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Author: brewer12345 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 3183  
Subject: Re: NM Q3 Date: 11/26/2012 11:40 AM
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The charter default insurance was providing NM nice continuation of revenue if a charter failed.
This is especially true given the price paid for some of the Capes, and the attached charters.
It will be interesting to see how much debt NM decides to pay down.

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Basically NM monetized the insurance they had on the failed charters and got a lump sum (plus some continuing coverage), and the insurer will be exiting the business. Not being able to get coverage going forward will eventually matter, but at this point in the cycle it is a moot point. Why? Simply put, they no longer have anything ov value to insure. Look at where day rates are. They are low enough that a default would simply have NM recharter at a similar rate. Day rates cannot drop much because owners wills crap and park ships. If they could get long term charters at $40k/day, I would be worried. But when a 1 year deal for a cape is mid teens or lower, there isn't really much of value to bother insuring. When this will matter is when rates bounce in a serious way. But that could be a while.

NM already has said that thery are planning to pay down something like $25MM ion debt and keep the rest of the proceeds as cash. This is contongent on their banks agreeing, but they likely would not have said this to the market if the banks were not largely on board already. I expect the rest of the proceeds will be used for fleet expansion/renewal.

Since NM basically gained some value (arguably, and not much) on this deal, it doesn't really change the picture for them. They are in good shape through next year. After that, unless rates start to move up from where they are, things will begin getting tighter for NM. Now there are still a lot of levers they could pull to remain afloat, such as monetizing some of their NSALI stake, getting a rise in tanker rates (especially product tankers) helping out with their value of NNA, etc., but they will have to work harder to keep all their plates spinning starting in 2014 if we don't see day rates rise. This si no different than the situation when they had the insurance in place, so it does not make a whole lot of difference. The big difference is that now they have a pile of cash and they can capitalize on distressed asset price levels if they wish to do so.
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