Genco Shipping & Trading Limited (GNK), Eagle Bulk Shipping Inc. (EGLE): The Danger and Opportunity in This Sinking Sector

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The immediate suspects

Until the shipping sector will stage its turnaround, a few leading shippers will likely file Chapter 11. Excel Maritime, a large dry-bulk shipper, announced plans to seek bankruptcy on June 11. Korea’s largest dry-bulk shipper, STX Pan Ocean, sought bankruptcy protection on June 7. Two other companies, Genco Shipping & Trading Limited (NYSE:GNK) and Eagle Bulk Shipping Inc. (NASDAQ:EGLE), are on the verge of default. On May 1, Genco Shipping & Trading Limited (NYSE:GNK) had to restructure its debt to short-term to comply with its loan covenants. Eagle Bulk Shipping Inc. (NASDAQ:EGLE) said it could breach its covenants by next March if rates don’t improve.

You see, when we look for the immediate insolvent candidates, we must turn our focus on the debt component in the balance sheet. Precarious, debt- loaded balance sheets don’t inspire confidence. Take a look at the table below.

Company Market Cap Cash Total Debt ’13 EPS estimate
EGLE 82 M 18.2M 1.15B -7.34
EXM 53 M 27.24M 1.07B -1.86
GNK 71 M 65.2M 101.25M -3.83
There’s simply no way for Eagle Bulk Shipping Inc. (NASDAQ:EGLE) and Excel to pay back their massive debts. With only $18 million and $27 million of cash, respectively, you can’t pay back mounting debts in excess of $1 billion. And that’s even if Eagle Bulk Shipping Inc. (NASDAQ:EGLE) and Excel were indeed profitable, which they aren’t. They are losing cash, not making it. Of the three, Genco Shipping & Trading Limited (NYSE:GNK) stands a slightly better chance to service its debt. With a relatively low total debt and a better cash cushion – Genco Shipping & Trading Limited (NYSE:GNK) might actually survive. But this decision belongs to its creditors. It’s up for them to decide whether they agree to postpone debt payments in return for Genco Shipping & Trading Limited (NYSE:GNK)’s shares.

The Fool thinks shipping

I believe that the shipping sector is poised to be an incredible contrarian trade at some point in time. Shipping companies can’t afford to operate. They’re declaring bankruptcy every month. Day rates are at rock bottom. The main risk is that sectors can wallow at the bottom for much longer than anyone expects. If they do, make sure to stay away from our top three potentially insolvent candididates.

The article The Danger and Opportunity in This Sinking Sector originally appeared on and is written by Shmulik Karpf.

Shmulik Karpf has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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