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October 28 2010

Red ink at Genmar

Tanker operator General Maritime Corporation (NYSE:GMR) reported results for the three and nine months ended September 30, 2010 that included a net loss of $26.0 million or $0.30 basic and $0.30 diluted loss per share for the three months ended September 30, 2010 compared to net income of $14.8 million or $0.27 basic and $0.27 diluted earnings per share for the three months ended September 30, 2009. It says the decrease in net income was primarily the result of a 31.9 percent decrease in TCE to $19,109 per day for the three months ended September 30, 2010 compared to $28,077 per day for the prior year period, as well as a $13.6 million increase in net interest expense to $21.4 million for the three months ended September 30, 2010 compared to $7.7 million for the prior year period. Excluding the acceleration of the amortization of the net time charter liability of $13.1 million, from the prior year period for the Arlington vessels which were redelivered to the company earlier than expected, the decrease in TCE was 17.4 percent from $23,136 from the prior year period to $19,109 for the three months ended September 30, 2010.

Genmar President John Tavlarios commented, "During the third quarter and year-to-date, we continued to grow General Maritime's fleet and contracted revenue stream while taking steps to enhance its financial flexibility. We are pleased to have already taken delivery of six of the seven double-hull vessels we agreed to acquire in June 2010. During the quarter, we also significantly increased our time charter coverage by entering into contracts for six vessels with Trafigura, the third largest independent oil trader. Additionally, we placed the Genmar Elektra, a 2002 build Aframax, with Clearlake, another leading oil trading firm. General Maritime's ongoing success in implementing its flexible deployment strategy positions the Company to take advantage of future rate increases while maintaining a level of stability in results and covering a substantial portion of fixed costs."

In a research note, Dahlman Rose comments that "Genmar faced significant challenges in 3Q10, reflecting both relatively high fixed costs and an extremely weak spot tanker market. Although spot rates have continued to be pressured, the addition of new ships and new time charters in place should provide a cushion during 4Q10."

Dahlman Rose --which rates the Genmar share as a "Buy" with a target price of $6 -- says the reported a 3Q10 EPS loss of $0.30 was "slightly lower than our ($0.28) estimate." The research note says that "EBITDA amounted to $20.7 million, lower than its interest expense of $21.3 million (although taking into account restricted stock compensation of $2-3 million, Genmar was actually cash flow positive). Overall, the quarter's results reflect the significant challenges faced by the company, including weak overall spot rates of $23,000/day, $19,000/day, and $13,000/day for its VLCCs, Suezmaxes and Aframaxes respectively."

Dahlman Rose says that while 63 percent of Genmar's spot days have been booked at $29,810/day, "its average Suezmax and Aframax rates so far for the quarter reflect significant weakness. Roughly 43 percent of its Suezmax days have been booked at $15,478/day and 34 percent of its Aframax days have been booked at just $6,520/day, below cash costs. Recently, the VLCC market has seen accelerated activity in the Arabian Gulf, although 4Q10 is still likely to be another weak quarter."

Genmar has amended its new $372 million credit facility to provide an additional 12 months to fill the equity gap from the Metrostar acquisition, which was partially filled by a recent $22.8 million bridge loan to allow for delivery of a Suezmax this month.

"While challenges persist," says Dahlman Rose, "4Q10 results are likely to be marginally improved, as new time charters for 8 vessels and the delivery of 3 vessels support operations. Based on Genmar's spot results thus far into the quarter, the company is set to generate over $22.0 million in EBITDA compared to 3Q10's $20.7 million. Excluding non-cash restricted stock compensation, implies cash EBITDA of $24.0 million."


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