Laxputs Posted August 13, 2014 Share Posted August 13, 2014 Really interesting how similar this is to Emeco. And I like Emeco. Difference is loan repayments and (in my uneducated eyes) a better market to sell used construction equipment in given how many more uses some of their equipment has. Link to comment Share on other sites More sharing options...
60North Investments Posted August 13, 2014 Share Posted August 13, 2014 I don't exactly know how these kinds of situations have played out in the past with other companies, but isn't it one nice possibility that the company repays as much debt as they can and then refinance/negotiate maturities further out? Having 11m left to repay this year (1.4m paid in Q1), of which at least 2m can be taken from existing cash. Doing 9m in FCF in three quarters is at the very least possible. The 42.4m in 2015 is the one that's causing a little headache. If they sell a ship for 10-11m and generate 12-15m in FCF, that leaves 16-20m to finance somehow. Wouldn't it be possible that the company negotiates this to mature for example couple years later? Would be interesting to hear if someone has examples of similar kind of cases in the past! Link to comment Share on other sites More sharing options...
yadayada Posted August 13, 2014 Share Posted August 13, 2014 I certainly think that can happen, but they do not have much leverage, so interest rate will probably end up higher or maybe much higher? Link to comment Share on other sites More sharing options...
Laxputs Posted August 13, 2014 Share Posted August 13, 2014 I think that's definitely a possibility. I would also like to hear from others if that is very common (having significant earning power and interest coverage but not able to repay large debt repayments on time). But I don't think I can make an investment knowing that they need to either sell more ships into a terrible market which reduces their earnings power, or refinance large loans. On the other hand, if creditors don't want to refinance and they actually have to sell assets, they only need to get 60% of assets that were appraised at the bottom of a market in multi-year lows. Link to comment Share on other sites More sharing options...
60North Investments Posted August 13, 2014 Share Posted August 13, 2014 I'm not sure if it's really material whether their interest rate goes from 3-4%, where it seemed to be in fiscal 2013, to for example double that. We'd be talking about an increase of a few millions in interest expense (in fiscal 2013 interest expense was 3.5m) assuming that the total loan amount would be down to bit above 70m when that happens (in 2015). Sure, a few millions off the FCF means something, but then again if FCF needs to be cut by even 5m to avoid panic sales of assets or going bankrupt, then I'd say taking the hit on FCF would still mean a homerun for investors. Link to comment Share on other sites More sharing options...
yadayada Posted August 13, 2014 Share Posted August 13, 2014 I don't think they sell assets, they will probably dillute or refinance. or a bit of both. Link to comment Share on other sites More sharing options...
intensityjp Posted August 13, 2014 Share Posted August 13, 2014 If I remember correctly from an AR a few years ago, it seems like their relationship with their lenders (credit suisse is one I recall) are satisfactory. They were able to obtain waivers on some covenants they had breached when they wrote down their ship values and have been good payors since then. It seems like the chances they are able to refi or negotiate with their lenders are much higher than their lenders foreclosing or forcing the sale of collateral. GLBS is still a good credit for the banks to lend to, and its probably just a matter of rate. I think 60°North Investments is on point regarding the refinance and the implications even if their interest rate doubles. Link to comment Share on other sites More sharing options...
randomep Posted August 15, 2014 Share Posted August 15, 2014 I think that's definitely a possibility. I would also like to hear from others if that is very common (having significant earning power and interest coverage but not able to repay large debt repayments on time). But I don't think I can make an investment knowing that they need to either sell more ships into a terrible market which reduces their earnings power, or refinance large loans. On the other hand, if creditors don't want to refinance and they actually have to sell assets, they only need to get 60% of assets that were appraised at the bottom of a market in multi-year lows. But I don't think this should suddenly be a concern now. We are in a low interest rate environment and GLBS is in a capital intensive business. They can pay the bills in the worst of times, I wouldn't worry. But imagine, the BDI is at multiyear lows, imagine when the BDI jumps by 50% which is easy to do! Link to comment Share on other sites More sharing options...
