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General Maritime - Not What The Banks Needed
Via Peter Tchir of TF Market Advisors
General Maritime filed for bankruptcy yesterday. So far it has been treated as a non event, but it may actually be start of another wave of bank write-downs.
The shipping industry still relies heavily on the banks for financing.
You can see that of the 1.5 billion of debt, the majority of it is in loan form. This is important because many of the banks will have held this loan and other shipping loans at par. The better banks will have taken provisions against these positions, but the weakest banks are (once again) the most likely to have hoped for the best and not marked their exposure to market.
Since General Maritime is now in default, those loans will have to be written down. That isn’t a big deal, but will banks be forced to take provisions against their other shipping loans? A lot of shipping loans would trade well below par. The banks that avoided taking charges before may have to now that one of the loans has defaulted. This could create a wave of selling and another source of losses for banks in the near term.
And guess who is involved in shipping lending? All the usual suspects….
The General Maritime default isn’t in itself a big issue, but if it forces write-offs or provisions against other shipping loans at the weaker banks, it could add to the banking crisis more than people currently think.
Charts: Bloomberg
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Everything seems to point to high negativity and the freaking market is still going up.
We need Mercozy here to fix it.
The exchange goes up because banks make money on bailouts , extortion and fraud not traditional lending and servicing.
drys is next. look out below!
It is strange that you mention DRYS as a default risk. Here is the latest on DRYS from Barrons - rather positive:
DRYS-Nasdaq
Buy • Price 2.91 on Nov. 8
by Lazard Capital Markets
DRYS came in with 3Q adjusted EPS of 16 cents; the Street had expected EPS of 14 cents and we had expected 17 cents. Revenue mildly beat Street expectations. Due to planned contract-mobilization expenses for three ultradeepwater rigs (UDW) in 4Q, which have been guided a bit higher than previously estimated, our 4Q11 EPS estimate for DRYS drops to 12 cents, from 14 cents. However, largely on the solid performance of its Ocean Rig UDW (ticker: ORIG)...business and slightly better margin outlook, our 2012 estimate improves a touch, to 83 cents, from 80 cents....We are reiterating Buy, and 7 price target. DRYS is trading well below its net-asset-value range of about 9...Our price target is based on DRYS trading at about 8.5 times our 2012 EPS estimate of 83 cents, an enterprise value/earnings before interest, taxes, depreciation and amortization of about 6.5 times... and a price/sum of the parts of about 0.75 times.... Risks include related-party transactions, weakness of the drilling, tanker and/or dry bulk markets, counterparty default. Market cap: $981 million.
I thought banks held those loans at par because they were going to be paid back. There is no need for mark to market on good loans.
sarc~off
But ... I thought the consumer was buy bunches of stuff. Shippers aren't doing well? Imagine that. I'm sure Benny Boy is shocked ... shocked I tell you.
The question becomes how many little things need to fail for big things start failing.
Critical mass anyone.
I see this as being completely bullish. It demonstrates that the state of the world's banking industry is much stronger than we have thought. This should lead to added confidence in the financial sector's ability to honestly and effectively deal with issues of insolvency, demonstrating that the European situation will be much less of an event that we thought. In fact, I think this may be the best news of the week.
/sarc and begin wait for lightning strike
(I would have left out the 'sarc' and racked up those red arrows)
Awww man.... you had MillionDollarBonus down pat right up until the /sarc
A grade 'A' performance, nonetheless
The troubling part about that list of creditors is that it isn't a list of already-junked crap banks. It's Nordea's Finland operation, German, Danish and French (Natixis) banks.
Yeah, UniCredit and Santander are in on this, but really, my concern would be that this shows some contaigion into parts of the euro area that really haven't been discussed as problems.
You have to distinguish between the monetary EU and the European banking system. If you believe DB is less leveraged than Uni or SocGen then you need to take a look at a long look at their exposures.
Most people believe a mouse fart could topple this thing at any point. I'm not sure anybody will anticipate what exactly is going to be the final nudge.
There are literally too many stories that have the potential. Then again, one bad decision or rumor could send panic waves across the globe.
Looks like the recovery is coming in strong...
More Greeks outa work
It was only a matter of time...Shippers who spent big(most of them) in the boom years(04-07) buying ships that were making 50-75-100k+ a day are now struggling with debt loads on ships making 20% of that if theyre lucky. The debts are coming due and there will be more BK's and restructures needed.
The banks don't need any more bad news. But since mortgage apps is one of the profit centers, the MBA news wasn't wanted either!
Positive Signs For The Economy, But MBA Refi Apps Fall 20.97% and Purchase Apps Fall 14.97% – Obama Signs Growth of Government (FHA)
http://confoundedinterest.wordpress.com
U-boats, BiCheZ!
Didn't come up on 'bank-implode-o'-meter'
http://bankimplode.com/New order vessel deliveries (ordered some 3 years ago) will out pace demand through these years adding over 60% of the current capacity to an already under utilized global fleet. The 90+% utilization factor of current container capacity is hogwash. With over 12% of the current world capacity at anchor in the far east and the flood of new tonnage coming on line over the next 3 years, it would be a miracle to see a full recovery before 2013. Although true that freight rates are increasing, keep in mind that they have hit historical lows so that any increase is an improvement over what can be considered lousy income for the container lines. Brasov-Hotels
But the chinese have stopped with the subsidies to the chinese shipyards and all this shit is bought on debt and does take 12-24mos to finish a boat, 10% down. Do you think the banks will hold the rates for the owners? no. under triple bbb rating is like 10%+ interest rate. Even KKR is whining about it. most of these guys will forfit the deposit or sell the deposit to someone else. ships are only good for 10 yrs.- they say 25-30 but after 20 you cannot even get into a modern harbour.
