of the second quarter of 2012, with cash generated from its operations. In July 2012 however, the company will have to make the first of four scheduled semi-annual credit facility reductions, for approximately $54 million. As a result, EGLE will have a projected liquidity shortfall of $22 million as of the end of the third quarter of 2012.

Given this projected shortfall, it becomes imperative for EGLE to raise capital during the first six months of next year. Issuing common shares will result in a significant dilution of existing shareholders in the order of almost 50%. Selling some of the older vessels will cannibalize its operating cash flow. In addition, none of these strategies will provide a long-term solution, but only a short-term fix.

The only other alternative, barring a spectacular turn-around in freight markets, is to negotiate a full restructuring of its current credit facility. This may be easier said than done, but EGLE perhaps could achieve a repayment holiday and/or extension of the current loan maturity, in exchange for warrants. Warrants will offer its lenders an upside potential with a more palatable dilution of existing shareholders.

Given the uncertainty in freight as well as capital markets, the next six months are shaping to be crucial for Eagle’s long-term survival & prosperity.

Diana Shipping Inc. - Earnings Estimate For 2011 Q3

For the quarter ended September 30th, 2011, we estimate that Diana Shipping Inc. (NYSE: DSX) generated basic earnings per common share of $0.33 on net income of $26,400,000. We estimate that TCE Revenues for the quarter were $60,900,000.

As of September 30th, 2011, we estimate that book capitalization was $1.565 billion including shareholders’ equity of $1.188 billion, and debt outstanding of $377 million. We also estimate that its debt to capitalization ratio stood at 24.1%. In addition to its existing debt, DSX has entered into a loan agreement for an amount of $82.6 million, to finance the two new-building vessels that are scheduled for delivery in 2012.

The company presently owns a modern diversified fleet of 24 dry cargo vessels (consisting of 15 PANAMAX size vessels, one POST-PANAMAX vessel, and 8 CAPE SIZE vessels), with a total DWT carrying capacity of approximately 2,610,000 MT, and an average age per vessel of 6.70 years as of September 30th, 2011.

On November 18th, 2001 DSX announced the acquisition of a PANAMAX vessel (DWT capacity 81,297 MT, built in 2010) for a purchase price of $32,250,000. The company also has two specialized CAPE SIZE vessels on order, with a total DWT capacity of 412,000 MT, scheduled for delivery in 2012.

In addition, Diana Shipping has a 14.5% interest in Diana Containerships (NASDAQ: DCIX), a publicly traded company specializing in container ships.

Based on yesterday’s stock closing price of $8.09, we estimate that DSX has a market capitalization of $668 million and an enterprise value of $644 million.

Just How Low Is General Maritime Corporation On Cash (Part II)?

On October 3rd, 2011 General Maritime Corporation (NYSE: GMR) entered into a waiver agreement with its lenders to suspend the minimum cash balance covenant through November 10th, 2011. (The minimum amount was $35,000,000 through the end of 2011, as of the latest amended credit agreements). In this brief review we analyze the likelihood that GMR will be able to meet this covenant once it is reinstated on November 11th.

As of June 30th, 2011 GMR had cash on hand of $58,591,000. Based on the company’s reported results yesterday, during the third quarter of 2011 GMR used a total of $20,698,000 in its operating, investing, and financing activities. Therefore GMR had cash and cash equivalents of $37,893,000 as of September 30th, 2011.

We assume that GMR applied the $7,045,000 scheduled amortization payment on September 30th, as a reduction of the 2010 Credit Facility. We also assume that GMR used the net proceeds of $8,100,000 from the sale of Genmar Revenge (The sale closed on October 26th) towards further repayment of the 2010 Credit Facility.

Given these two assumptions and the amount of cash on hand as of September 30th, we estimate that cash & cash equivalents plus revolver availability amounted to $53,388,000 on a proforma basis.

Based on the above analysis, we believe that there is a high likelihood that GMR will have enough cash and revolver availability to meet the amended covenant requirement once the current waiver expires on November 10th.

Genco Shipping & Trading Limited - Earnings Estimate For 2011 Q3

For the quarter ended September 30th, 2011, we estimate that Genco Shipping & Trading Limited (NYSE: GNK) generated basic earnings per common share of $0.04 on net income attributable to GNK shareholders of $1,300,000. We estimate that the company generated net consolidated TCE Revenues of $91,900,000 and that the average TCE rate was $16,500 (including the vessels owned by the company’s subsidiary Baltic Trading Limited). We also estimate that EBITDA for the quarter was $57,600,000.

At the parent level and as of September 30th, 2011, we estimate that book capitalization was $2,790 million, including shareholders’ equity of $1,140 million, and total debt of $1,650 million. We also estimate that the debt to capitalization ratio was 59.1%.

We estimate that GNK had approximately $295 million cash on hand as of the end of the third quarter. Based on the company’s closing price of $9.18 as of October 28th, 2011, we estimate that GNK has an enterprise value of $1,690 million.

As of September 30th, 2011, Genco Shipping & Trading owned a modern diversified fleet of 52 dry cargo vessels with a total DWT capacity of approximately 3,777,000 MT, and an average age per vessel of 6.49 years. GNK is scheduled to complete its existing new-building program with the delivery of a HANDYMAX vessel during the fourth quarter of the year.

In addition, the company’s subsidiary Baltic Trading Limited (NYSE: BALT) owns a fleet of nine dry cargo vessels with a total DWT capacity of approximately 670,000 MT, and an average age per vessel of 1.92 years as of September 30th, 2011. GNK has a 25% ownership interest in Baltic Trading Limited.

Diana Containerships Inc. - Earnings Estimate For 2011 Q3

For the quarter ended September 30th, 2011, we estimate that Diana Containerships Inc. (NASDAQ: DCIX) generated net income of $2,450,000 or $0.11 basic earnings per common share. We also estimate that TCE Revenues for the quarter were $9,000,000 and the net average TCE rate was $19,560.

As of September 30th, 2011, we estimate that the company had a total book capitalization of $209 million. Following the company’s secondary offering at $7.50 per share in June 2011 (the company received net proceeds of approximately $121.5 million), DCIX repaid its bank loan and currently has no debt outstanding. We estimate that as of the end of the third quarter the company had $50.5 million cash on hand to finance future vessel acquisitions.

DCIX intends to declare a variable quarterly dividend equal to 70% of its operating cash flow. According to our estimates for the third quarter, the company generated cash from operations of $4,900,000. On this basis, we forecast that DCIX will declare a quarterly dividend of $0.15 per share.

