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Genco Shipping & Trading Ltd. Message Board

  • killrbee99 killrbee99 Apr 22, 2011 6:38 AM Flag

    GNK is about to violate primary Debt Covenant

    Ran some numbers this morning based on current modeled Q1 results.

    Diluted EPS came in at $0.32 which I've shared in previous posts. What I took a look at in more detail was the 5.5X Debt to EBITDA covenant that GNK has with ALL of its primary credit facilities. I had suspected this would be breached by the end of 2011 and had stated that dilution may be the only way to remedy. Turns out that the breach will likely happen in Q1 earlier than expected...

    Details - Q1 2011 EBITDA Calculation:

    $106,121,819 Q1 Revenue
    $26,517,600 Opex (DVOE aprox $5,000/day)
    $10,100,000 G&A and Voyage expenses
    $69,504,219 Q1 EBITDA calculated from above
    $278,016,877.90 Annualized EBITDA (see NOTE below)
    $1,627,038,000 Total Debt (as of Q4 2010)

    5.852 Debt to EBITDA ratio - covenants are max 5.5X

    Annualized EBITDA actually may be worse as boomtime charters continue to roll off and no material rebound in rates within sight.

    Wonder if any analyst will be sharp enough to catch this and have the cojones to call them out on the earning telecon set for May 4.

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    • Hey KB. Your estimates are a fiction because they are based on assumptions. You are making money just by chance. So don't brag about it. I predicted the GNK trend in Nove-Dec 2010 when Goldman downgraded it. Read my posts. The earnings are fiction because you cannot predict the BDI beyond a few months or weeks. Nor can you quanity GNK's ability to manage their customers and future bookings. Research is a big word and you don't have enough information to claim to have done research on GNK or its future. That's all.I am not into personal abuse. So I will leave you at that.

    • thank's for you thoughts and analysis killrbee. Citi may have the nerve to address management as what do they have to loose, having a sell rating
      on a stock shows they are more willing to challenge management.

      what some people on message boards fail to realize is good analysis is having
      the willingness to poke holes in ones theory. seems some get too defensive
      if others share a different opinion.

      i stand firm in my thinking, you and Audio are the best thinkers in shipping
      i have found. thanks for your work.......

    • thanks killrbee. haven't updated my own debt/ebitda models in a little bit but interesting to see that they're already at the precipice. my model had been looking for them to breach around Q3-Q4 '11 depending on continued weakness in the shipping market but i haven't updated them in months.
      i was however expecting the bulge bracket analysts to revise lower in may around Q1 earnings release as they're almost all overshooting FY11 EPS. they're coming in around 1.05 FY EPS while i can only squeeze out 0.63 FY EPS.
      interesting note...see what happened to safe bulkers (SB). they recently diluted shareholders and saw ~11% drop that day. i actually think SB is better managed as they have maintained long term charter contracts that have allowed them to continue making money.
      anyways, glad to see someone else around here who does some actual work.

    • Can't the company pay down debt? Its got $245M in cash and if they would slow down buying ships, 5.5x debt to EBITDA ratio seems attainable.

      • 1 Reply to ara1978
      • Yes it can and it may may buy them a couple of more quarters before they violate the covenant again.

        GNK will need that cash mext year when the $50M/qtr debt service payments beging.

        Pay me now or pay me later....

        I suspect dilution since that December shelf filing was not put out on a whim. I don't think I've ever seen a shelf unused (at least 50%) past one year from filing date.

    • Stop wasting your time.

    • $106,121,819 Q1 Revenue
      $26,517,600 Opex (DVOE aprox $5,000/day)
      $10,100,000 G&A and Voyage expenses
      $69,504,219 Q1 EBITDA calculated from above
      $278,016,877.90 Annualized EBITDA (see NOTE below)
      $1,627,038,000 Total Debt (as of Q4 2010)

      5.852 Debt to EBITDA ratio - covenants are max 5.5X


      Your analysis is insightful but I have to question your OPEX & G&A numbers. Given current supply/demand circumstances you're working under the assumption that they have not cut costs in any meaningful way during this day rate off the cliff period??
      In essence, by not reducing coasts, they were completely unaware, or ignored, their across the board debt covenants??

      As well, if your numbers pan out, you don't believe there's room to renegotiate the covenant ceilings? Are lenders looking to own a large inventory of dry bulk ships that they may be able to sell at 10 to 20 cents on the dollar, if that?

      Let's be fair, do you agree that your analysis, which is quite competent, should be stated as a worst case analysis? And if so, would that not explain why the stock has imploded given that, as a discounting mechanism, the market is now discounting the worst case scenario?
      That would certainly lead one to believe that >>if<< you are exactly right in your number crunching, the stock will not fall further on the release of your expected numbers?


      • 1 Reply to cha_ching_3
      • Doubtful that the can improve much upon relatively efficient (w.r.t peers) OPEX and G&A. If they're still running their vessels at 99%+ operating efficiency, not much to be gained...

        Again, we'll see on the 3rd...

        As far as ignoring covenants, I believe that both shippers and banks have misjudged this market. The banks don't want to own the ships, but it has been the case recently where they have taken possession.

        It's more likely that waivers are given, but they may require GNK put more skin in the game and the only way to do that is $100M+ dilution. It will also likely increase interest rates.

        As far as worse case... not even close.

    • I'm guessing the dilution will be more than the minimum to get within their debt covenant. They are going to need a rainy day fund to hold them over until shipping rates turn back up. The dilution is going to hurt the stock price and then the nearly unavoidable losses will knock GNK down again.

      The recent decline in GNK and other shippers is likely the better informed investors bailing and/or shorting ahead of the announcement we see coming.

    • This is based on your calculation. Revenue is too low.

    • So sad how management just flushed this company down the toilet. Been watching this company for years. Might become interested 3-4$ a share. We'll see how desperate things get.

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