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Author: Hohum777 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 19961  
Subject: VLCCF in 2012 Date: 3/13/2012 2:14 AM
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So I'm going to start the 2012 tanker ideas with one of the smaller publicly traded tanker companies- Knightsbridge Tankers (VLCCF). The company owns 8 vessels- 4 Very Large Crude Carriers (VLCCs) that transport crude oil and 4 Cape-size vessels that ship dry bulk products.

A year ago, VLCCF was in pretty decent shape- manageable debt, a decent amount of cash, and all vessels in some form of fixed charter. The first two are still true, the third will become a concern in 2012. One VLCC time-charter expired in 2011, and the vessel started trading in the spot market. In Q2 2012, a time-charter expires for another VLCC, and in Q3, a bareboat charter expires for a third VLCC. In the Q4 earnings report, there was a two sentence comment--
“Other current assets” have increased partly due to outstanding charter hires. The Company is in constructive discussions with the relevant counterparts in order to resolve this issue.

(Page 1)
http://hugin.info/132879/R/1583713/495282.pdf

While this could involve either a VLCC or a Cape charter, I have a strong suspicion it is one of the Capes. If it is the vessel I'm thinking, the safe revenue stream that VLCCF had in 2011 becomes a whole lot riskier in 2012, dropping to 50% time charter coverage by September 2012. I should add, regardless of vessel type, I think the time charter market in 2012 will be difficult for both the VLCC and the Cape vessel categories.


I've mentioned this point in other Knightsbridge related threads. The company has no active management. A few folks at Frontline (FRO) provide all the management services for the company, including working with another John Freriksen-related entity, Golden Ocean, to manage the Cape vessels. It is interesting to note that, while FRO utilizes a majority of its vessels in the riskier spot market, the FRO personnel are much more conservative in managing the VLCCF vessels. A couple of examples of this different approach. About 2 years ago, FRO personnel arranged a 30-month bareboat charters for one VLCC. Then about 18 months ago, the staff arranged a 5-year charter for another VLCC. With the high costs of bunker fuel, this is now proving to be an astute move wrt to VLCC operating costs, older VLCCs in particular (both VLCCs on bareboat charters are over 16-years old).


So where does VLCCF go from here?
As mentioned earlier, the company has a manageable debt load- about $154M. That works out to about $26M per Cape & $12.5M per VLCC- just one pairing among many combinations. The company has access to $75M of credit facilities, plus another $45M in cash. There's also $15M in restricted cash, not tied to a new asset. So, there are four VLCCs, each on the older side (16/17 years old), while the four Capes are newer (each less than 3 years old). Among the options
1. An upgrade of the VLCC fleet,
2. Acquiring more dry bulk vessels
3. Branching into product tankers.

Is that 50c quarterly dividend safe? About five weeks ago, in another VLCCF-related thread, I suggested that VLCCF's dividend was only safe 2-3 quarters. Well, Q4 has been paid. So, if my premise holds, there are maybe 1-2 safe quarters left.

Hohum
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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9511 of 19961
Subject: Re: VLCCF in 2012 Date: 3/13/2012 2:41 PM
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No sooner do I finish an brief writeup on VLCCF, a news story breaks on the press wires about
charter issues.

http://www.bloomberg.com/news/2012-03-12/sanko-seeks-to-dela...

Whether Sanko is the same charterer as the one having troubles paying in Q4 is unknown at this
time. It wasn't the charterer I was concerned about in the OP. At least from my perspective, it
does strengthen my premise on the dividend safety. A replacement charter at a similar rate will be
extremely difficult.

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Author: LeKitKat Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Feste Award Winner! Old School Fool Global Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9513 of 19961
Subject: Re: VLCCF in 2012 Date: 3/13/2012 5:34 PM
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nothing like losing $40K per day to ruin a good Q! Shipping is a tough business. Any recourse to making Sanko pay?

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9514 of 19961
Subject: Re: VLCCF in 2012 Date: 3/13/2012 6:10 PM
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nothing like losing $40K per day to ruin a good Q! Shipping is a tough business. Any recourse to making Sanko pay?