Diana Containerships owns a fleet of two new building, intermediate size vessels and three older panamax vessels, with an aggregate capacity of 20,486 TEU. Diana Shipping Inc. (NYSE: DSX) has a 14.5% ownership in the company. Based on the company’s stock closing price of $5.39 per share on October 21st, 2011, we estimate that DCIX has an enterprise value of $74 million.

Baltic Trading Limited – Earnings Estimate For 2011 Q3

For the quarter ended September 30th, 2011, we estimate that Baltic Trading Limited (NYSE: BALT) generated a net loss of $100,000 or ($0.01) basic earnings per share. We estimate that the company’s net TCE revenues for the quarter were $10,600,000 & the fleet average TCE was $12,800. We also estimate that during the third quarter of 2011 BALT generated EBITDA of $4,700,000.

During the previous two quarters BALT has declared cash dividends ranging between 45%-50% of EBITDA. We expect that the company will continue the same dividend policy, and on this basis we forecast that BALT will declare a dividend of $0.10 per share for the third quarter of 2011.

As of September 30th, 2011, we estimate that the company had $101,250,000 in debt outstanding and a total capitalization of $383,000,000. Its debt to capitalization ratio stood at 26.4%. BALT had a remaining $45,000,000 under its amended 2010 credit facility, to finance future vessel acquisitions and for working capital purposes.

Based on yesterday’s closing price of $5.54 per share, we estimate that BALT has an enterprise value of $220,000,000.

BALT operates a modern diversified fleet of 9 dry cargo vessels, consisting of 3 handy size vessels, 4 supramax size vessels and two cape size vessels, with a total DWT capacity of approximately 670,000 MT, and an average age of 1.9 years as of September 30th, 2011.

Safe Bulkers Inc. - Earnings Estimate For 2011 Q3

For the quarter ended September 30th, 2011, we estimate that Safe Bulkers Inc. (NYSE: SB) generated net income of $18,550,000 or $0.26 earnings per share. We also estimate that adjusted net income for the quarter was $25,750,000 or $0.36 per share. (Our net income estimate was based on a net loss on derivatives of $7,000,000).

We estimate that the company’s net TCE Revenues for the quarter were $41,000,000 & the fleet average TCE was $27,500. We also estimate that during the second quarter of 2011, Safe Bulkers generated EBITDA of $25,200,000, and adjusted EBITDA of $32,410,000.

Based on the company’s operating performance, we forecast that the company will declare the regular quarterly dividend of $0.15 per share.

As of September 30th, 2011, Safe Bulkers was operating a modern diversified fleet of 17 bulk carriers (consisting of 4 PANAMAX, 3 KAMSARMAX, 9 POST-PANAMAX, & one CAPE size vessels), with a total DWT capacity of 1,539,600 MT, and an average age of 4.3 years.

In addition, the company has a remaining new-building program for 10 vessels with a total DWT capacity of 1,002,200 MT. Three of those vessels are scheduled for delivery during the fourth quarter of 2011.

Eagle Bulk Shipping Inc. - Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we estimate that Eagle Bulk Shipping Inc. (NASDAQ: EGLE) generated basic earnings per common share of $0.04 on net income of $2,200,000.

We estimate that the company’s fleet of 41 owned-vessels generated net TCE Revenues of approximately $58,700,000 for an average TCE of $16,100. We also estimate that EBITDA for the quarter was $29,200,000, and Adjusted EBITDA (for credit agreement purposes) was $31,400,000.

Our estimate is based on the following key assumptions: (I) It excludes the results of the company’s freight trading operations, (II) The new-building vessel M/V ORIOLE was delivered during the second quarter as scheduled, and (III) Two of the company’s vessels were dry-docked during the quarter, resulting in 22 total days off-hire.

As of June 30th, 2011, we estimate that book capitalization was $1.82 billion, including shareholders’ equity of $0.67 billion and total debt of $1.15 billion. We also estimate that its debt to total capitalization ratio was 63.1%.

As of June 30th, 2011, Eagle Bulk Shipping owned a modern diversified fleet of 41 SUPRAMAX dry cargo vessels with a total DWT capacity of approximately 2,215,000 MT, and an average age per vessel of 4.9 years. It also had on order 5 new building vessels, scheduled for delivery during 2011, with a total DWT capacity of approximately 290,000 MT. With the delivery of M/V ORIOLE, its remaining capital expenditures were approximately $73 million.

We estimate that, following the delivery of M/V ORIOLE, EGLE had approximately $63 million of unrestricted cash on hand as of the end of the second quarter. The company intends to finance its capital expenditures with cash on hand and cash generated from operations.

Diana Shipping Inc. - Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we estimate that Diana Shipping Inc. (NYSE: DSX) generated basic earnings per common share of $0.34 on net income of $27,200,00.

We estimate that TCE Revenues for the quarter were $61,500,000 and the net average TCE rate was $30,700.

As of June 30th, 2011, we estimate that book capitalization was $1.522 billion including shareholders’ equity of $1.160 billion, and long-term debt of $362 million. We also estimate that its debt to capitalization ratio stood at 23.8%. In addition to its existing debt, DSX has entered into a loan agreement for an amount of $82.6 million, to finance its two new-building vessels that are scheduled for delivery in 2012.

Following the recent acquisition of M/V ARETHUSA, the company presently owns a modern diversified fleet of 24 dry cargo vessels (consisting of 15 PANAMAX size vessels, one POST-PANAMAX vessel, and 8 CAPE SIZE vessels), with a total DWT carrying capacity of approximately 2,610,000 MT, and an average age per vessel of 6.4 years as of June 30th, 2011. The company also has two specialized CAPE SIZE vessels on order, with a total DWT carrying capacity of 412,000 MT, scheduled for delivery in 2012.

In addition, Diana Shipping has a 14.5% interest in Diana Containerships (NASDAQ: DCIX), a publicly traded company specializing in container ships.

Following the acquisition of M/V ARETHUSA we estimate that DSX has approximately $382 million cash on hand to finance future vessel acquisitions.

Genco Shipping & Trading Limited - Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we estimate that Genco Shipping & Trading Limited (NYSE: GNK) generated basic earnings per common share of $0.22 on net income attributable to GNK shareholders of $7,600,000.

We estimate that the company generated net consolidated TCE Revenues of $96,400,000 and that the average TCE rate was $17,900 (including the vessels owned by the company’s subsidiary Baltic Trading Limited). We also estimate that EBITDA for the quarter was $62,800,000.

