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CRU Buys two Suezmaxes and increases its credit facilty

|Includes:Crude Carriers Corp. (CRU)

Crude Carriers (NYSE:CRU) announced earlier this week that it purchased two Suezmax tankers and increased its credit facility from $100 million to $150 million.  We heard that CRU started negotiations for those two Suezmaxes the day the Alma IPO failed!  These vessels are for very prompt delivery, May 2010, and are accretive to earnings and dividends.

This was a good buy for CRU, although since a company typically can't do a secondary offering (follow-on) for at least six months after an IPO, they had to use and increase their credit line for the purchase. This will mean the company won't have much dry powder going forward until they can do that follow-on they have already alerted the market to.  The company used $20 per share as the price they would "hypothetically" do a follow on at, but since they have to repay 2/3 of the credit facility within nine months, and the remainder within one year, we would expect they will do something probably in September to raise the equity, as long as their share price is around current levels.

Based on the five vessels and its current delivery schedule, we would expect the company to have a dividend of between $0.90 to $1.10 per share for 2010 and around $1.85 to $2.05 per share in 2011. This was calculated using consensus analyst VLCC rates of $40k p/d and $45k p/d in 2010 and 2011, respectively, and Suezmax rates of $31k p/d and $35k p/d in 2010 and 2011, respectively. All other assumptions were taken from their prospectus and some guestimates on my part. 

The most interesting aspect of this deal was how quickly CRU used its facility to purchase these vessels.  I am sure the company wasn't expecting to use the facility this quickly but saw an opportunity and jumped on it. This show's the company's willingness to lever up given the right opportunity and it will be interesting to see how quickly they pay down the facility and go back to having no debt.  Only time will tell.

Disclosure: No positions in stocks mentioned, Long TNK

Stocks: CRU