As I write this article, BDI index is around 3 year highs at 2134. In particular, I want to address the WSJ article regarding Genco Shipping. In the article, they stated that Genco, " has enlisted restructuring lawyers at Kramer Levin Naftalis & Frankel LLP and interviewed restructuring bankers weeks ago, these people said. It faces an amortization period on its term loan in early 2014 and may not have enough cash to make the payment, they said."
This is plain FALSE.
Genco has ~$109 million of cash, an investment in Jinhui Shipping worth ~$55 million, and 6.2mm shares or ~$35 million in its SUBSIDIARY Baltic Shipping. The Key is as of september 30, 2013, the noncontrolling interest held an 86.03% economic interest in Baltic Trading while only holding 29.10% of the voting power.
Current Rates are as follow -
BCI(Capesize)-$32,808 BPI(Panamax)-$15,017 BSI(Supramax)-$15,671
The following shows Gencos Daily Results for the last quarter.
Using the above table, Current daily results would bring a fleet average to around $19,000 per day. With a Daily operating cost average of $4,800. Now with 5,754.1 ownership days, the current quarterly and annual revenue run rate is $109,327,900 and $437,311,600 respectively. Based on conservative estimates, that brings EBITDA to $70,000,000 quarterly and an annual EBITDA of $280,000,000.
Now that we have a financial picture as to the improving shipping market and outlook for GENCO. Let me turn to the credit situation and the quote from WSJ saying they might not have cash to pay in q1.
Below is Genco AND Balic shippings contractual obiligations:
(3) The timing of this obligation is based on the estimated delivery dates for the Baltic Lion and Baltic Tiger, which are expected to be delivered during the fourth quarter of 2013.
Genco has less than $20 million due in Less than One Year. The $103 for purchase of vessels is for Baltic Trading. From One to Three Years, they have $833mm obligation or $277mm per year. And $898mm in year Three to five. With cash, investment, and Baltic trading assets standing at ~$200m and an EBITDA run rated of $280mm, this stock is trading for less than 2x PE and an ample amount of cash flow and assets to service its debt and refinance at fair terms.
Lastly, the balance sheet has all of its Vessels valued at $2.6bn, even if you value the vessels at $1.6bn which would be insanely cheap at the current rates, you have positive shareholder equity. Putting together all of the above, and considering a DCF valuation. Using a 10.5% WACC and a 2% terminal rate, you get a $5.23 intrinsic value.
Bottom Line: Genco and it subsidiary Baltic Trading are severely undervalued. Although they have a heavy debt burden, the assets and cash flows are completely ample enough to warrant a 100%+ upside to its current price.