At the parent level and as of June 30th, 2011, we estimate that book capitalization was $2.80 billion, including shareholders’ equity of $1.15 billion, and total debt of $1.65 billion. We also estimate that the debt to capitalization ratio was 58.9%.

As of June 30th, 2011, Genco Shipping & Trading owned a modern diversified fleet of 51 dry cargo vessels with a total DWT capacity of approximately 3,740,000 MT, and an average age per vessel of 6.4 years. On July 24th, 2011, GNK took delivery of the HANDYMAX vessel GENCO MARE (DWT capacity 35,000 MT) and is scheduled to complete its existing new-building program with the delivery of a HANDYMAX vessel during the fourth quarter of the year.

In addition, the company’s subsidiary Baltic Trading Limited (NYSE: BALT) owns a fleet of nine dry cargo vessels with a total DWT capacity of approximately 670,000 MT, and an average age per vessel of 1.7 years as of June 30th, 2011. GNK has a 25% ownership interest in Baltic Trading Limited.

Safe Bulkers Inc. - Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we forecast that Safe Bulkers Inc. (NYSE: SB) generated net income of $22,350,000 or $0.32 earnings per share. We estimate that the company’s net TCE Revenues for the quarter were $41,100,000 & the fleet average TCE was $28,500. We also forecast that during the second quarter of 2011, Safe Bulkers generated EBITDA of $29,300,000.

Our forecast is based on the following two key assumptions: Two vessels were off-hire for scheduled dry-dock repairs & inspections during the quarter, resulting in a total of 14 days off-hire. Also the company generated a net loss from derivatives of $3,500,000.

During the second quarter of 2011, the company issued 5,000,000 new shares in a secondary offering raising net proceeds of approximately $39.9 million. We also estimate that the company drew $24 million from its “Maxdekatria” Credit Facility. Based on these transactions and the company’s operating results, we estimate that SB’s total book capitalization as of June 30th, 2011 stood at $818.6 million, including long-term debt of $505.4 million. We finally estimate that SB will declare a regular quarterly dividend of $0.15 per share.

As of June 30th, 2011, Safe Bulkers was operating a modern diversified fleet of 16 bulk carriers (consisting of 4 PANAMAX, 3 KAMSARMAX, 8 POST-PANAMAX, & one CAPE size vessels), with a total DWT capacity of 1,443,800 MT, and an average age of 4.3 years.

In addition, the company has embarked on an extensive $480 million new-building program for an additional 11 vessels with a total DWT capacity of 1,097,200 MT. Three of the company’s new-building vessels are scheduled for delivery during the second half of 2011.

Diana Containerships Inc. - Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we forecast that Diana Containerships Inc. (NASDAQ: DCIX) generated a net loss of $165,000 or ($0.02) basic earnings per common share. We also forecast that TCE Revenues for the quarter were $3,970,000 and the net average TCE rate was $18,300.

As of June 30th, 2011, we estimate that the company had a total book capitalization of $206.5 million. Following the company’s secondary offering at $7.50 per share in June 2011 (the company received net proceeds of approximately $121.5 million), DCIX repaid its bank loan and currently has no debt outstanding. We estimate that as of the end of the second quarter the company had $44.5 million cash on hand to finance future vessel acquisitions.

DCIX intends to declare a variable quarterly dividend equal to 70% of it operating cash flow. According to our estimates for the second quarter the company generated cash from operations of $1,600,000. On this basis, we forecast that DCIX will declare a quarterly dividend of $0.05 per share.

Diana Containerships owns a fleet of two new building, intermediate size vessels and three older panamax vessels, with an aggregate capacity of 20,486 TEU. Diana Shipping Inc. (NYSE: DSX) has a 14.5% ownership in the company.

Baltic Trading Limited – Earnings Estimate For 2011 Q2

For the quarter ended June 30th, 2011, we forecast that Baltic Trading Limited (NYSE: BALT) generated a net loss of $1,150,000 or ($0.05) basic earnings per share. We estimate that the company’s net TCE revenues for the quarter were $9,700,000 & the fleet average TCE was $11,800. We also forecast that during the second quarter of 2011 BALT generated EBITDA of $3,600,000.

Based on our earnings forecast and the company’s formula for declaring quarterly dividends, we project that BALT will not have cash available for dividend distribution. However, in the previous quarter and under similar circumstances, BALT did declare a dividend of $0.06 per share. After taking into account that BALT generated sufficient free cash flow during this quarter to pay a similar dividend, and given the company’s intention to declare a dividend quarterly, we forecast a dividend of $0.06 per share for the second quarter of 2011.
As of June 30th, 2011, we forecast that the company had $101,250,000 in long-term debt and a total capitalization of $384,000,000. Its debt to capitalization ratio stood at 26.4%. BALT had a remaining $48,750,000 under its amended 2010 credit facility, to finance future vessel acquisitions and for working capital purposes.

BALT operates a modern diversified fleet of 9 dry cargo vessels, consisting of 3 handy size vessels, 4 supramax size vessels and two cape size vessels, with a total DWT capacity of approximately 670,000 MT, and an average age of 1.7 years as of June 30th, 2011.

Baltic Dry Index - A Leading Economic Indicator?

In recent years, the Baltic Dry Index (“BDI”) has gained a lot of notoriety outside its narrow audience of ship-owners, freight traders, or even investors in publicly traded shipping companies. Many economists and analysts now view the BDI as a leading indicator of world economic activity in general, and industrial growth among emerging economies in particular. What does the Baltic Dry Index really measure, and should analysts & investors use it as a leading economic indicator?

The Baltic Dry Index (“BDI”) is a spot assessment of the ocean transportation cost for dry bulk commodities. The BDI is published every business day by the Baltic Exchange, a 250 year-old London-based maritime association. Dry bulk commodities consist of the three major bulk commodities (iron ore, coal & grain products), and the minor bulk commodities (fertilizers, steel products, scrap iron, bauxite & alumina, cement, petroleum coke, etc).

By definition, the Baltic Dry Index represents the current balance between the supply of ocean going vessels and the transportation demand for raw materials. Now, it is true that transportation demand for dry bulk commodities is driven to a large degree by industrial growth in emerging economies such as China, India, etc. Thus higher industrial growth should lead to higher demand for ocean transportation and an increase in the BDI.

