GENERAL MARITIME CORP GMR
March 31, 2011 - 10:40am EST by
mojoris
2011 2012
Price: 2.08 EPS $0.00 $0.00
Shares Out. (in M): 141 P/E 0.0x 0.0x
Market Cap (in $M): 300 P/FCF 0.0x 0.0x
Net Debt (in $M): 1,334 EBIT 100 125
TEV ($): 1,634 TEV/EBIT 0.0x 0.0x

Sign up for free guest access to view investment idea with a 45 days delay.

Description

 

Event: Distressed Equity/Recap

Duration: 9-15 mos

Situation Overview:

  • On 3/17, GMR announced that it was delaying the release of its 10K as it explored a recapitalization transaction. A special committee of the board of directors was formed to evaluate the restructuring, as Chairman Peter Georgiopoulos was acting as a potential participant in the recap (Georgiopoulos also owns ~ 6.3% of GMR common stock).
  • Upon news of the release, GMR shares traded down to ~ $1.75 (~ 1:1 NAV), with the $300m unsecured bond issue trading as low as 75 (albeit briefly).
  • On March 30, the Company announced a recapitalization consisting of the following:
  • o $200m "3rd lien" PIK toggle note, 7yr maturity, L+900 PIK (L+700 post financing) or L+600 with 3% Libor floor, 19.9% penny warrants
  • o New $550m revolver, 6 yr maturity, L+400, cash sweep (yrs 1-2), qtrly amort yrs 3-5
  • o New $46m equity offering
  • PF capitalization as follows (assumes $125m 2011 EBITDA, $1.68bn fleet value):

  $ EBITDAx % Cap % Fleet
Cash -51.5 -0.41 -3% -3%
2010 Facility 335.8 2.27 17% 17%
New Facility 550.0 6.67 51% 50%
PIK Toggle 200.0 8.27 63% 61%
Unsecured 12% Notes 300.0 10.67 82% 79%
Total Net Debt 1334.3 10.67 82% 79%
Market Cap (141.1m shrs est) 294.8 13.03 100% 97%
Total Capitalization 1629.1 13.03 100% 97%

While we do not portend to have the crystal ball on the inflection point, we believe this restructuring signals a near-term bottoming in rates which will instill fleet build discipline/increasing incentive to scrap aged vessels as the weakest tanker business has the dry powder to survive (hence the industry is unlikely to drive them into liquidation). 

 

Background:

As a backdrop, the tanker day rate environment is dismal, with little visibility to see when rates will see a rebound.  This rate environment has been exacerbated by global supply/demand imbalances as ~ 2% growth in oil shipments has been far outpaced by new build deliveries over the last 3 years.  A history of corporate activity is outlined below - in summary, GMR has been active in fleet building, largely financed with debt (and some equity) in the face of declining rates (now ~ 40+% below historical 10-yr average day rate levels).

  • 5/12/08: Acquired 2 Aframax ($137m)
  • 8/16/08: Merges with Arlington Tankers in a $2bn transaction (fleet up from 21 vessels to 29)
  • 10/29/09: Private placement of senior notes
  • 6/9/10: Acquires 7 vessels (5 VLCC, 2 Suez) for $620m
  • 6/14/10: Equity offering of 30.6m shares ($6.75)
  • 10/5/10: Amends credit agreement (equity issue waiver for 1 year), bridge loan entered to finance vessels
  • 1/18/11: Sale-leaseback of 3 vessels (1 pana, 2 handy) for $61.7m
  • 1Q11: sale of 4 vessels (19yrs avg age, 3 afra, 1 suez) for $33.3m
  • March 31: announces recapitalization

 

Company Overview:

  • GMR owns 34 tanker vessels consisting of:
  • o 7 VLCCs (YTD contracted daily rate of $33.6k vs. 10 yr avg. of $57.2k)
  • o 12 Suezmax ($32.8k vs. $44.1k)
  • o 9 Aframax ($14.9k vs. $31.8k)
  • o 2 Panamax ($16.1k vs. $28.1k)
  • o 1 Handymax
  • o 3 Handymax charted in
  • Proforma for the sale of 4 vessels (average age of 19 years), the Company's fleet is 7.7yrs vs. global average tanker age of 8.5 years
  • 5.3m dwt capacity
  • No FFA's
  • 40% time charter coverage for 2011

 

Based on current second hand vessel prices, GMR's current fleet has a value of $1.68bn:

  # of Vessels 2nd Hand Price $
VLCC 7 80 560
Suez 12 57 684
Afra 9 38 342
Pana 2 35 70
Handy 1 26 26
Total     1682
 

Given GMR's cost and capital structure (~ $160m in fixed costs, $110m in debt costs), earnings is highly leveragable to day rates.  40% charter coverage in 2011 declines to ~ 12% in 2012, and we estimate a day rate to EBITDA factor of ~ 1.5x.  Below illustrates a scenario analysis on share price to rates based on a historical range of forward EV/EBITDA multiples.  Simply returning to the 10 year average rate yields a 150+% return to the shares.

