The 4Q2013 numbers are all in the bag. The company has only once month remaining before they must officially report the numbers - and thereby admit to a debt covenant violation.
1Q2014 is now 2/3 in the bag. Assuming that Supra rates hold flat at the 2/28/2014 level, then the quarter will close with a leverage ratio of 15.6 vs. a maximum of 10.6 allowed by the credit agreement. Cash interest coverage ratio will be 1.3 vs. the 1.8 minimum allowed by the credit agreement.
Anyone banking on a temporary waiver for the 4Q2013 covenant violation should think seriously about future quarters. After 2Q2014 the cash interest coverage ratio drops below unity!
Once again, Yankingoneoff spent both Friday and Saturday night along at his computer hurling sexually-laced barbs at the world that spurns him. Normally I'd feel sorry for someone as alone as Yankingoneoff, but his is a case of reaping what he sows. Is there anyone that fails to see his incessant bragging of market profits as nothing more than compensation for what he lacks in real life?
All of Valentine's night and weekend, he was home alone at his computer, posting on these message boards, lashing out at the world that rejects him, and yanking himself off. He has no woman, and no friends, only his crowd of online aliases. It's so sad watching him try to compensate here for what he lacks in the real world, boasting about his fantasies that never were.
See the 2/19/2014 8-K filed by GNK. It looks like GNK is aiming for voluntary Chapter 11 bankruptcy protection. When management sees bankruptcy as inevitable, they will go voluntarily early with more cash in hand.
Key items from today’s SEC filing:
1. GuNK has $74.7 million cash in the bank.
2. GuNK chose not to make a $3.1 million interest payment scheduled for 2/18/2014 on its 5.00% Convertible Senior Notes due August 15, 2015.
3. The trustee for the $100 Million Term Loan Facility (unrelated to the Notes) declared item 2 to constitute default under the Term facility.
4. On 2/18/2014 GuNK negotiated a waiver to the default condition under the Term facility. This waiver lasts until 3/21/2014 and as a condition GuNK had to pre-pay $1.9 million of the Term principal payment due 3/31/2014.
5. Gunk hired Blackstone Advisory Partners L.P. as its financial advisor for potential restructuring, with potential options including “commencing a voluntary proceeding to reorganize under Chapter 11 of the Bankruptcy Code.”
6. GuNK has not yet scheduled the release of its financial results for the year ended 12/31/2013.
Why would GuNK management choose not to make a $3.1 million interest payment when they have $74.7 million in the bank? Why would they do this if the immediate side effect cost them $1.9 million cash?
My only guess is that they skipped the interest payment in order to hoard cash in preparation for Chapter 11 bankruptcy, and they didn’t realize that that the trustee for the Term facility would declare this an event of default. The default would allow the trustee to lay claims to assets before GuNK had bankruptcy protection, prompting GuNK to pay the $1.9 million.
If my guess is correct, then GuNK will be under Chapter 11 protection before 4Q2013 results are released. If you recall, my plan had been to short GuNK after naive investor optimism upon the release of the 4Q2013 results. I may never get to short on a last hurrah before bankruptcy, and I am deeply saddened by this possibility. I thought EGLE would be the first to die.
For details, please refer to the fourth amended and restated credit agreement, particularly Section 20 and Schedule 8.
The Leverage Ratio covenant defines a maximum allowable ratio of (term loan / 4 quarter EBITDA), with EBITDA definition differing slightly from GAAP.
For the 4Q period ending 9/30/2013, the maximum allowed leverage ratio was 13.9 and the actual realized value was 13.46, compliant.
For the 4Q period ending 12/31/2013, the maximum allowed leverage ratio falls to 12.3. My model for 4Q2013 has average Supra rates at $14.09k/day, with EGLE realizing an after-commission average day rate of $13.65k. That helps boost EBITDA, and if it were that only change relative to 3Q2013 then the leverage ratio would be 11.5, conforming to the new compliance level.
However, the price of Korea Line Corp (KLC) stock fell from 42,000 won at the end of 3Q2013 to 25,750 won at the end of 4Q2013. This gives EGLE an investment loss that reduces EBITDA, and raises the leverage ratio to 12.6 which is above 12.3 and thus non-compliant. This result is based entirely on historical results, but does not become official until the 4Q2013 results are reported, expected on 3/31/2014.
Things get far worse at the end of the current quarter. To understand why, you need to recall the KLC settlement from a year ago. That settlement resulted in one-time gains of $32.8 million in 1Q2013 and $25.6 million in 2Q2013. These huge one-time gains both count toward EBITDA.