It is also true that at any given point in time the supply of ocean going vessels, i.e. the size of the dry bulk carrier fleet, is fixed. Any short-term changes in the BDI should then mostly reflect changes in industrial activity. Case is closed: We just proved that BDI is a leading economic indicator, or did we?

First we have not said anything about the supply of ocean going vessels. The size of the dry bulk carrier fleet is not constant over time. Its size changes with the delivery of new-building vessels, and the scrapping of older tonnage. Also the overall fleet size may or may not be correlated to current industrial activity. It is the sum of investment decisions made over several years, since the lead-time to build a new vessel is approximately two years, and the average economic life of a bulk carrier is 25 years.

Once a vessel is built it stays in the fleet during good times and bad. When the market becomes oversupplied, like we are witnessing this year, the BDI tends to be depressed irrespective of overall industrial activity! As a matter of fact, the BDI is currently being assessed at below historical average levels, not-withstanding a very robust demand for raw materials. Which means that at times of tonnage over-supply or under-supply, the absolute BDI level becomes uncorrelated to industrial activity.

Also short-term changes in the BDI can be caused by several factors other than underlying industrial activity. Changes in trading patterns, seasonality, inventory management, port delays, weather and/or political disruptions, can add more to short-term volatility than mere changes in industrial activity.

For publicly traded shipping companies that have exposure to the spot freight market, the BDI is a perfect proxy for their short-term earnings capacity. But as a leading economic indicator, the BDI does a rather poor job. (Originally Published April 25th, 2011)

A Crack At The Seams: The Curious Case Of National Bank Of Greece Preference Shares

On June 1st, 2011, the Board of Directors of National Bank of Greece proposed that no dividends shall be paid to holders of the redeemable non-voting and non-cumulative preference shares traded on NYSE (NYSE: NBGPRA or NBG-PA). Following the suspension of the annual $2.25 dividend per share, the stock closed the trading session on June 2nd, at $12.18 per share, down a cool $5.02 per share or a little under 30%!

Why did the BOD make such recommendation to the forthcoming annual shareholders’ meeting? Under the best-case scenario, it wanted to preserve capital. Under the worst-case scenario, it was not permitted to make such distribution.

National Bank of Greece (NBG) is the largest bank in Greece and one of the largest in South East Europe. In addition to its leading market share domestically, it has substantial presence in neighboring Turkey (through its majority-owned subsidiary Finansbak) and the Balkans.

In June 2008, during better times for the banking industry in general and Greece in particular, NBG had successfully issued 25 million preference shares in the form of American Depositary Receipts on the New York Stock Exchange. The shares were issued at $25 per share and the bank intended to declare an annual non-cumulative dividend of $2.25 per share.

Preference shares are a sort of hybrid security, sharing elements with corporate bonds and common equity. Like corporate debt, the holders of preference shares are paid a fixed annual dividend, and have a senior claim to the common shareholders on the company’s net assets. But like common equity they are entitled to a dividend only subject to the availability of distributable earnings.

In fact, preference shares look a lot like municipal revenue bonds. Revenue bonds pay interest only out of a specific tax revenue and are not backed by the full faith and credit of the municipal agency. For that reason, revenue bonds are considered riskier than general obligation bonds and normally carry a higher interest coupon. Likewise, preference securities are paid a preferred dividend only out of distributable earnings. They are considered riskier than corporate bonds and offer a higher yield.

At the time of issuance, the bank was hugely profitable, having earned € 915 million at the parent level during fiscal year 2007, and having amassed in excess of € 1,600 million in retained earnings. Since the annual preferred dividend was only about $ 56 million or approximately € 42 million per year, it was considered safe.

But, the general banking crisis at the end of 2008, followed by the Greek sovereign crisis last year, have hit the bank very hard. National Bank of Greece had to make increasing allowances against unrealized losses in its available-for-sale securities portfolio (which included Greek sovereign bonds). Its available for sale securities reserve at the parent level rose from a paltry € 38 million at the end of 2007 to € 1,473 million at the end of 2010.

During the same period, National Bank of Greece saw its retained earnings at the parent level falling from € 1,603 million to € 316 million. If that were not enough, the bank reported a net loss at the parent level of € 361 million for fiscal year 2010, despite reporting a consolidated net profit of € 405 million (The majority of which came from its Turkish subsidiary Finansbank)!

The non-availability of distributable reserves at the parent level (Net loss of € 361 million versus retained earnings of € 316 million) proved our worst fears and forced the Board of Directors’ hand to recommend suspension of the dividend for this year.

Will National Bank of Greece have the capacity to declare a dividend next year? It is possible but not very likely. For the first quarter of 2011, the bank had a net unconsolidated loss of € 26 million and its reserves & retained earnings at the parent level remained flat at € 321 million. Given the Greek Government’s persistent fiscal difficulties, we cannot envision National Bank of Greece returning to profitability at the parent level during 2011. Therefore we forecast that the travails to the holders of preference shares will continue into the foreseeable future.

Note: We based our analysis on reported figures at the parent level because according to the offering prospectus for the preference shares, preferred dividends are paid out of the bank’s distributable funds as measured on an unconsolidated basis.

Eagle Bulk Shipping Inc. - A Stress Test Assessment

The shares of Eagle Bulk Shipping Inc. (NASDAQ: EGLE) have been trading at an all time low, having closed at $2.56 on May 23rd, 2011. At the above closing price the street was valuing the company’s equity at a paltry $160 million, for a total market capitalization of just over $1.3 billion.

Given the company’s low valuation levels we have performed stress tests to answer two fundamental questions.

With regards to liquidity, will the company generate enough cash from operations to meet its capital expenditure requirements over the next three years?

With regards to solvency, will the company meet its loan covenant requirements, and will the company have the capacity to refinance its debt when it matures in July 2014?

EGLE currently has a fleet of 46 SUPRAMAX vessels (including 6 vessels currently under construction, all scheduled for delivery this year). We estimate that as of December 31st, 2011, the company’s fleet will have an average age of 4.9 years.

As of March 31st, 2011, EGLE had approximately $98 million cash on hand (excluding any restricted cash), and had a total debt of $1.150 billion, or an average debt per vessel of $25 million.

EGLE has the following capital expenditures for years 2011 to 2013: For year 2011 it has to pay $126 million to complete the construction of the six new-building vessels but has no scheduled loan repayments. For year 2012 it has one scheduled loan repayment for $54 million. Finally for year 2013 it has two scheduled loan repayments totaling $108 million.