    Multiple       Equity Value/Share      
2012 EBITDA DR Change 7.5 8 8.5 9 9.5 10 10.5 11 11.5
127.5 -10% -2.68 -2.23 -1.78 -1.32 -0.87 -0.42 0.03 0.48 0.94
138.8 -5.0% -2.08 -1.59 -1.10 -0.61 -0.11 0.38 0.87 1.36 1.85
150.0 0.0% -1.48 -0.95 -0.42 0.11 0.64 1.17 1.71 2.24 2.77
161.3 5.0% -0.89 -0.31 0.26 0.83 1.40 1.97 2.54 3.12 3.69
172.5 10.0% -0.29 0.32 0.94 1.55 2.16 2.77 3.38 3.99 4.60
183.8 15.0% 0.31 0.96 1.61 2.26 2.92 3.57 4.22 4.87 5.52
195.0 20.0% 0.91 1.60 2.29 2.98 3.67 4.36 5.06 5.75 6.44
206.3 25.0% 1.51 2.24 2.97 3.70 4.43 5.16 5.89 6.62 7.35
217.5 30.0% 2.10 2.88 3.65 4.42 5.19 5.96 6.73 7.50 8.27
228.8 35.0% 2.70 3.51 4.32 5.14 5.95 6.76 7.57 8.38 9.19
240.0 40.0% 3.30 4.15 5.00 5.85 6.70 7.55 8.40 9.26 10.11
251.3 45.0% 3.90 4.79 5.68 6.57 7.46 8.35 9.24 10.13 11.02
262.5 50.0% 4.50 5.43 6.36 7.29 8.22 9.15 10.08 11.01 11.94
273.8 55.0% 5.10 6.07 7.04 8.01 8.98 9.95 10.92 11.89 12.86
285.0 60.0% 5.69 6.70 7.71 8.72 9.73 10.74 11.75 12.76 13.77
296.3 65.0% 6.29 7.34 8.39 9.44 10.49 11.54 12.59 13.64 14.69

 Probabilities

Given limited visibility in day rates (and we won't attempt to call a bottom), our probability assumptions are based on 70% status quo or declining rate environment with only a 30% chance of a normalized rate environment (normalization = 10 year average rate by vessel).  The revised capital structure effectively buys time to opportunistically secure charters at higher rates over the next 12-18 months.

  Price %  
Bankruptcy           0.67 10%  $       0.07
~ 45% NAV           1.04 20%  $       0.21
~ 90% NAV (current)           2.09 30%  $       0.63
Acquisition, Status Quo Rates           1.75 10%  $       0.18
Day Rate Normalization           4.79 30%  $       1.44
    100%  $       2.51

Entry Catalyst: Restructuring Announcement

Exit Catalyst: Normalized/improving day rate environment, increased industry scrappage/fleet addition deferrals.

Catalyst

Event: Distressed Equity/Recap

Duration: 9-15 mos

Situation Overview:

  • On 3/17, GMR announced that it was delaying the release of its 10K as it explored a recapitalization transaction. A special committee of the board of directors was formed to evaluate the restructuring, as Chairman Peter Georgiopoulos was acting as a potential participant in the recap (Georgiopoulos also owns ~ 6.3% of GMR common stock).
  • Upon news of the release, GMR shares traded down to ~ $1.75 (~ 1:1 NAV), with the $300m unsecured bond issue trading as low as 75 (albeit briefly).
  • On March 30, the Company announced a recapitalization consisting of the following:
  • o $200m "3rd lien" PIK toggle note, 7yr maturity, L+900 PIK (L+700 post financing) or L+600 with 3% Libor floor, 19.9% penny warrants
  • o New $550m revolver, 6 yr maturity, L+400, cash sweep (yrs 1-2), qtrly amort yrs 3-5
  • o New $46m equity offering

Given limited visibility in day rates (and we won't attempt to call a bottom), our probability assumptions are based on 70% status quo or declining rate environment with only a 30% chance of a normalized rate environment (normalization = 10 year average rate by vessel).  The revised capital structure effectively buys time to opportunistically secure charters at higher rates over the next 12-18 months.  Probability weighted edge offers 25% upside, defined downside, and longer term 150+% upside in a normalized rate environment.

Entry Catalyst: Restructuring Announcement

Exit Catalyst: Normalized/improving day rate environment, increased industry scrappage/fleet addition deferrals.

    sort by    
      Back to top