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I started the "Tankers in 2012" theme with Knightsbridge Tankers (VLCCF). While I start the
"Revisiting [Tanker Co] in 2012" with VLCCF, I'm not sure the order will stay consistent with the first theme.
The "revisiting" theme is a lot easier because the foundation has already been laid. VLCCF also works
particularly well because it is among the smaller, publicly-traded, shipping companies.

Here's the initial VLCCF analysis--

So we had a shipping company with a fleet of 4 VLCCs (Very Large Crude Carrier) and 4 Cape vessels (transporting
dry bulk goods). What has changed in the last six months? Well, there's been a Noah-type effect. Huh?
- Dividend cut: Two of those, 50c => 35c => 17.5c
- Charter issues: Two of those, both involving Cape vessels
- Vessel sales: Two of those, both transactions involving a VLCC

What happened?
In my opinion, just a cascading effect. The initial revenue picture was okay, but got weaker as
the charter cancellation events occurred. That meant VLCCF could not maintain its dividend payout.
In addition, a previously time-chartered VLCC had an expiring charter in April 2012, and entered
the Spot market about a month prior to rates in that market starting a general slide. The VLCC sales
have been a more recent activity. The first VLCC, Hampstead, sale was supposed to have completed
in July/Aug 2012, but the transaction failed. The company did manage to sell the vessel on the second
try, but at a lower rate. Since VLCCF kept the deposit for the first transaction, the transaction value
was around the same as the first deal. Details on the two transactions can be found here--

VLCCF had about $48M in cash at the end of Q2. The two VLCC sales netted about $18M for the
company. I believe the company still has access to a $75M credit facility, arranged when the
company was financing its fourth Cape vessel, and was in a stronger financial position. VLCCF
are in a reasonable position with regards to debt, perhaps $120M - $125M across the remaining
six vessels. That's not too bad given that each of the Cape vessels is less than 5 years old.

One of the Cape vessels that had a charter termination issue has secured a short-term charter
(about 6 months). While the revenue outlook has weakened, the two vessel sales suggest there might be
some plan to create new revenue and cash flow streams. A prior financing arrangement required the
company to maintain some restricted cash. I will defer to HockeyPop as to how, and what
type of situations would allow VLCCF to tap those funds. Although shipping in general is dealing
with a glut of vessels, owning vessels in two sectors (crude oil
tankers and dry bulk) helps
diversify risk some i.e. one sector could have some type of recovery before the other.

Q3 is generally the toughest revenue quarter in the annual cycle, especially if a tanker company has
spot trading vessels. But with four Cape vessels in its fleet, VLCCF isn't really a pure-play
tanker company. Too much uncertainty, not enough upside points to make VLCCF compelling for me here.

No VLCCF position
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Excellent as usual.

There are several aspects of their loan agreements that I think might place restrictions on cash, although the correct answer is "I'm not sure."

1. Various of their borrowings (mostly on the vessels) are secured by the individual vessels, or in July, 2010 secured by their aggregated vessels plus the assignment of charters on these vessels. It would seem prudent to restrict cash to pay for these loans.

2. Certain of the loan agreements include loan-to-value clauses that could require the Company to post collateral or prepay a portion of the outstanding borrowings should the value of the vessels decrease below a desired level. This too would be a prudent restriction of cash given the decrease in vessel values.

Which of your information and the annual report convinced me to buy?

a) The are a seriously undervalued asset. With cash and a good management team I don't think they are a cigar butt.

b) As I've said, I think this industry is at a low EVEN IF the stock market should drop further.

c) Their cash flow is in a relatively positive condition.

d) Most of the bad news is factored in. They improved cash flow by eliminating the dividend (I got in a little early with my first buy).

e) My very limited knowledge of their business says that if oil rises they may benefit, but they may also benefit if it falls, because China and others may increase their influx of oil. Since their MAJOR goal is to keep their ships working there is some benefit to either scenario. In addition, with a potentially weakening dollar, commodity prices should rise, while it's hard NOT to rely on their dry ship products. I also like the diversity of ships.

f) I like their management. Mostly FRO graduates.

g) I absolutely agree that there is no hurry to invest in this. I think it is a two to four year investment before significant increases do come. As I said, I think FRO has more upside, but got away from me in the low $3's.

h) This is NOT my "egg money." It's a more speculative small part of my individual stock and junk bond sandbox. I almost sold it with this rise and the expectation that it could go lower with a major correction. Haven't yet!

Again, thanks HoHum!

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Congratulations HoHum on the Post of the Day. Well deserved!!!!

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