For the remainder of year 2011, taking into consideration the $98 million cash on hand, EGLE would need to generate at least $28 million cash from operations or an average TCE of $13,000 per vessel per day to meet its CAPEX requirements.

For years 2012 and 2013, without taking into consideration any cash on hand, the company would need to generate at least $54 million and $108 million cash from operations, or an average TCE of $14,000 and $17,000 per vessel per day respectively, to meet its CAPEX requirements.

We must underline that all break-even TCE rates are subject to interest rate risk exposure since the company carries approximately two-thirds of its long-term debt on a floating rate basis.

Based on the above figures, the company’s fleet employment profile, and the current freight market, and subject to interest rate risk exposure, we believe that EGLE should be able to meet its CAPEX requirements for this year.

With regards to its long-term debt, EGLE must continue to meet its loan covenants in addition to making its scheduled loan repayments. EGLE currently meets its debt covenants with the exception of the minimum-security covenant, which it has been granted a waiver from its lenders. Under the original terms of the minimum-security covenant, the company’s fleet should have a valuation that exceeds 130% of debt outstanding. In other words, the average value per vessel should be in excess of $32.5 million at the current level of long-term debt of $1.150 billion.

Given that the current valuation for a 5-year old SUPRAMAX vessel is approximately $28 million, we believe that EGLE would not meet its minimum-security covenant if that were to be applied. Since the 130% minimum-security covenant is a rather typical term in shipping commercial loans, EGLE currently does not have the capacity to refinance the entire amount of debt outstanding. Therefore, it must aggressively pay down its debt, using any excess cash from operations, disposal of older assets, and/or raising fresh equity.

The current freight market environment and corresponding equity valuations pose a challenge for Eagle Bulk Shipping to raise capital through asset sales or secondary equity offerings. But the good news is that the company is in a comfortable position to meet its cash obligations in the short to medium-term, has very little liquidity risk, and its long-term debt only matures in July 2014.

Eagle Bulk Shipping Inc. - Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Eagle Bulk Shipping Inc. (NASDAQ: EGLE) generated net loss of approximately $1,800,000 or $0.03 basic net loss per common share. Our forecast excludes the effect of the company’s freight trading operations that were established during the third quarter of last year. Our forecast also excludes any provision against non-collectible hire due to Korea Line’s bankruptcy.

We forecast that the company’s fleet of 40 vessels generated net TCE Revenues of approximately $55,800,000 or the equivalent TCE of $16,160. We also forecast that EBITDA for the quarter was about $24,500,000, and Adjusted EBITDA (for credit agreement purposes) was about $27,300,000.

As of March 31st, 2011, we estimate that the company had total debt of $1.15 billion and total capitalization of $1.82 billion. We also estimate that its debt to total capitalization ratio stood at approximately 63.1%.

About Eagle Bulk Shipping Inc.: EGLE is a publicly traded shipping company that as of March 31st, 2011 owned a modern diversified fleet of 40 supramax-size dry cargo vessels with a total DWT capacity of approximately 2,160,000 MT. It also had on order 6 new building vessels, scheduled for delivery during 2011, with a total DWT capacity of approximately 348,000 MT.

Diana Shipping Inc. - Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Diana Shipping Inc. (NYSE: DSX) generated net income of $31.6 million or $0.39 basic earnings per common share. We also forecast that TCE Revenues for the quarter were $65.7 million and the net average TCE rate was $29,200.

As of March 31st, 2011, we estimate that the company had a capitalization of $1.530 billion including long-term debt of $364 million. We also estimate that its debt to capitalization ratio stood at 23.8%.

As of March 31st, 2011 the company was operating a modern diversified fleet of 23 dry cargo vessels (consisting of 14 panamax size vessels, one post-panamax vessel, and 8 cape size vessels), with a total DWT carrying capacity of 1,398,000 MT. The company also has two specialized cape size vessels on order, scheduled for delivery in 2012.

Diana Shipping was the majority holder of privately held Diana Containerships Inc. In January 2011 DSX did a partial spin-off of Diana Containerships, reducing its shareholding to approximately 11%. Following the partial spin-off, Diana Containerships is publicly traded on NASDAQ (NASDAQ: DCIX).

Diana Containerships Inc. - Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Diana Containerships Inc. (NASDAQ: DCIX) generated net income of $160,000 or $0.03 basic earnings per common share. We also forecast that TCE Revenues for the quarter were $3,125,000 and the net average TCE rate was $17,355.

As of March 31st, 2011, we estimate that the company had a capitalization of $104.3 million, including long-term debt of $19.3 million. We also estimate that its debt to capitalization ratio stood at 18.5%.

Diana Containerships owns a fleet of two new building vessels with an aggregate capacity of 6,852 TEU. The company has also agreed to purchase three additional vessels with an aggregate capacity of 13,634 TEU, scheduled for delivery during the second quarter of 2011.

Until recently DCIX was a privately held majority subsidiary of Diana Shipping Inc. (NYSE: DSX). Following a partial spin-off of the company to DSX’s shareholders in January 2011, Diana Containerships is now publicly traded on NASDAQ, with DSX maintaining an approximately 11% ownership in the company.

Safe Bulkers Inc. - Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Safe Bulkers Inc. (NYSE: SB) generated operating income of $26.7 million or $0.41 per common share. We estimate that the company generated net TCE Revenues of approximately $40.7 million, and the fleet average TCE was $28,600.

As of March 31st, 2011, Safe Bulkers was operating a modern diversified fleet of 16 bulk carriers (consisting of 4 PANAMAX, 3 KAMSARMAX, 8 POST-PANAMAX, & one CAPE size vessels), with a total DWT capacity of 1,443,800 MT. The company also has an additional 11 new-building vessels on order with a total DWT capacity of 1,097,200 MT.

Genco Shipping & Trading Limited - Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Genco Shipping & Trading Limited (NYSE: GNK) generated basic earnings per common share of $0.30 on net income attributable to GNK shareholders of $10,400,000.

We estimate that the company generated net consolidated TCE Revenues of approximately $99,150,000 and that the GNK only fleet average TCE was $20,460. We also forecast that EBITDA for the quarter was approximately $66,000,000.

As of March 31st, 2011 we estimate that the company had total debt of $1.75 billion inclusive of the convertible senior notes issued by GNK, and inclusive of $101.250 million of debt issued by the company’s subsidiary Baltic Trading Limited. We also estimate that GNK had a total capitalization of $3.1 billion.

