Thursday, May 9, 2013

Genco Shipping & Trading Could Use Some Extra Cash

How the mighty have fallen. Genco Shipping & Trading Limited (GNK), the one-time jewel in Peter Georgiopoulos’ shipping empire, may very well be the next shoe to drop among high-profile shipping companies heading for bankruptcy court.

Today Genco, a dry-cargo shipping company that owns a fleet of 53 vessels, is a shell of its former self. Its stock price has fallen from an all-time high of $84 per share in May 2008 to Tuesday’s all-time intra-day low of $1.12 per share. Its market capitalization has shrunk from approximately $2.4 billion to just above $60 million.

What caused Tuesday’s sell-off amid very heavy trading volume, (the stock did manage to close at $1.44 per share, down only 18.64% for the day) were renewed concerns about the company’s ability to serve its debt beginning in 2014, including rumors that it may have hired bankruptcy specialists to guide it through restructuring talks with its lenders.

Because of the uncertainty in meeting its covenants and servicing its debt, GNK had to reclassify its total debt outstanding as current liabilities, which has a lot to do with the recent sell-off in the stock.
I believe that GNK will hit the wall well before the first quarter of 2014, and possibly as early as this summer. As always the devil is hiding in the details. GNK appears to have enough cash to sustain the current market environment for a few more quarters. Its total cash on hand as of March 31st, 2013 was $65.2 million. But, after adjusting for $39.75 million (or $750,000 per vessel) that the company must maintain to meet its minimum cash covenant, and another $1 million that belongs to its subsidiary Baltic Trading Limited (BALT), that leaves GNK with just about $25 million in breathing room, before it has to go hat-in-hand back to its lenders.

To put this in perspective, during the first quarter of 2013, GNK actually burned through $17.7 million in cash to fund its operating shortfall!

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