While the one-time gain from 1Q2013 still counts for the period ending 12/31/2013, it drops out of the calculation for the 4-quarter period ending 3/31/2014. Further, the maximum allowed leverage ratio drops to 10.6. Freezing Supra rates at the 2/17/2014 level yields an average rate for the current quarter of $11.18k/day, so the realized leverage ratio is looking to be 16.3, which is far above the 10.6 maximum allowed.
The credit agreement also has a minimum interest ratio covenant (4Q EBITDA / 4Q cash interest) which gets stricter every quarter. For 3Q2013 the required minimum was 1.4 and the realized value was 1.57, compliant. For 4Q2014 the minimum rose to 1.6 and my model shows EGLE achieving 1.66, still compliant. Again, the one-time gains from 1Q2013 no longer count toward the 1Q2014 4-quarter trailing EBITDA. The minimum coverage ratio rises to 1.8 but EGLE is on track to achieve only 1.29, far from compliant.
For 2Q2014, the one-time gains from 2Q2013 also drop out of the calculations. A projection using day rates frozen at the 2/17/2014 level puts the 2Q2014 realized leverage ratio over 27 (maximum allowed is 9.2) and the realized cash-interest coverage ratio at 0.77 (minimum required is 2.0).
Paragraph 26.2 of the credit agreement states that any covenant violation is an event of default.
Paragraph 26.14 states that in any event of default, the lenders may terminate the loan and demand immediate repayment.
Refinancing is inconceivable. The hedge funds that bought the debt will have the company over a barrel on 3/31/2014.
Ultrabulk's supra fleet is 60 ships, whereas Eagle's supra fleet is ships.
When you write something like "EGLE owns the largest fleet of these ships" I see only two possibilities:
1. You are knowingly lying.
2. You are ill-informed.
I like to believe the best in my fellow man, and feels that being a liar is worse than being stupid. So I'll give you the benefit of the doubt and go with option 2.
It was only a couple weeks ago that I taught you Supra rates rather than BDI are the charter rates that matter for EGLE. I'm glad to see that you've learned this lesson. Being young, naive, and ill-informed isn't so bad if you keep and open mind and are willing to learn. But when it comes to opening your mind, you seem to be your own worst enemy.
As someone that claims to not care about short-term volatility, why would you look at T&S data? Truth is, you're scared.
Here’s the pattern that repeats itself on all these Yahoo stock message boards:
1. Knowledgeable market participants consider all potential risks and rewards of a specific stock, thereby setting a fair market price.
2. Newbie does quick haphazard research, misses the subtle risks, and concludes that the stock is undervalued. He buys.
3. Newbie is implicitly saying that he’s smarter than everyone else in the market, recognizing the value that the market can’t see. In some cases (i.e. EGLE board), Newbie overtly proclaims his superior knowledge and intelligence.
4. Newbie’s investment plan is that after he buys, the rest of the world will suddenly see the stock just as Newbie does, and they will bid up the price.
5. Newbie get frustrated that the stock doesn’t rise according to his plan. He starts to think about forces that could be suppressing the price of his wonderful stock. Could it be “manipulation”?
6. Still failing to see the risks that knowledgeable players see, Newbie sees all increases in the stock price as natural market movements and all decreases as manipulation.
7. Newbie starts posting that all stock price drops are due to either shortsellers dumping shares to make the stock look weak, or prospective longs that lowered the price so they could buy cheap. Neither of these theories make any economic sense, but Newbie was never very rational so he doesn’t care.
It looks like this boards latest newbie reached stage 7 in record time! Shall we award him a gold star?
No, it's not significant. Beans do not drive the drybulk market. I was just pulling the chain of the psycho newbie that's been pumping his magic beans theory. As always, iron ore and coal will set prices, with all other commodities following along. Magic beans included.
Over-invoicing of exports is commonly used to enable capital import at rates far cheaper than Chinese interest rates.
See the Bloomberg article with the title above. Specifically note: "China canceled 272,000 metric tons of U.S. sales, the Department of Agriculture said in a statement today. The number of ships loading or waiting for soybeans at ports in Brazil, the biggest exporter, fell to 63 yesterday, down from 94 on Feb. 7, signaling an easing backlog, data collected by Bloomberg show."
On Bloomberg, see the article titled: "Soybeans Fall Most in Two Weeks After China Cancels Purchases"
Specifically note: "China canceled 272,000 metric tons of U.S. sales, the Department of Agriculture said in a statement today. The number of ships loading or waiting for soybeans at ports in Brazil, the biggest exporter, fell to 63 yesterday, down from 94 on Feb. 7, signaling an easing backlog, data collected by Bloomberg show."
yankingoneoff - you are confusing yourself with all of your IDs. But I'll admit, those beans really did work their magic today!
Your rants touting your stockpicking prowess and belittling the shortcomings of others belie your true lack of self-confidence.