About Genco Shipping & Trading Limited: GNK is a publicly traded shipping company that presently owns a modern diversified fleet of 50 dry cargo vessels with a total DWT capacity of approximately 3,700,000 MT. It also has on order 3 new building vessels with a total DWT capacity of approximately 105,000 MT.

In addition, the company’s subsidiary Baltic Trading Limited (NYSE: BALT) owns a fleet of nine dry cargo vessels with a total DWT capacity of 670,000 MT.

Baltic Trading Limited – Earnings Estimate For 2011 Q1

For the quarter ended March 31st, 2011, we forecast that Baltic Trading Limited (NYSE: BALT) generated a net loss of $2,200,00 or ($0.10) basic earnings per share.

We estimate that the company’s net TCE revenues for the quarter were approximately $9,200,000 & the fleet average TCE was $11,320. We also forecast that during the fourth quarter of 2010 BALT generated EBITDA of approximately $2,650,000.

Based on our forecast we project that the company will not make a dividend distribution for the first quarter of 2011.

As of March 31st, 2011, we forecast that the company had $101,250,000 in long-term debt and a total capitalization of approximately $386,000,000. Its debt to capitalization ratio stood at 26.3%.

BALT had a remaining $48,750,000 under its amended 2010 credit facility, to finance future vessel acquisitions and for working capital purposes.

BALT operates a modern diversified fleet of 9 dry cargo vessels, consisting of 3 handy size vessels, 4 supramax size vessels and two cape size vessels, with a total DWT capacity of 670,000 MT.

Just How Low Is General Maritime Corporation On Cash?

General Maritime Corporation (NYSE: GMR) was scheduled to report much anticipated earnings results for the fourth quarter of 2010, following the closing of markets today. Instead the company filed a form 12b-25 with the SEC, requesting an extension to file its 2010 annual report on form 10-K.

GMR cited ongoing discussions with prospective lenders and investors to meet its liquidity needs. GMR is also considering vessel sales, additional debt or equity offerings, waivers or extensions of its obligations under its existing credit facilities, as well as other options.

To underscore the severity of the situation, GMR also acknowledged that pending on the results of its efforts, it is quite probable that its annual report may include going concern uncertainty disclosure. That is, GMR’s auditors may have to formally disclose in their report that the company’s financial position raises substantial doubt about its ability to continue as a going concern for a period of one year from Dec 31st, 2010.

Just how bad is GMR’s liquidity position? Aside from compliance with various loan covenants, is the company simply running out of cash?

GMR today offered a brief guidance on its expected financial results for the fourth quarter. The company is expecting a net loss of approximately $39 million, or the equivalent loss of $0.45 per share, excluding the effect of non-cash impairment charges. Adjusting for depreciation and amortization, and for scheduled dry-dock costs during the quarter, we estimate that the company generated a negative operating cash flow of approximately $23 million.

During the quarter the company took delivery of a Suezmax vessel from Metrostar, which was financed with proceeds from an existing credit facility and a $22.8 million bridge loan. The company also was scheduled to make loan repayments of about $6.9 million. Finally, GMR made a dividend distribution of $0.01 per share or about $0.9 million.

On a net basis, we estimate that GMR decreased its cash position by approximately $30.7 million and ended the year with approximately $28 million on hand. This estimate is in line with the company’s disclosure on February 3rd, 2011, that its cash balance had fallen below $50 million, the minimum level required by its lenders, when it was granted a waiver until February 28th, 2011.

During the first quarter of 2011, GMR has raised $61.7 million from the sale/lease-back of three product tankers, has raised an additional $18.5 million from the sale of GENMAR PRINCESS & GENMAR GULF, has repaid the $22.8 million bridge loan, and is scheduled to make loan repayments on its 2010 credit facility of about $7.5 million. On a net basis we estimate that the company has already generated approximately $49.8 million from its investing and financing activities.

Given the above, we estimate that GMR should be able to finish the first quarter of 2011 with cash on hand exceeding the $50 million threshold.

But even if GMR were able to achieve the above milestone, its remaining capital commitments for the year remain daunting. For example, GMR must use $22.8 million to partially finance the delivery of the final Suezmax vessel from Metrostar in April 2011. It has undertaken to raise $52.4 million in fresh equity until September 30th, 2011. Last but not least, GMR will have to start amortizing its $750 million credit facility starting in April 2011, making semiannual payments of approximately $50 million!

While it appears that GMR has not run out of money just yet, its capital requirements for the month of April and the remainder of the year left it no choice but to take the drastic actions it formally acknowledged today.

Eagle Bulk Shipping Inc. - Korea Line Corporation Follow-Up

On March 2nd, 2010, Eagle Bulk Shipping Inc. (NASDAQ: EGLE) reported fourth quarter basic earnings per common share of $0.05, in line with our estimates. The company also provided an update on its exposure with Korea Line Corporation during its earnings conference call and in its annual 10-K report.

How bad is Eagle Bulk Shipping’s exposure to Korea Line? And what does it mean with regards to its chartering strategy and forward fixed revenue profile?


EGLE currently owns a fleet of 46 supramax-size dry cargo vessels, including seven new building units under construction, with a total DWT capacity of approximately 2,500,000 MT. EGLE acknowledged that Korea Line Corporation has on long-term period charter 13 vessels (i.e. approximately 28% of revenue days when all vessels will have been delivered), making Korea Line the company’s de-facto largest Charterer.

Korea Line had already taken delivery of nine vessels prior to its filing for bankruptcy protection. One new building vessel (Kittiwake), has subsequently been delivered to EGLE and three more units are scheduled for delivery during this year. Last but not least, Eagle acknowledged that its exposure to Korea Line as of March 4th was approximately $8,300,000.

With regards to its credit exposure, the good news is that Eagle Bulk Shipping has done a remarkable job mitigating its losses and reducing the growth of its hire due & owning. EGLE has reached a temporary agreement with Korea Line to assume commercial management of its vessels on short-term period, until the bankruptcy status of Korea Line is resolved.

The affected vessels currently earn on average $15,000 per day compared to an average $18,400 charter hire due from Korea Line. This means the company’s claim against Korea Line is currently only growing at a rate of about $34,000 per day. On this basis we project that the company’s claim will grow to approximately $9,500,000 by the end of March 30th. We also estimate that the claim will continue to grow at a rate of approximately $3,000,000 per quarter, assuming average short-term earnings remain at $15,000 per day.

Now a potential few million-dollar write-off may not look exactly as irreparable damage to a company with a total capitalization of $1.8 billion. But if we compare it to company’s net income of $3 million last quarter, it is hard to see how EGLE can avoid going into the red if it must make an allowance against doubtful accounts receivable.

