Dry bulk carrier Genco Shipping and Trading said it is canceling a deal to buy six new dry bulk vessels, and will take a related charge of $54 million in the fourth quarter.
Genco had previously agreed to acquire these vessels, all to be delivered in 2009 after construction, from private sellers for a total of $530 million.
The company had placed a $53 million deposit with the remainder to be paid on delivery. As part of its cancellation agreement, Genco will lose this deposit but is not obligated for any remaining payments.
Genco’s decision to forego the purchase has strengthened its liquidity “during a difficult market environment,” the company said in a statement.
The cancellation follows months in which the Baltic Dry Index, which tracks freight rates for the dry bulk trade, has plunged to record lows and dry bulk vessel prices have also fallen.
“The $300 million market value of the vessels is significantly below the $530 million purchase price and would have resulted in lost value,” said Urs Dur, shipping analyst for Lazard Capital Management.
“However Genco’s losses are limited to just the $53 million deposit or roughly $1.67 per share. Based on Baltic Exchange value assessments, Genco’s current implied NAV is $12 a share — substantially higher than the $6 a share it would have been had the purchase agreement remained in place,” he said.
The company said it repaid the debt related to the deposits related to the deal using cash flow from operations, reducing the debt outstanding under its 2007 revolving credit facility to $1.08 billion.
Genco said it is discussing a potential extension of the $320 million credit facility, put in place to fund the deal, with its lenders.
Genco had previously agreed to acquire these vessels, all to be delivered in 2009 after construction, from private sellers for a total of $530 million.
The company had placed a $53 million deposit with the remainder to be paid on delivery. As part of its cancellation agreement, Genco will lose this deposit but is not obligated for any remaining payments.
Genco’s decision to forego the purchase has strengthened its liquidity “during a difficult market environment,” the company said in a statement.
The cancellation follows months in which the Baltic Dry Index, which tracks freight rates for the dry bulk trade, has plunged to record lows and dry bulk vessel prices have also fallen.
“The $300 million market value of the vessels is significantly below the $530 million purchase price and would have resulted in lost value,” said Urs Dur, shipping analyst for Lazard Capital Management.
“However Genco’s losses are limited to just the $53 million deposit or roughly $1.67 per share. Based on Baltic Exchange value assessments, Genco’s current implied NAV is $12 a share — substantially higher than the $6 a share it would have been had the purchase agreement remained in place,” he said.
The company said it repaid the debt related to the deposits related to the deal using cash flow from operations, reducing the debt outstanding under its 2007 revolving credit facility to $1.08 billion.
Genco said it is discussing a potential extension of the $320 million credit facility, put in place to fund the deal, with its lenders.
