Thursday, April 25, 2013

Diana Containerships – Lessons Learned From The Disposal of Maersk Madrid

Maersk Madrid was delivered in June 2011, and commenced a two-year charter at a gross rate of $21,450 per day. Diana had purchased the vessel for $22.5 million, as part of a $70.5 million en-block deal for three panamax containerships. Following the delivery of the vessels, Diana had invested an additional $2.2 million to improve efficiency & safety onboard.

Diana decided to scrap the 24-year old vessel Maersk Madrid this month for $8.8 million.  In the table below I summarize the profit/loss and IRR analysis for Maersk Madrid. Taking into account daily operating expenses of $9,000 per day, and general & administrative expenses of $1,300 per day, the investment generated a negative IRR of 22%. On an undiscounted basis, Diana will be out of pocket approximately $7 million, a substantial loss considering the initial purchase price of $22.5 million.

Bruised investors will learn some very helpful lessons. First, charter rates based on a sale/lease-back deal are extremely hard to replicate once their original term is up. 

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