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Lambros Papaeconomou

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  • Assessing The Risk Exposure Of Safe Bulkers [View article]
    Asset write downs will have a psychologically negative effect, however stock prices reflect (or should reflect) current market values and not book values. Watch this space; I will be publishing a full valuation article on Safe Bulkers this week.
    Nov 26 08:14 AM | 1 Like Like |Link to Comment
  • How To Make Sense Of EBITDA In The Shipping Industry [View article]
    I will give you an example. If you own (or otherwise commercially control) one vessel for the whole year, then you have 365 ownership days at your disposal to trade the vessel and earn revenue. You may also see the term revenue days, which means the same thing.
    Oct 17 08:54 AM | 1 Like Like |Link to Comment
  • Assessing The Risk Exposure Of Safe Bulkers [View article]
    If you have some free time, I recommend that you read my previous article on Baltic Trading Ltd. for a good insight on the company. SB and BALT are two different animals in terms of risk/reward profile, but are both worthy for consideration in a diversified shipping portfolio.
    Sep 21 10:28 AM | 1 Like Like |Link to Comment
  • Safe Refuge In A Shipping Portfolio [View article]
    According to Platou, the total order book as of the end of August was 1,978 vessels, consisting of 1,483 bulk carriers and 495 tankers. Ramisle must have mixed his numbers up, but 1,483 vessels is still a tall order.
    Sep 6 09:41 PM | 1 Like Like |Link to Comment
  • Baltic Trading Limited: Hidden Gem In Stormy Seas [View article]
    Thanks for your comments. I will try to answer them below:

    FMV is fair market value of the fleet as of June 30th, 2012. FMV was $225 million and that figure is disclosed in the company’s quarterly report.

    NAV is the net asset value. It is equal to the FMV of the fleet, plus cash (at $3.29 million), less debt outstanding (at $101.25 million). That gives us an NAV of $128 million or $5.65 per share. Again this figure is based on fair market values for the vessels and not on book values.

    Regarding the collateral maintenance, the aggregate FMV of the vessels must be at all times at least 140% of the aggregate outstanding principal under the 2010 Credit Facility. Please note that the outstanding principal is only $101.25 million, even though the company can borrow up to $135 million.

    Based on debt outstanding of $101.25 million and the 140% collateral maintenance requirement, the minimum amount has to be $141.70 million. Given that the FMV is $225 million, the company easily meets the collateral maintenance requirement. (Please also look at the table in the article for the rest of the covenants).

    Regarding dividend payment, the company has pledged since its inception to distribute cash from operations to its shareholders, and has been doing so every quarter for the past nine quarters. You and I may agree or disagree with this policy, but at least management has kept its pledge.

    Regarding the shelf registration statement of last May, it is true that they filed it to amend an existing one. I cannot rule out a secondary offering, but as I explained in my article, I find it very unlikely to be able to do so given the current state of equity markets in general and the shipping industry in particular.
    Aug 31 03:07 PM | 1 Like Like |Link to Comment
  • Baltic Trading Limited: Hidden Gem In Stormy Seas [View article]
    I totally agree with your comment regarding what is on the books versus what a company can get in the market for their vessels.

    But just to clarify. The NAV (or break-up) figure in my article is based on current fair market values and not book values.

    For your guidance, as of the end of the second quarter, the NAV for Baltic was $5.65 per share. The book value was $12.13 per share! Book values are indeed meaningless.

    If you have time, please read my article Seeking Value In the Bulk Shipping Industry, where I describe in more detail the calculation of NAV.
    Aug 31 08:44 AM | 1 Like Like |Link to Comment
  • Assessing The Bullish Case For Genco Shipping & Trading [View article]
    Genmar bought the VLCC's from Scorpio Tankers (STNG) , a sister-company to Scorpio Bulkers (SALT). Very astute trade & nice profit for Scorpio Tankers in such short amount of time, but unfortunately with no effect on Scorpio Bulkers
    Mar 14 03:10 PM | Likes Like |Link to Comment
  • Assessing The Bullish Case For Genco Shipping & Trading [View article]
    Re cash flow, I do believe that GNK could generate a positive operating cash flow in 2014, and here is why:

    The FFA curve for the nine months Apr-Dec 2014 is currently as follows:
    Handy: $10,750 – Supramax: $13,500 – Panamax: $14,000 – Cape: $27,000

    On the other hand GNK has a cash break-even rate of only $10,700 (source: most recent company presentation).

    Please also note that during the last quarter of 2014, I have estimated that GNK generated an operating cash flow at the parent level (excluding BALT) of approximately $17 million. That is why I am cautiously optimistic that GNK could make up a lot of the $87 million shortfall this year.

    But just to clarify, the potential cash flow from operations will not be sufficient to make the scheduled debt repayments of approximately $220 million for 2014. GNK will have to restructure its balance sheet very shortly, whether under bankruptcy protection or not.

    Re net income, the break-even on an accounting basis is $16,500 (source: most recent company presentation). The difference between net income break-even and cash flow break even is depreciation & amortization, stock compensation expense, amortization of deferred financing costs, etc., in other words non-cash items. GNK may or may not break-even on a net-income basis. In my analysis I prefer to look at cash flows and not accounting earnings, but I do understand that accounting earnings may also be important to investors.

