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Monarch Alternative Capital Joins List of Funds Betting on Shipping Stocks Rebound

Michael Weinstock‘s Monarch Alternative Capital has surges its position in Scorpio Bulkers Inc (NYSE:SALT), according to a new filing with the Securities and Exchange Commission. Monarch reported ownership of around 20.66 million shares of the company, up from 12.19 million shares disclosed earlier. The passive stake amasses 11.5% of Scorpio Bulkers’ common stock.

Monarch is a large investment firm with over $5 billion in assets under management, but its equity portfolio is valued at $439 million. The fund focusses on distressed and bankruptcy situations. Scorpio Bulkers Inc (NYSE:SALT) has been included in Monarch’s equity portfolio since the first quarter of 2014, the fund initially holding around 8.34 million shares but raising it over the following months. Meanwhile the stock of the small-cap deep sea freight company tanked by more than 73% year-to-date.

Michael Weinstock - Monarch Alternative Capital

Scorpio Bulkers Inc (NYSE:SALT) has recently entered into a securities purchase agreement with several investors for a private placement of 40.0 million shares of common stock that have been sold at $3.75 per unit, resulting in gross proceeds of $150 million. Moreover, a couple of days ago, the company signed a Memorandum of Understanding with ABN Amro Bank N.V. and The Export-Import Bank of China and secured a loan facility of up to $235 million.

Among other investors in Scorpio Bulkers Inc (NYSE:SALT) is Andrew Feldstein and Stephen Siderow‘s BlueMountain Capital Management, which held 10.29 million shares at the end of September. James Dinan‘s York Capital Management raised its stake by 541,200 shares during the July-September period to 9.70 million shares.

In general, over the last several months we have seen an increase in bullish sentiment regarding shipping stocks. More than a month ago, BlueMountain Capital Management initiated a 10.4% position in DryShips Inc. (NASDAQ:DRYS), which contains around 71.43 million shares. In September, BlueMountain raised its stake in Scorpio Bulkers Inc (NYSE:SALT) to 9.92 million shares, while in August it disclosed holding 57.5 million shares of Overseas Shipholding Group Inc. (OTCMKTS:OSGIQ)Another investor, Howard Marks‘ Oaktree Capital Management disclosed a new position in Eagle Bulk Shipping Inc. (NASDAQ:EGLE) at the end of October, the stake containing 15.71 million shares of the company.

So, why all these investors have been betting on shipping stocks like Scorpio Bulkers Inc (NYSE:SALT) over the last couple of months? The industry of shipping & ports slid by around 9% year-to-date and the stocks that investors have been bullish on are among the top losers in the industry. However things might change very soon. The main problem faced by shipping companies, including dry bulk cargo ships or oil tankers, has been the excess capacity and the situation got even worse with the recession, which left many companies without any profits for years. Another factor that have a big impact on these companies’ earnings are the fuel costs. However, with the oil currently tumbling and being expected to stay around four-year lows for at least several months, shipping companies have a possibility to save some costs, which in exchange will drive their earnings up.

Disclosure: none