And it was only on 7 September 2011, that General Maritime benefited from a Global Shipping Conference presentation by Jefferies & Co. ...
http://phx.corporate-ir.net/phoenix.zhtml?c=124711&p=irol-irhome
But according to the 'Restructuring Information' on their website, the future is bright despite bankruptcy:
« Operations Continuing as Normal ... an important step forward for the Company ... Substantially all of the Company's subsidiaries - with the exception of those in Portugal, Russia and Singapore - have also commenced Chapter 11 cases ...
« General Maritime intends to move through this restructuring process as quickly as possible and looks forward to working with all of its stakeholders to complete a successful financial restructuring. »
http://www.gmrrestructuring.com/
Someday.
When you said "usual suspects", I started looking for BAC.
aren't these the same douchebags that borrowed $1B to pay themselves special dividend few years ago?
The next "Lehman" very well might not be a "Lehman" at all but some industrial or banking vertical flying entirely under the radar, that explodes over a weekend and rips the underbelly out of the financial sector.
Like a bolt. Out of the blue. And it's gone.
Become a bank...then go to the Fed window for Free Money...can't they do that like GS and several others did?
All shipping is fucked right now but if any of them has enough cash to see them thru, then they can pick up the pieces cheap. I wouldn't buy their debt right now.
Things are getting crazier and crazier. We may see a global depression real soon.
General Maritime - Thats Nothing. CMA - The thrid largest container line in Europe has a 9 out of 10 chance of default. Almost Greece Style. Either it would be an incredibly bold bet with a huge payoff or a default. Their rate is 8.5 percent. 1-2 percent would have been a good bond. They have some sort of problem with shipping arms to Iran and Cuba. Is France the new Russia?
Bonds and derivatives tied to CMA CGM SA, the third-largest container line, are signaling that the company has a nine in 10 chance of defaulting as the slowing global recovery pushes freight rates to about zero.
Penalized by the U.S. last month for breaching trade sanctions with Iran, Cuba and Sudan, CMA CGM has seen the price of its $475 million of 8.5 percent notes due 2017 plunge to 47.25 cents on the dollar since they were sold April 14, Bloomberg Bond Trader prices show. Credit-default swap prices signal a 90 percent probability of the Marseille-based company being unable to meet its obligations within five years.
Freight charges collapsed on the Asia-to-Europe lines, the world’s second-busiest route, as a capacity glut combines with the slowest growth in trade since 2009. Rates excluding fuel surcharges were “practically” zero in July and little changed last month, the worst run ever, according to Menno Sanderse, an analyst at Morgan Stanley in London.
“Shipping and logistics is a pretty beat-up sector,” said Louis Gargour, who owns the bonds as the chief investment officer at LNG Capital LLP, a London-based hedge fund he co- founded in 2006. “The good side is everybody I know is very interested in this company at 50 cents on the dollar, although it’s a gamble.”
CMA CGM was founded by Jacques Saade in 1978 after he fled to France from Lebanon’s civil war. It employs more than 17,200 people and runs a fleet of 394 vessels, according to its website. The company grew from five employees and a rented boat into a global operator, ranking behind Copenhagen-based A.P. Moeller-Maersk A/S and Mediterranean Shipping Co. SA in Geneva.
Debt, EarningsThe company posted an 8 percent increase in first-half sales to $7.3 billion and had $675 million of cash at the end of July, according to a statement on its website. CMA CGM said it had $5.3 billion of net debt at the end of June and recorded $685 million of earnings before interest, tax, depreciation and amortization in the first half of the year.
That means debt is more than three times Ebitda, compared with a ratio of about less than one time at Maersk, according to that company’s earnings report on Aug. 17.
CMA CGM also issued 325 million euros ($459 million) of 8.875 percent bonds maturing in 2019 in April, which were quoted at 49 percent of face value, Bloomberg Bond Trader prices show.
Default swaps on the company’s debt cost 4.8 million euros upfront and 500,000 euros annually to insure 10 million euros of debt for five years, according to data provider CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market. The contracts have risen from 800,000 euros upfront on June 6.
Bonds ‘Whipsawed’“We are surprised to see the value of the debt drop so much,” said Michel Sirat, the container line’s chief financial officer based in Marseille. “Our bonds are whipsawed because of prevalent fears in financial markets and questions about our liquidity, but we have a strong cash position and are fully compliant with our debt covenants.”
The drop in its bonds prompted the company to issue a statement on Aug. 3, saying it’s taking the “poor performance very seriously,” and that it doesn’t plan major new investments this year and next.
CMA CGM is rated B+ by Standard & Poor’s, which said in a May report that the company’s rankings are constrained by its “high operating risk in the cyclical, capital-intensive, and competitive container-shipping industry.”
Covenants BreachedThe container line has about $4 billion of loans, according to data compiled by Bloomberg. Covenants on most of its borrowings were breached in 2009 after a slump in world trade amid the deepest financial crisis since the 1930s.
CMA CGM received $500 million from Turkish family-owned company Yildirim in November in return for a 20 percent stake as it sought to restructure about $5 billion of debt. In May, Yildirim agreed to buy 50 percent of Malta Freeport Terminals from CMA CGM for 200 million euros.
Analysts are increasingly bearish on what slowing trade growth means for shipping company earnings. Maersk, the world’s biggest container-shipping line, will report a 25 percent slump in net income to 19.71 billion kroner ($3.8 billion) this year, the mean of 16 estimates compiled by Bloomberg shows.
The industry may lose $2.5 billion to $3 billion this year, said Philip Damas, director of liner shipping and supply chains at Drewry Shipping Consultants Ltd. in London. Owners and operators lost $20 billion in 2009, when the global container trade contracted for the first time ever, he said.
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RE : By Patricia Kuo and David Goodman
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