Can AF Bring NM From Zero To Hero ?

Summary

• NMM took the market by surprise.
• Effect on NM.
• Effect on NMM.

NMM took the market by surprise.

After completing a $75 million ATM offering, Navios Maritime Partners announced another ATM program of $110 million.

The unit price dropped 10% after market close on Friday.

NMM will already have +- $210 million cash by the end of Q2 and yet AF is willing to raise another $110 million.

Why ?

The only reason is the acquisition of NM's (owned) dry bulk vessels.

Effect on NM

Analysing NM's owned vessels, they have a value as of today of $ 428 million.

(i.e. 21 vessels without the 2 vessels under sale & lease back and without the

Navios Altamira, already sold to NMM) -

NM/NMM are preparing this tranaction already :

4 outstanding bank loans have been repaid in Q1 2021 for a total amount of $37 million.

The "only" debt remaing and covered by those 21 vessels is :

and outstanding per 12/31/2020 :

- Loan Facility Alpha Bank $ 20,200

- Loan Facility Alpha Bank $ 12,925

- 2022 Notes $ 476,822

In Q1 2021 there have been further amortisations of $1.4 million + probably more buy backs in the 2022 notes.

The remaining debt is :

- Sale and Leaseback Agreements $ 62,934 —

- 2022 Senior Secured Notes $ 305,000

- 2024 Notes $ 8,626 - NSM Loan (including accrued interest of $526 ) $78,901

- $50.0 million NSM Loan (including accrued interest of $326 )$50,326

- NSAL loan ($75,079) - will be forfaited if NSAL goes public.

The discussion about the outstanding amount of the 2022 Note is irrelevant because the pledged 2022 Notes are no longer "needed" as collateral in the New NM light.

Indeed NM light is left with :

- 2 young capesize vessels, under sale& lease back transaction

- 5 young panamax vessels acquired under 10 year bare boat contracts ($35.5 million deposit as collateral)

- 16 charter-in vessels with various buy options

- 12.63% in NMM (value +- $80 million)

- part of Navios GP

- 29.5% in NNA (no value)

- 63.8% in NSAL.

- cash balance ($ 75 million)

From a collateral standpoint there is imo no problem : the remaining outstanding debt is covered.

The real question is will NM light be able to fulfill its commitments ?

If dry bulk rates continue there present trajectory, YES !

The 2 sale& lease back contracts have an amortisation of $ 462K:month or +-$7,700/capesize vessel + profit sharing ($20k/month)

The 5 bare boat contracts have an amortisation of +- $6,500/day.

Those 7 vessels generate actually $2.5 million operating income/month

The 16 charter in vessels will count for 4600 contracted days in 2021 at an average cost of $15,201/day (this corresponds with +- 80% utilisation).

Together they generate $1.6 million operating income , increasing as the 'cheap' charters expire.

Together 'NM Light' 's fleet can generate up to $23.5 million of operating income per quarter (on the basis of present FFA contract rates.Count $15 million interest payments left and NM Light can start the recovery !

The next crucial hurdle lies in 2022, with the senior secured note. W'll have to wait if and at what terms NSAL can do the IPO.

NOTE :

The applied FFA rates are $39k & $30.75k for capes and $25.7 & $21.75 for panas in Q3 & Q4 respectively.

I expect announcement of this in Q2-Q3 and realisation in Q4 if rates stay where they are now.

This scenario surely explains why the ship notes are trading around 85% now. 

It can however not(yet) justifie why NM is tradin at $8-$9/share.

Effect on NMM

The new ATM program will dilute existing unit holders further. The exaxt % depends on your valuation of the Net Asset Value.If one accepts $60 as fair NAV then the dilution would be around 7-8%.

(NAV would come down +- $5 on 27 million outstanding units)

Is that a problem ?

I don't think so : the 21 vessels concerned have an average age profile of 8.7 years.

Assume NMM pays my estimated value of $428 million +10% (i.e. $471 million)

NMM should be able to obtain 40% leverage at 4% interest rate, with an amortisation profile of 7 years. (or better)

Applying the same FFA rates as in NM Light, the acquired fleet can contribute $1.21 in NAV in Q3 2021 and $0.87 in  Q4 2021.

So in almost one year the loss in NAV would be recuperated.

Of course all this stands or falls with the future charter rates.

Conclusion :

- NM can be safed from bankrupcy.

-NMM can benefit from the situation 

-Angelicki Frangou has her fleet expansion, and can focus on distribution increases, which again would beneft NM

-AF benefits because the 21 vessel will pay a higher OPEX/day in place of the cheap $3,700 now (= +$850,000/month for NSM)