Thursday, March 17, 2011

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.

Tuesday, March 8, 2011

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.

Wednesday, March 2, 2011

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.