But the really bad news is the big hole that Korea Line’s bankruptcy has opened in EGLE’s forward fixed cover. Including the Kittiwake, the company currently has a total of 15 vessels on long-term fixed period charters. Korea Line is responsible for 10 of these charters or two thirds of its long-term fixed cover! These charters not only provided long-term earnings visibility but also offered the potential of additional profit sharing in the future. They were in essence at the center of the company’s long-term chartering strategy, a strategy that now must quickly be reassessed.

It is certainly possible that Korea Line can emerge from its bankruptcy position and resume its charter hire payments in due course. But how prudent will be for Eagle Bulk Shipping to continue its over-reliance on a customer with such tainted background? Perhaps the company should consider retaking commercial control of most of its affected vessels on a permanent basis.

Eagle Bulk Shipping Inc. - Earnings Estimate For 2010 Q4

For the quarter ended December 31st, 2010, we forecast that Eagle Bulk Shipping Inc. (NASDAQ: EGLE) generated net income of approximately $3,400,000 or basic earnings per common share of $0.05, excluding any effect of the company’s freight trading operations that were established during the previous quarter.

We forecast that the company generated net TCE Revenues of approximately $62,100,000. We also forecast that EBITDA for the quarter was about $33,700,000, and Adjusted EBITDA (for credit agreement purposes) was about $37,000,000.

As of December 31st, 2010 we estimate that the company had total debt of $1.13 billion and total capitalization $1.80 billion. Its debt to total capitalization ratio stood at approximately 62.8%.

EGLE is a publicly traded shipping company that as of December 31st, 2010 owned a modern diversified fleet of 39 supramax-size dry cargo vessels with a total DWT capacity of approximately 2,100,000 MT. It also had on order 7 new building vessels, scheduled for delivery during 2011, with a total DWT capacity of approximately 406,000 MT.

Diana Shipping Inc. - Earnings Estimate For 2010 Q4

For the quarter ended December 31st, 2010, we forecast that Diana Shipping Inc. (NYSE: DSX) generated net income of $34.5 million or $0.43 basic earnings per common share. We also forecast that TCE Revenues for the quarter were $69.4 million and the net average TCE rate was $31,560.

As of December 31st, 2010, we estimate that the company had a capitalization of $1.52 billion including long-term debt of $344 million. Its debt to capitalization ratio stood at 22.7%.

As of December 31st, 2010 the company was operating a modern diversified fleet of 23 dry cargo vessels (consisting of 14 panamax size vessels, one post-panamax vessel, and 8 cape size vessels), with a total DWT carrying capacity of 1,398,000 MT. The company also has two specialized cape size vessels on order, scheduled for delivery in 2012.

Diana Shipping was the majority holder of privately held Diana Containerships Inc. In January 2011 DSX did a partial spin-off of Diana Containerships, reducing its shareholding to approximately 11%. Following the partial spin-off, Diana Containerships is publicly traded on NASDAQ (NASDAQ: DCIX).

Genco Shipping & Trading Limited - Earnings Estimate For 2010 Q4

For the quarter ended December 31st, 2010, we forecast that Genco Shipping & Trading Limited (NYSE: GNK) generated basic earnings per common share of $1.00 on net income attributable to GNK shareholders of $35,200,000. We forecast that the company generated net consolidated TCE Revenues of approximately $127,500,000. We also forecast that EBITDA for the quarter was about $91,350,000.

As of December 31st, 2010 we estimate that the company had total debt of $1.745 billion inclusive of the convertible senior notes issued by GNK, and inclusive of $101.250 million of debt issued by the company’s subsidiary Baltic Trading Limited. We also estimate that GNK had a total capitalization of $3.080 billion.

GNK is a publicly traded shipping company that presently owns a modern diversified fleet of 49 dry cargo vessels with a total DWT capacity of approximately 3,650,000 MT. It also has on order 4 new building vessels with a total DWT capacity of approximately 163,000 MT.

In addition, the company’s subsidiary Baltic Trading Limited (NYSE: BALT) owns a fleet of nine dry cargo vessels with a total DWT capacity of 670,000 MT.

Safe Bulkers Inc. - Analysis Of Earnings Results For 2010 Q4

Safe Bulkers Inc. (NYSE:SB) reported $0.47 earnings per share for the quarter ended December 31st, 2010. Our forecast called for earnings per share of $0.33. Clearly our forecast missed reported earnings by a wide margin and it is important to analyze why, to avoid repeating the same mistake in the future.

The discrepancy between our forecast and actual results was because of our miscalculation of the company’s expected gain/(loss) on derivatives.

The company is using a very prudent interest rate risk management strategy. As of December 31st, 2009 it had entered into interest rate swap transactions for a notional amount of $452 million to effectively hedge its interest rate exposure on total debt of $471 million.

The weighted average swap rate as of December 31st, 2009 was 3.33%. Because the prevailing short-term LIBOR rate has been below this level for the entire year, we had expected the company to realize a net loss on interest rate swaps that expired during the year. Any gain or loss from expiring swaps is typically included on quarterly earnings either as a component of interest expense (if the swap qualifies for hedge accounting) or as a separate item (if not).

However, the company’s interest rate swaps do not qualify as effective cash flow hedges under GAAP. Safe Bulkers has to include on its quarterly earnings any unrealized gain or loss from differences in mark-to-market valuation on its outstanding interest rate swaps.

During the fourth quarter of 2010, because of an upward trend on the LIBOR term structure, the company’s unrealized gain on its outstanding interest rate swaps exceeded realized loss on the expired swaps. As a result, Safe Bulkers reported a gain on derivatives of $4.9 million, compared to a loss of $3.9 million for the previous quarter. Our forecast had mistakenly called for a loss on derivatives of $4 million.

The fact that the company’s interest rate swaps do not meet the strict GAAP hedging accounting criteria will continue to create volatility on its quarterly earnings. Despite this volatility, Safe Bulkers should be commended for a very prudent and very conservative interest risk management strategy.

Safe Bulkers Inc. - Coverage Initiation & Earnings Estimate For 2010 Q4

We have initiated coverage on Safe Bulkers Inc. (NYSE:SB), a publicly traded dry cargo shipping company.

As of December 31st, 2010, Safe Bulkers was operating a modern diversified fleet of 16 bulk carriers (consisting of 4 PANAMAX, 3 KAMSARMAX, 8 POST-PANAMAX, & one CAPE size vessels), and had an additional 9 new-building vessels on order.