VLCCF could take them to court. But that takes time and the FRO folks have to expend additional
effort to find a replacement charter in the meantime.

A charterer of another VLCCF Cape had some issues. The way that one got resolved was a lower rate in
exchange for a longer contract length. I think the total revenue worked out about the same. It might
be slightly trickier with a $40k/day rate, but still potentially doable.

It also is more viable for VLCCF to accept because of their lower debt profile.

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9516 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 12:23 AM
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The VLCCF story continues to get interesting on a daily basis.

Two of VLCCF's Cape vessels were acquired from Golden Ocean, who took payment in the form
of VLCCF shares + cash. Well, now Golden Ocean are looking to dump those shares.

http://finance.yahoo.com/news/vlccf-announces-registered-pub...

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9519 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 8:20 AM
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What would YOU do?

a) Let the shares go out for bid and probably watch the price go down (isn't that about 6 days of the total volume of VLCCF?);

b) Adjust (lower) the already huge dividend and use it to buy back those shares;

c) Look for a huge white (ahhh it could be black) knight to come in to buy the shares and get on your board?

d) Something else.

Hockeypop

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9522 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 12:31 PM
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If I was on the board, I would opt for d) Something else. That would actually be multiple
actions.

- The folks at Navios have charter insurance on most of their dry bulk fleet. I would get
charter insurance on the other Cape charters.

- I think the company has a shelf registration to offer more shares. If not, I would file a shelf
to offer more shares. With its low debt, VLCCF is in a good position for a shipping company. Raise
capital from a position of strength (or reasonable strength currently)

- I would be planning a strategy on the VLCC side now. It doesn't have to be the primary move,
but some action to replace revenue in the near or mid-term.


Also, I would nix the share buyback idea. My view, before this week's developments, was the dividend
was not sustainable.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9523 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 1:40 PM
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- I think the company has a shelf registration to offer more shares. If not, I would file a shelf to offer more shares. With its low debt, VLCCF is in a good position for a shipping company. Raise capital from a position of strength (or reasonable strength currently)

But wouldn't you be offering new shares into the same environment a HUGE old number of shares (used for a purchase) is going to be sold? It was the loss of a charter, the potential sale of shares used for a previous purchase AND the high dividend that probably needs to come down that was challenging.

I'm not sure I'm a buyer in these circumstances (and actually this is an intellectual activity for me anyway).

Hockeypop

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9524 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 2:54 PM
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I'm not sure I'm a buyer in these circumstances (and actually this is an intellectual activity for me anyway).

Hockeypop


But, but ... you hypothetically placed me on the board :)

If I don't have a stake, my interests on the board are different than that of an investor.
As a board member, I am more interested in making sure the company stays in business during a
downturn, and can grow once a recovery starts occurring. If the dividend has to be trimmed, or
temporarily cut, that probably disappoints the investor. But that's a tough but prudent decision
that has to be made from the business angle.

FWIW, the high dividend payout is the reward for playing in the risky, highly cyclical shipping
sector.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9526 of 19961
Subject: Re: VLCCF in 2012 Date: 3/14/2012 3:03 PM
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THAT'S IT! I'm buying one share and nominating you to the board. If you're elected I'll buy the rest of the company (hey -- it's my dream too).

Hockeypop ... no more worries about cruise line tickets, these trips may be a little rough but are deductable.

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 9556 of 19961
Subject: Re: VLCCF in 2012 Date: 3/18/2012 12:13 AM
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An update on the Sanko Steamship issue--

President Takeshi Matsui has sought to improve cash flow, asking ship owners for a delay on about half the payments it owes, the Nikkei said.
Sanko Steamship -- which has restructured once before, after filing for bankruptcy protection in 1985 -- charters 80 percent of its fleet of about 190 ships, the business daily said.


http://www.hellenicshippingnews.com/News.aspx?ElementId=af5a...

