A real accurate analysis could take a long time because of all the factors involved including the fact that they have a number of charter agreements in place through 2011 and 2012 which an increase in rates won't affect. You would also have to look at the average of the BDI of the previous periods. Making a number of ridiculous assumptions such as they could re-charter all their vessels, the BDI would stay at a fixed level, rates would track the BDI 1:1, etc, you could do a very simplistic linear estimation based on how much revenue they would need from operations to cover their interest payments and come up with something like an 10% increase, i.e., somewhere around 1800. They can't re-book their existing charters, though, so this is ludicrous. Instead they would have to book their uncharted vessels at the much higher rate to compensate for the fact that they have already locked in rates for the majority of their vessels through 2011 and many through 2012. It would closer to realistic to use some kind of estimate like booking an additional 20% of their fleet through 2012 at a higher rate. This pushes the number up much higher with the BDI needing to hit around 2800. This is all just very rough estimating, but my best guess is that the BDI has to at least get above and stay above 2500 for them to even think about breaking even and stemming their cash flow.
Thanks for your informative reply; Really helps an average investor here who might not have such a grasp of the "break-even, much less, profit margins" needed in this industry and more specifically, this Co.
I've turned to this sector as an industry worth scrutiny to invest, given its cyclical nature. There are a lot of details with each Co. that make blanket statements about the industry as a whole, not appropriate. For example, the issue raised here about the BDI needing to be such-and-so, just to stem losses, and the fact that this Co. has already hedged most of its rates into 2010 (for better and worse, depending on where the BDI is headed).
For this particular security, I "bought before I did the home-work", then I studied it more, and have come to the conclusion that it offers a mixed-bag of opportunity and/or hardship or loss.
I learned that their very heavy debt-load of $1-billion is needing to be re-financed end-of-2011, and although interest-rates are favorable, collateral is the name-of-the-game these days. Look at the debt-load to total revenue, and it's down-right scarey! If they don't get a new credit-facility, then they could be forced to liquidate; Still, there are so many new ships coming-on-line that re-financing seems harder. Dry bulk is a crowded space, and those that stand to do better, are the ones with much less debt; In fact, I've also learned that the new money coming into this game now has the strategy to short the weaklings and buy the stronger companies, in hopes of forcing a consolidation.
Therefore, to wrap-things-up, I will tend to look more toward the stronger carriers. Be glad to mention them if someone is interested to hear.
But, I am a speculator by nature, and if I had some gambling money, 20k shares at this level would be a great play, imo!
PS: Last quarter this Co. lost $15-million; Look at their COH, and that leaves little breathing room!