Monday, March 17, 2014

The Saga of Genco Shipping & Trading Continues, But the End Is Nearer

Genco Shipping & Trading Limited (GNK) has been on a death row since its admission last month that it had missed an interest payment and had negotiated a 30-day default waiver with its lenders. With the 30-day deadline fast approaching on March 18th, the company disclosed today that it was also not going to file its annual report on time. While failing to file a timely annual report is the least of the company’s concerns at this stage, it is important to note two additional disclosures made in today’s filing with the SEC.

First, the company’s annual report may include a going concern uncertainty disclosure. This should not come as a surprise to anyone since Genco has been classifying its debt outstanding (at the parent level) as current since March 31st, 2013.

Second, the company provided preliminary estimates for last year’s results on a consolidated basis. Despite an estimated operating loss of $67 million and a total loss of $157 million for the year, the company was able to generate approximately $4 million profit from operations during the fourth quarter of 2013.

This is the first time Genco is generating a quarterly operating profit in two years. Unfortunately it may come as too little too late for its shareholders.

Given its fast deteriorating cash balance, it is very likely that Genco will seek court protection from its lenders as early as this week.

But not all may be lost for shareholders. As I analyzed in my recent Seeking Alpha Pro article, while the company’s capital restructuring is inevitable, improving freight markets and asset values may still leave existing shareholders with a piece of the company’s new equity.