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.