Laxputs Posted August 15, 2014 Share Posted August 15, 2014 They have 48mm debt due in 3 years. Their cash flows do not cover that. Without a significant increase in the day rates they can not pay their debt. Can you explain what you mean please? Link to comment Share on other sites More sharing options...
randomep Posted August 15, 2014 Share Posted August 15, 2014 They have 48mm debt due in 3 years. Their cash flows do not cover that. Without a significant increase in the day rates they can not pay their debt. Can you explain what you mean please? A company doesn't have to cover the payments due with cashflow. I am sure there are thousands of companies in the same situation as GLBS. And most of them will roll it over. Investment banks need to roll the debts over every night. Well ok the economy almost went belly up in 2007 cos institutions couldn't roll over their debts, but that's an exception, certainly nothing specific to GLBS. I don't understand what are you implying? That they need a capital raise or will go bankrupt? Link to comment Share on other sites More sharing options...
DTEJD1997 Posted August 15, 2014 Author Share Posted August 15, 2014 Hey all: Unless the world is coming to end, GLBS does NOT have to pay off ALL of their debt. If they pay down 75%+, what do you think the odds are they can roll the remaining 25% over? They would only have to get it extended for a few years... A lender would be much safer in lending to GLBS after they have paid down a significant amount of debt. GLBS also has their oldest ship up for sale. They were reasonably confident that they would have it sold soon. If that happens, the liquidity situation should be pretty good. GLBS also has a much lower leverage ratio than a lot of other shippers. That should only continue into the future... Link to comment Share on other sites More sharing options...
Laxputs Posted August 15, 2014 Share Posted August 15, 2014 I am new to debt restructuring and learning lots. If it is a sure thing that they can constantly restructure their debt every few years when large payments are due, Globus becomes attractive. I just assumed it wasn't a sure thing. They have 90mm in debt and may generate ~11mm fcf at these run rates before the sale of Tiara Globe. So they would certainly need that debt to be restructured or raise capital or sell another ship to pay the 48mm due within 3 years. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted August 15, 2014 Author Share Posted August 15, 2014 I am new to debt restructuring and learning lots. If it is a sure thing that they can constantly restructure their debt every few years when large payments are due, Globus becomes attractive. I just assumed it wasn't a sure thing. They have 90mm in debt and may generate ~11mm fcf at these run rates before the sale of Tiara Globe. So they would certainly need that debt to be restructured or raise capital or sell another ship to pay the 48mm due within 3 years. Well, if they have about $48MM due in 3 years and they can sell the Tiara Globe, that will take it take down somewhere around 38MM or so...Then they generate $33MM in cash flow. Use most of that to pay off debt and they've got debt of maybe $10MM? They have $2MM in "extra" cash sitting in the banks now. That takes it down to $8MM. I suppose if the banks are TOTALLY cutting them off, they don't need to keep anything but the most minimal buffer in the checking account. So that frees up another $5MM or so.. Now they need to come up with $3MM....how can they do that? I just don't know, but I am willing to wager a very large amount of money that they can find a way. ON A SIDE NOTE: Did everybody see that the BDI was up 4.8% yesterday? It was also up 8.15% today! A few days don't really make a trend...and the BDI is coming off multi-decade lows.... I think the debt issues will be of almost no concern at GLBS. At least I hope so, I've invested quite a bit of my wealth here! Link to comment Share on other sites More sharing options...
randomep Posted August 15, 2014 Share Posted August 15, 2014 I am new to debt restructuring and learning lots. If it is a sure thing that they can constantly restructure their debt every few years when large payments are due, Globus becomes attractive. I just assumed it wasn't a sure thing. They have 90mm in debt and may generate ~11mm fcf at these run rates before the sale of Tiara Globe. So they would certainly need that debt to be restructured or raise capital or sell another ship to pay the 48mm due within 3 years. Ya so focusing on the debt issue: the interest coverage is the big factor in evaluating a company's rating. Looking at their last quarterly: interest coverage = ebitda / interest expense = 3.3mil / .33 mil = 10x That is the best rating possible: http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ratings.htm Link to comment Share on other sites More sharing options...