    For our readers with no access to TradeWinds: an attorney specializing in corporate restructurings made remarks at a ship finance conference that GNK could restructure in a similar way like Torm, with an out-of-court agreement giving lenders a significant stake in the company’s equity.

    GNK has a complex capital structure with two types of lenders (secured & unsecured) and an out-of-court agreement may be more difficult.

    For common shareholders, the million-dollar question is how much equity (if any) they will be able to retain. I think that with sport freight markets improving they would rather delay the restructuring process as long as possible. Chapter 11 may not be the worst option for them.
    Mar 2 07:37 PM | Likes Like |Link to Comment
  • Assessing The Bullish Case For Genco Shipping & Trading [View article]

    Thank you for your comments. You are correct that when you estimate any increase/decrease in the value of the fleet you must take into consideration any economic depreciation, in addition to the general shift in the asset value curve.

    A way to think about economic depreciation in Genco's case is to classify vessels into two groups: modern and non-modern. Any vessel that is younger than 15 years is considered modern. She can reasonably be accepted at any major loading or discharging port worldwide. Once a vessel is older than 15 years (counting not from the first of the year, but from the date the vessel was delivered from the shipyard), she may only be accepted on a case-by-case basis, subject to her recent trading history, ownership record, etc.

    That is why when a ship-owner acquires a second-hand modern vessel, it is important to know how many ownership days are available until she will turn 15 years old.

    The majority of Genco's vessels are modern vessels, and the older ones have been with the company for a number of years (i.e. they are probably still suitable for trading worldwide). When I estimated the 15% increase in fair market value, I did take into account the economic depreciation since last September.
    Feb 28 01:14 PM | Likes Like |Link to Comment
  • A Survey Of Shipping Preferred Shares [View article]
    You hit the nail on the head. For estate tax purposes, some of these preferred shares are ideal (assuming the company is solvent and can pay the dividend), because the current income is tax-free. It does lower the tax basis, but as you precisely stated the tax basis is stepped-up upon death.

    Of course this is just a temporary situation. As soon as the company eliminates the deficit and starts accumulating retained earnings, any income will then be taxed as dividend.

    Common dividends can also be tax-free. For example, Nordic American Tankers (NAT) and Diana Containerships (DCIX) are currently paying tax-free cash distributions. Navios Maritime Partners (NMM) also pays a dividend that is partially tax-free.

    The big difference is that common dividends are not cumulative, and common shares are junior to preferred shares and do not have a par value (or liquidation preference).
    Feb 26 08:02 PM | Likes Like |Link to Comment
  • A Survey Of Shipping Preferred Shares [View article]
    I can now confirm that any cash distribution to preferred shareholders is treated the same way as common shareholders. If the company does not have available retained earnings, the distribution is considered return of capital. That is, it is not subject to federal income taxes but lowers the tax basis of the stock. That means SSW preferred dividends are not taxable income for now. Please also read this link below for a detailed explanation I found on Teekay Offshore’s web-site.

    Thank you for your feedback. I will add the preferred shares of TOO and ISH in my future surveys.

    J Mintzmyer:
    Agree, but over allotment options are not typically exercised on these securities. For example no option was exercised on the recent preferred issues of NM and CMRE.
    Feb 25 10:25 PM | Likes Like |Link to Comment
  • Assessing The Bullish Case For Genco Shipping & Trading [View article]
    Greetings from Connecticut. My guess is as good as anyone’s, plus I am still dizzy savoring Olympiacos victory over Manchester United. Perhaps for the right fee a motivated investment banker will sell these shares in a private placement. Hard to imagine you can sell them in the open market.
    Feb 25 09:32 PM | Likes Like |Link to Comment
  • Assessing The Bullish Case For Genco Shipping & Trading [View article]
    Thank you for your comment and the three possible scenarios.
    In the interest of full disclosure: GNK carries its vessels at book value in its balance sheet based on their historical acquisition costs. On that basis, the 53 vessels that GNK owns had a book value of about $2.2 billion at the end of Q3. Clearly this number is irrelevant.

    GNK also discloses in its SEC quarterly report additional information regarding the excess of the book value (or carrying value) of its vessels over fair market value. Based on that information, GNK’s fleet had a fair market value of $1 billion at the end of Q3.

    I have assumed that GNK’s fleet has increased in value since the end of September, in line with an increase of dry cargo asset values during the period. I have assumed an average increase of 15% based on data from the Baltic Exchange, hence my estimated valuation of $1.15 billion.
    Feb 25 04:26 PM | Likes Like |Link to Comment
  • A Survey Of Shipping Preferred Shares [View article]
    An update on DSX: It just announced the partial exercise of underwriters over allotment option for 200,000 shares. The 30-day option was for an additional 360,000 shares.
    Feb 25 08:25 AM | Likes Like |Link to Comment
  • A Survey Of Shipping Preferred Shares [View article]
    I agree that if you are a common shareholder of DSX there is little logic behind the preferred deal. Why effectively borrow money at 8.875% and at the same time extend a loan (to sister-company DCIX) for 5% plus LIBOR?

    But, if you are a preferred shareholder, then it is great knowing that Diana will pay you 8.875% per year for the next five years. Yes it is possible that Diana might not redeem the preferred shares right away, but still you continue earning a pretty nice yield. Compare this to the zero yield common shareholders have been earning since 2009.
    Feb 21 06:34 PM | Likes Like |Link to Comment