For the quarter ended December 31st, 2010, we forecast that SB generated basic earnings per common share of $0.33 on net income of $21.5 million. We forecast that the average TCE rate for the quarter was $28,650 per day on TCE revenue of $41.1 million. We finally forecast that the company generated operating income of $27 million.

Baltic Trading Limited – Earnings Estimate For 2010 Q4

For the quarter ended December 31st, 2010, we forecast that Baltic Trading Limited (NYSE: BALT) generated basic earnings per common share of $0.19 on net income of $4,300,000. Its net TCE revenues for the quarter were approximately $14,800,000. We also forecast that during the third quarter of 2010 BALT generated $5,200,000 in cash available for distribution to shareholders, or the equivalent cash dividend of $0.23 per share outstanding.

As of December 31st, 2010, the company had $101,250,000 in long-term debt and a total capitalization of approximately $391,000,000. Its debt to capitalization ratio stood at 25.9%.

BALT also had a remaining $48,750,000 under its amended 2010 credit facility, and cash on hand of approximately $9,000,000.

BALT operates a modern diversified fleet of 9 dry cargo vessels, consisting of 3 handy size vessels, 4 supramax size vessels and two cape size vessels, with a total DWT capacity of 670,000 MT.

Eagle Bulk Shipping Inc. - Not All Disclosures Are Created Equal!

Following persistent market rumors and a precipitous drop in its share price, Eagle Bulk Shipping (NASDAQ: EGLE) acknowledged today its credit exposure with Korea Line Corporation, which had earlier filed for protective receivership in Seoul (i.e. bankruptcy protection). But if the company was trying to calm the market’s negative sentiment, it probably achieved the exact opposite, since it did not disclose the nature and extent of its credit exposure with Korea Line.

Under the most recent quarterly report filed by the company (for the quarter that ended on Sep 30th, 2010), EGLE had disclosed three charterers, each accounting for more that 10% of its consolidated time charter revenue. Charterer B with 25% of revenue, and Charterers W & X with 13% and 10% respectively. Why the letters you may ask? EGLE does not disclose the names of its major Charterers. In fact it does not disclose the name of the Charterer for any medium or long-term charter it enters.

For comparison purposes, the three other publicly traded peers of EGLE that we cover, namely Baltic Trading Limited (NYSE: BALT), Genco Shipping & Trading (NYSE: GNK), and Diana Shipping (NYS: DSX), all provide full disclosure of the Charterer for every medium to long-term charter they enter.

Is it possible that Korea Line was one of the company’s three major charterers? Published reports today claim that Korea Line has chartered 13 of the EGLE’s vessels. EGLE is currently operating a fleet of 39 vessels and is scheduled to take delivery of an additional 7 vessels this year. If it is true that Korea Line has on charter 13 vessels, it will make Korea Line, not only one of the company’s three major Charterers, but the largest one!

Eagle did acknowledge that its exposure to current accounts receivable with Korea Line is modest. This should be expected since it is common practice in shipping for hire to be paid in advance every 15 days and Korea Line only filed for bankruptcy protection today. But the problem is not accounts receivable, typically not a major balance sheet account for a shipping company. The problem is the company’s credit exposure to its forward fixed revenue, which could be very substantial if Korea Line is among its largest customers.

The company also acknowledged that the vast majority of its charters with Korea Line are fixed at close to current market rates. Well we beg to differ! Very weak current market rates are precisely why Korea Line filed for bankruptcy protection. Today the spot rate for Supramax vessels (EGLE’s vessel class) was pegged at $14,333, for Panamax vessels at $12,084, and for Capesize vessels at a depression level of $8,002.

How do current spot market rates compare to the charters with Korea Line? While we cannot fully answer this question, given the lack of public disclosure, we know that during 2010 EGLE took delivery of 12 new-building vessels. Ten of those vessels have been fixed on long-term charters from 3 to 8.5 years at gross BASE RATES ranging from $17,650 to $18,500 PLUS profit sharing. If Korea Line were responsible for several of those charters, then the company’s credit exposure to its forward fixed revenue would indeed be very substantial.

In contrast Diana Shipping & Baltic Trading Limited presently have no vessels chartered to Korea Line, and Genco Shipping & Trading only has its vessel GENCO SUCCESS coming off charter at the end of this month.

In conclusion, adverse market conditions, coupled with a lack of adequate public disclosure will make for very turbulent seas in the coming days!

General Maritime Corporation - Analysis Of Recent Sale & Leaseback Deal

On January 18, 2011 General Maritime Corporation (NYSE:GMR) announced the sale and leaseback of three medium range product tankers for total net proceeds of $61.7 million. The three vessels have an average age of approximately 6.25 years. Under the terms of the deal General Maritime will lease back the vessels for a period of up to seven years with options to repurchase the vessels at the end of each year.

The sale & leaseback deal provides General Maritime with off-balance sheet financing to meet its short-term capital requirements. To determine the effective financing cost for GMR, we first analyzed the terms of the deal to estimate the projected internal rate of return for the new owners.

The projected IRR depends on the vessels’ residual value. In general, the higher the residual value, the higher the IRR, and the higher the financing cost. In this case however the annual purchase options set a ceiling on the IRR, and provide General Maritime with an opportunity to lower its financing cost.

For example, assume that the residual value per vessel at the end of year 7 is equal to $13 million. The new owners will achieve an IRR of 11.80%. If the residual value is $15 million (i.e. equal to the purchase option), the new owners will achieve an IRR of 12.80%. On the other hand if the residual value is $17 million (i.e. it exceeds the purchase option by $2 million), the new owners will achieve the same IRR of 12.80%, since the purchase option will be exercised by GMR.

In the first two cases above, the effective financing cost for General Maritime will be equal to the IRR (i.e. 11.80% if the residual value per vessel is $13 million and 12.80% if the residual value is $15 million). If however the residual value is $17 million, the company’s effective financing cost will then be 11.80%!

On average, assuming that the residual value of the vessels at the end of years 3 through 7 will equal the purchase option price, the internal rate of return to the new owners, and likewise the effective financing cost to General Maritime, will range between 13.90% for year 3 and 12.80% for year 7 respectively.

The range above is obviously a very steep price for General Maritime to pay. The company however will be able to meet its short-term capital requirements and will hold a valuable long-term option to repurchase the vessels and thus lower its effective financing cost.