randomep Posted August 15, 2014 Share Posted August 15, 2014 I am new to debt restructuring and learning lots. If it is a sure thing that they can constantly restructure their debt every few years when large payments are due, Globus becomes attractive. I just assumed it wasn't a sure thing. They have 90mm in debt and may generate ~11mm fcf at these run rates before the sale of Tiara Globe. So they would certainly need that debt to be restructured or raise capital or sell another ship to pay the 48mm due within 3 years. Well, if they have about $48MM due in 3 years and they can sell the Tiara Globe, that will take it take down somewhere around 38MM or so...Then they generate $33MM in cash flow. Use most of that to pay off debt and they've got debt of maybe $10MM? They have $2MM in "extra" cash sitting in the banks now. That takes it down to $8MM. I suppose if the banks are TOTALLY cutting them off, they don't need to keep anything but the most minimal buffer in the checking account. So that frees up another $5MM or so.. Now they need to come up with $3MM....how can they do that? I just don't know, but I am willing to wager a very large amount of money that they can find a way. ON A SIDE NOTE: Did everybody see that the BDI was up 4.8% yesterday? It was also up 8.15% today! A few days don't really make a trend...and the BDI is coming off multi-decade lows.... I think the debt issues will be of almost no concern at GLBS. At least I hope so, I've invested quite a bit of my wealth here! Ya that's why I started posting here today! I said the BDI could easily go up 50%. Operationally GLBS is doing fine. What will move the stock is the BDI, and the last two day's stock movement shows that. Link to comment Share on other sites More sharing options...
DTEJD1997 Posted August 15, 2014 Author Share Posted August 15, 2014 I am new to debt restructuring and learning lots. If it is a sure thing that they can constantly restructure their debt every few years when large payments are due, Globus becomes attractive. I just assumed it wasn't a sure thing. They have 90mm in debt and may generate ~11mm fcf at these run rates before the sale of Tiara Globe. So they would certainly need that debt to be restructured or raise capital or sell another ship to pay the 48mm due within 3 years. Well, if they have about $48MM due in 3 years and they can sell the Tiara Globe, that will take it take down somewhere around 38MM or so...Then they generate $33MM in cash flow. Use most of that to pay off debt and they've got debt of maybe $10MM? They have $2MM in "extra" cash sitting in the banks now. That takes it down to $8MM. I suppose if the banks are TOTALLY cutting them off, they don't need to keep anything but the most minimal buffer in the checking account. So that frees up another $5MM or so.. Now they need to come up with $3MM....how can they do that? I just don't know, but I am willing to wager a very large amount of money that they can find a way. ON A SIDE NOTE: Did everybody see that the BDI was up 4.8% yesterday? It was also up 8.15% today! A few days don't really make a trend...and the BDI is coming off multi-decade lows.... I think the debt issues will be of almost no concern at GLBS. At least I hope so, I've invested quite a bit of my wealth here! Ya that's why I started posting here today! I said the BDI could easily go up 50%. Operationally GLBS is doing fine. What will move the stock is the BDI, and the last two day's stock movement shows that. Well, yes, the BDI could go up quite substantially in the near future. What happens if the economies of the world start to really expand again? Probably not...but it MIGHT happen. GLBS could be making a TON of money with not much improvement in BDI at all. If GLBS is making a TON of money, they are going to be paying a huge dividend. Heck, if the BDI goes up another couple of hundred points, I will be surprised if we DON'T see a dividend in the upcoming year. This is really an asymmetrical return in my book....If a LITTLE goes right, you are going to make a ton of kash! Link to comment Share on other sites More sharing options...
Laxputs Posted August 15, 2014 Share Posted August 15, 2014 Interesting. To me, I see margin of safety not in that the BDI could go up; that is upside. Margin of safety is 'is there breathing room with the debt payments if there were operational hiccups and/or if the average TCE/day rate stayed how it is now or declined marginally'. That makes the math above completely dependent on debt restructuring. Interest rates are not an issue. Debt payments are. They won't make 11mm run rate because after the sale of the Tiara Globe they have lost ~14% of their earnings power. I just want a margin of error in the math in regards to the debt repayments: the downside scenario of being short 30% of their debt payment due in 3 years means debt restructuring. If that restructuring is a sure thing, I would feel comfortable with the downside here. I know nothing about how likely or unlikely debt restructuring is when you can amply pay increased interest rates. Link to comment Share on other sites More sharing options...
yadayada Posted August 15, 2014 Share Posted August 15, 2014 the bdi has to go up at some point because most shippers are actually losing cash now. And China will import more ore and coal from now on because domestically the quality is not good enough anymore. If BDI goes to half the levels of 2011, this thing produces enough cash in one year to pay down most of their debt. Also drybulk ships are extremely liquid assets. Not like real estate they might have to put up for firesale. You can verify yourself if balance sheet value is fair. They could liquidate now, and you would make at least 50%. And that is in a market with all time low BDI rates over the past decades (ship values closely follow BDI). Link to comment Share on other sites More sharing options...
