25% Yield-To-Maturity With Strong Liqudity

Mar. 28, 2016 2:21 PM ETEneti Inc. (NETI)DSX, NM, SB48 Comments

Summary

  • Scorpio Bulkers is a dry bulk pure play with a very modern fleet, which got caught in a disastrous financing gap last year.
  • The dry bulk market has been horrendous, and SALT’s extremely weak positioning has led to a 6-month loss of 85%. I’ve been loudly bearish since June at $21/sh.
  • SALT management has recently made incredible progress to ‘save the enterprise,’ and SALT now appears set to easily survive the dry bulk downturn after raising $63M in cash.
  • Shareholders are peeved at the recent dilution. However, this is an emotional response. Sharp speculators, including the CEO, are buying heavy here at $3/sh.
  • This report also covers the 2019 notes ($25-par), traded as SLTB, which offer over a 25%+ yield-to-maturity. This is my #1 position with a basis of $9.10.

AN

SALT Overview

Scorpio Bulkers (SALT) is a dry bulk pure play, with 33 vessels currently on the water and an additional 16 newbuilds with scheduled deliveries through mid-2017. SALT also has 3 short-term time-chartered vessels on the roster. SALT was initially a private-equity darling, but saw its share price destroyed due to a horrendously timed leveraged bet on a dry bulk recovery. This oversized bet led to several bouts of massive equity dilution and the dry bulk markets continued to worsen.

Following their recent equity offering, SALT has approximately 50M shares outstanding for a market capitalization of roughly $156M.

2019 Notes (SLTB) Overview

The prospects for a dry bulk recovery looked very strong in the summer and fall of 2014. In September 2014, SALT sold $65M in 5-year exchange traded notes, with an interest rate of 7.5% on a par value of $25. These notes were extremely well received and SALT was able to subsequently increase the offering size to $73.625M. The notes trade on the NYSE under the symbol "SLTB."

The notes traded close to par value ($25) until summer 2015, when SALT began to crank out massive losses and began to shed assets to keep the balance sheet strong. The notes crashed down to $9.36 in December 2015, before falling even further to an all-time low of $7.85 in February 2016. At $7.85, with a 7.5% coupon, and a $25-par maturity on 15 September 2019, the yield-to-maturity ("YTM") was nearly 60%.

In late February, credible rumors emerged that SALT might sell their entire fleet and cash out equity investors. I seized on this opportunity to load up on SLTB at $9.10, and issued a trade alert to Value Investor's Edge subscribers. If the rumors panned true, SLTB could be $25 in just a few months. If the rumors panned

This article was written by

J Mintzmyer profile picture
19.23K Followers
The ultimate shipping and logistics platform.
BS in Economics, MA in Public Policy (International Economics), pursuing Doctoral in Public Policy (Intl Relations). J is an established independent research provider and hedge fund consultant in the maritime shipping sector.

Mintzmyer founded Value Investor's Edge, a top-ranked deep value research service in May 2015, with the goal of establishing a top-tier community of deep value investors and activists. Value Investor's Edge subscribers leverage exclusive in-depth analytic reports and community investment experience to discover disconnects in global shipping and a variety of other beaten down sectors.

As part of directing Value Investor's Edge, Mintzmyer works with a team of five analysts and data technicians to deliver quality research and analytics to over 500 members. He has interviewed numerous management teams at public maritime firms, and has worked with a multitude of investors. Mintzmyer's exclusive analysis has received frequent 'Top Idea,' 'Must Read,' and 'Small Cap Insight' awards at Seeking Alpha and he is commonly cited in industry news such as TradeWinds and Splash 24/7.

Pursuing a Doctorate in Public Policy (Intl Relations) from Harvard University. M.A. in Public Policy, with focus on International Security & Economic Policy from the University of Maryland. Distinguished Graduate of the United States Air Force Academy with a B.S. in Economics. Extensive background in financial analysis, equity research, accounting, portfolio management, and customized asset allocation through nearly a decade of formalized education, personal studies, and practical experience. Avid reader of business/investments and biographies.


Legal Disclaimer: Any related contributions to Seeking Alpha, or elsewhere on the web, are to be construed as personal opinion only and do NOT constitute investment advice. An investor should always conduct personal due diligence before initiating a position. Provided articles and comments should NEVER be construed as official business recommendations. In efforts to keep full transparency, related positions will be disclosed at the end of each article to the maximum extent practicable. The majority of trades are reported live on Twitter, but this cannot be guaranteed due to technical constraints.

My premium service is a research and opinion subscription. No personalized investment advice will ever be given. I am not registered as an investment adviser, nor do I have any plans to pursue this path. No statements should be construed as anything but opinion, and the liability of all investment decisions reside with the individual. Although I do my utmost to procure high quality information, investors should always do their own due diligence and fact check all research prior to making any investment decisions. Any direct engagements with readers should always be viewed as hypothetical examples or simple exchanges of opinion as nothing is ever classified as “advice” in any sense of the word.

Disclosure: I am/we are long SALT, NM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I am long SALT via equity and SLTB. I am long NM via NM-H.

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