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Navios Maritime Acquisition Corporation Message Board

  • winomaster winomaster Dec 19, 2012 5:34 PM Flag

    Three Challenges For NNA

    Three Challenges For NNA:

    The deal that brought the VLCC's into NNA's fleet had some great benefits for them while they slowly built up their fleet with newbuilds. But, I imagine that everyone had assumed that the new fleet would, by now, be throwing off somewhat more cashflow than is the case. The recovery in shipping has been delayed.

    Eighteen months from now, however, the first of three challenges arise that must be addressed by NNA management.

    Challenge #1: Mid 2014 has the Shinyo Splendor coming off charter and at 20 year old, straight into the scrap yard. There is a considerable amount of cash flow here that will have to be replaced if NNA is to maintain its slim profitability.

    Next, at the end of 2016, three years from now, another VLCC (Shinyo Navigator) comes off charter and into the scrap yard. A similar amount of cash flow will again have to be replaced.

    (One more goes to scrap in 2019 but that consideration is six years away and perhaps can be left for another day.

    Challenge #2: Early in 2017, NNA has two more VLCC coming off charter. Both will be only 16 yrs old so they won't necessarily be going straight to the breaking yard. Though neither are they prime candidates for anothe long charter. They may spend the next four years employed in the spot market. Though they almost certainly won't find regular work. There is a lot of uncertainty here. These two vessels could yet meet a premature end depending on the state of the VLCC market at that time. This ship type has been grossly overbuilt. Upwards of 10% of the current VLCC fleet is going to have to be scrapped before this sector finds equilibrium. What is the current age for scrapping of VLCC's. Revenues from these two VLCC's become very uncertain as they move into 2017. A way to replace their cash flows should be given some consideration.

    Challenge #3: Rolling Over The Bond Debt
    This is certainly something that should be able to be done. But it would help considerably if NNA was a consistently profitable company and had some long-term charters that could be the basis for this refinancing. We have two newer VLCC's that will have 9 to 10 years of remaining life on their charters. That's a start. But what else do we have that is not already encumbered with a loan. What will be our options then, four years from now when the bonds come due.

    I suppose we could just trust that the market for tankers enjoys a nice expansion without much delay. But what if it does not. For all three of the challenges mentioned here, there is no better solution than more profits. NNA needs to grow its profits or risk some consequences. We can't do anything about the modest charter rates available at the moment. And nothing would be more dangerous for them to continue indefinitely. But one factor that we have some control over is the rate at which NNA grows its fleet to provide needed revenues.

    If I was the sort of guy with a head for numbers, I would dazzle you at this point with my number wizardry. But alas, I must leave this for others with more accounting talent. But the basic issues are these:
    1) How much cash flow must be replaced when, in turn, the Shinyo Splendor and Shinyo Navigator must be scrapped. (It won'tas I understand it, be the sum total of the $13.7 mm and the $15.4 mm of annual revenue coming from these vessels. And it won't include the bond interest currently being paid.)

    2) What amount of additional revenues will adequately address the uncertainty that surrounds the two additional VLCC's going off charter in early 2017...Ships that are currently chartered out for a total of $27.5 mm annual revenue..

    3) What will be our options in early 2017 when $505 million of bond debt must be rolled over.

    4) What sort of fleet expansion will be possible over the next four years with our current cash and projections of cash flow.

    The challenges here could be the issues that are dragging down the share price of late.

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    • “The VLCCs are an issue, have always been so. The recent lows in NNA share price are not owing to some new revelation on that matter.”

      No, not some new revelation, but perhaps a recognition that our newbuilds coming on line in 2013-14 will likely not be dramatically improved over recent rates. And much of the revenue of the 2013-14 newbuilds will be needed to offset revenue declines from the two VLCC ‘s being scrapped. I don’t have my finger on that number, what the cash flow is currently on those VLCC’s. But since there were no payments being made on those vessels, and the bond interest is not stopped by the scrapping, most of the combined 14.5 mm revenue on the two VLCC’s was cash flow. At least, that’s how I’m understanding it.

      As for the two 16 yr old VLCC vessels coming off charter in early 2017, we just can’t know how much additional revenue will ever come of those assets. I’m thinking of them as write-offs. In the end, essentially all the cash flow from the 2013-14 newbuilds could go to off-setting revenue declines on the 4 VLCC’s discussed here. (Incidentally, we have ten new vessels coming on line in 2013-14, not twelve: 2 LR1’s, 8 MR’s.)

      As for the impact of profit sharing, we can certainly hope. But nothing is for certain there. We have some LR1’s and MR’s being re-chartered in 2014-16. Rates will likely improve some into that period, but not likely dramatically so. The world economy is not expected to sling-shot up off the floor.

    • I take that back

    • Incidentally,I e-mailed yahoo about the posting problems and they seem to have addressed the issue. I had been unable to post more than about two lines.

    • “The VLCCs are an issue, have always been so. The recent lows in NNA share price are not owing to some new revelation on that matter.”

      No, not some new revelation, but perhaps a recognition that our newbuilds coming on line in 2013-14 will likely not be dramatically improved over recent rates. And much of the revenue of the 2013-14 newbuilds will be needed to offset revenue declines from the two VLCC ‘s being scrapped. I don’t have my finger on that number, what the cash flow is currently on those VLCC’s. But since there were no payments being made on those vessels, and the bond interest is not stopped by the scrapping, most of the combined 14.5 mm revenue on the two VLCC’s was cash flow. At least, that’s how I’m understanding it.

      As for the two 16 yr old VLCC vessels coming off charter in early 2017, we just can’t know how much additional revenue will ever come of those assets. I’m thinking of them as write-offs. In the end, essentially all the cash flow from the 2013-14 newbuilds could go to off-setting revenue declines on the 4 VLCC’s discussed here. (Incidentally, we have ten new vessels coming on line in 2013-14, not twelve: 2 LR1’s, 8 MR’s.)

      As for the impact of profit sharing, we can certainly hope. But nothing is for certain there. We have some LR1’s and MR’s being re-chartered in 2014-16. Rates will likely improve some into that period, but not likely dramatically so. The analysts are predicting a profit in 2013, but with the scrappings I think we go back into the red without profit sharing and improvements when rechartering.

    • The VLCCs are an issue, have always been so. The recent lows in NNA share price are not
      owing to some new revelation on that matter.

      It may very well be that some fear that those lucrative charters will not payout for NNA, leaving them at risk given the recent cancelled party insurance. But that fear is overblown, though it may be a factor in recent share weakness.

      In terms of new revenues coming on line, you need only look at their product tanker newbuilds yet to be delivered over the next 24 months. We're talking about a dozen. That alone will replace the revenue on the VLCCs coming off charter by 2016.

      And, the profit margins on those new vessels can be substantial given the lower cost of operation. It is also likely that Rates for the product fleet will strengthen during this period, and that existing product fleet will benefit handsomely from profit sharing.

      This is not to be polyanna about the situation, but it is not gloom n doom either.

 
NNA
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