Laxputs Posted August 15, 2014 Share Posted August 15, 2014 If BDI goes to half the levels of 2011, this thing produces enough cash in one year to pay down most of their debt. Their TCE was 15.6 in 2011. 10 in 2013 and 9.2 pro forma 2014. So if a BDI uptick corresponds with a relative increase in their average TCE, and you say if it hits 1/2 of 2011, that's lower than where we are now... If it hits 2011 they make ~25mm. That's 27% of debt. But 1/2 2011 BDI and 1/2 their debt, I just don't follow. Link to comment Share on other sites More sharing options...
yadayada Posted August 15, 2014 Share Posted August 15, 2014 i meant 2010. So about 2k. Actually that would produce about 40 million in cash. If that can be averaged over the year. If we get to 2007 levels, that would be 90-100 million$ in FCF. But that is wishfull thinking. Link to comment Share on other sites More sharing options...
Libs Posted August 15, 2014 Share Posted August 15, 2014 i meant 2010. So about 2k. Actually that would produce about 40 million in cash. If that can be averaged over the year. If we get to 2007 levels, that would be 90-100 million$ in FCF. But that is wishfull thinking. 2010 seems pretty optimistic too. The 30 - year chart suggests something around 1500 on the BDI as an average: http://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html So how did GLBS do in 2011, a year where the BDI was ~1500 on average? EBITDA was $20mm, net income was $7MM. On the other hand, the BDI is very volatile, and it's broken 2000 every so often since 2011. If momentum builds in that direction the stock could easily triple. Interesting stock for sure. Link to comment Share on other sites More sharing options...
randomep Posted August 17, 2014 Share Posted August 17, 2014 i meant 2010. So about 2k. Actually that would produce about 40 million in cash. If that can be averaged over the year. If we get to 2007 levels, that would be 90-100 million$ in FCF. But that is wishfull thinking. 2010 seems pretty optimistic too. The 30 - year chart suggests something around 1500 on the BDI as an average: http://people.hofstra.edu/geotrans/eng/ch7en/conc7en/bdi.html So how did GLBS do in 2011, a year where the BDI was ~1500 on average? EBITDA was $20mm, net income was $7MM. On the other hand, the BDI is very volatile, and it's broken 2000 every so often since 2011. If momentum builds in that direction the stock could easily triple. Interesting stock for sure. It doesn't have to increase EBITDA with higher BDI, the stock can move simply by revaluing the assets, and expanding the P/BV. BDI went up 10% again, monday GLBS will likely move up by just as much! This stock is a wild ride! Link to comment Share on other sites More sharing options...
Fat Pitch Posted August 18, 2014 Share Posted August 18, 2014 It doesn't have to increase EBITDA with higher BDI, the stock can move simply by revaluing the assets, and expanding the P/BV. BDI went up 10% again, monday GLBS will likely move up by just as much! This stock is a wild ride! I don't think this is entirely plausible. Illiquidity and this morning aside. The correlation should be in relation to a moving average of the BDI. Link to comment Share on other sites More sharing options...
yadayada Posted August 18, 2014 Share Posted August 18, 2014 I think there is a discount because they have no dividend and it is a microcap. The other drybulkers (even ones that don't generate any cash) trade at a much smaller discount to book value. Also note that they can very quickly liquidate. These ships are more liquid then real estate. And values of these ships are very transparent. Also bankers are often flexible with covenants with shipping companies. Plus there is a huge optionality here that is not priced in, and that seems somewhat reflected in similar dry bulk stock. Link to comment Share on other sites More sharing options...
Laxputs Posted August 18, 2014 Share Posted August 18, 2014 Worth spending some time if interested in the analysis of the shipping market. More links at bottom to historical reports: https://www.bimco.org/Reports/Market_Analysis/2014/0815_DrybulkSMOO2014-04.aspx Interesting that there are still more ships being supplied into the market. Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now