Tuesday, Wells Fargo issued a downgrade of Crude Carriers:
"Wells Fargo Downgrades Crude Carriers (CRU) to Underperform; Potential Term-Out Of Credit Facility Could Hamper Dividend
April 19, 2011 7:38 AM EDT
Wells Fargo downgraded Crude Carriers (NYSE: CRU) from Outperform to Underperform. Valuation Range: $11-$12 from $16-$17.
Wells analyst says, "We believe CRU's current risks outweigh potential upside given the potential for restricted cash flows or dilution as CRU addresses credit facility maturation...Further, the soft rate environment and the broad based erosion of collateral value have continued to hamper the tanker lending environment. From our perspective, any extension would likely be followed by an eventual equity raise or term-out, keeping the current risk profile intact."
I don't really understand what the concern is. While I think it is fair to have negative expectations on the industry as a whole especially on the short term, though not on the long term, the concern for CRU is not on financing as the company has a very conservative balance sheet.
The market value of CRU's ships is about 400 M USD and it has debt of 130 M USD and very little else of material value on the balance sheet. This makes for a loan to value of about 33%. I cannot see how this should hamper dividends or refinancing any maturing loan facility.
If CRU was to trade at NAV it would trade at a share price around 16 USD per share.
I am very interested to hear other people's opinion on this. I remain long CRU.
Disclosure: I am long CRU.