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10186 of 19961
Subject: Re: VLCCF in 2012 Date: 5/11/2012 1:45 PM
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VLCCF announced Q1 results. The announcement included the dividend cut that I had predicted was
likely.

http://www.reuters.com/article/2012/05/11/knightsbridgetanke...


The other issue I had mentioned a couple of months ago, charter of one of its Cape vessels, is still
unresolved. The glut of dry bulk vessels does not help the situation.


Three advantages the company does have
1. Company affiliation with John Fredriksen
2. Low debt levels for its fleet size.
3. Decent cash position and access to credit facilities- again, relative to its size.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10187 of 19961
Subject: Re: VLCCF in 2012 Date: 5/11/2012 2:00 PM
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Well, they just lost about 5% on their price, but stand about 80% of BV. I don't think many reasonable people felt they could keep a 17% dividend. What is it now?

That's a price that would have been good in 2002. Hmm, looks like a buy. What is your opinion?

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10188 of 19961
Subject: Re: VLCCF in 2012 Date: 5/11/2012 2:11 PM
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The company cut its dividend to 35 cents per share from 50 cents per share. Knightsbridge expects to pay the dividend on or around June 6.

I believe that's still about 13%.

We'll see. I put a limit order just now. Thanks for presenting enough understanding for me to make that decision. It's been fascinating to try to understand your analysis over time. My first nibble. I'll be patient.

Hockeypop

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10189 of 19961
Subject: Re: VLCCF in 2012 Date: 5/11/2012 2:58 PM
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Well, they just lost about 5% on their price, but stand about 80% of BV. I don't think many reasonable people felt they could keep a 17% dividend. What is it now?

They slashed the dividend to 35c/sh. Annualized, that would be about about $1.40, and a yield
greater than 12%.

That's a price that would have been good in 2002. Hmm, looks like a buy. What is your opinion?

Is 35c/sh safe? I made the dividend cut call before the newest charter issues surfaced. I think
the uncertainty of that charter situation, plus other events, makes the 35c dividend level shaky
going forward. Other events include a 3.5-month rate cut for one VLCC, two VLCCs trading spot,
and a third VLCC likely trading spot in Aug 2012. For a spot trading tanker owner, a good test
is how the owner handles Q3.

FWIW, about 2 years ago, someone asked me my opinion about VLCCF, then trading around $13-ish.
I said I would wait for $11-ish, which never arrived. Instead, the stock took off, and reached
as high as $23-ish a little over a year later. Plus a couple of dividend hikes along the
way. I underestimated the JF factor- FRO staff who handle the management of all VLLCF
vessels, executed a great charter plan for the entire fleet.

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Author: hockeypop Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10799 of 19961
Subject: Re: VLCCF in 2012 Date: 6/18/2012 4:14 PM
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More on VLCCF: HoHum -- I'd never have thought this would be of interest to me -- thank you -- I think.
http://beta.fool.com/blackngold/2012/05/14/when-slashing-div...

This blog link was about the time of HoHum's last post on this thread in May 11 and VLCCF sits at about $8.25 now (after another 20% hit to most tanker stocks including FRO). That's the lowest price in ten years.
http://caps.fool.com/Ticker/VLCCF/Chart.aspx?source=icasitta...

I think we sit in a target rich value environment IF we can figure what margins and gross revenue may fall to, as well as see who will be survivors among an already weakened lot. THAT is the question.

It sure looks like VLCCF has revenue challenges (that HoHum has described) and even the new lower dividend may be in danger. But out-of-business???? Hard to see that.
http://caps.fool.com/Ticker/VLCCF/EarningsGrowthRates.aspx?s...

Hockeypop ... back after three weeks on the road and in need of a nap.

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Author: wittgenstein Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10801 of 19961
Subject: Re: VLCCF in 2012 Date: 6/18/2012 6:12 PM
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It sure looks like VLCCF has revenue challenges (that HoHum has described) and even the new lower dividend may be in danger. But out-of-business???? Hard to see that


JF companies may deliver surprises, but it's a safe bet that disappearance isn't one of them. Quoth the Raven, "Nevermore"?

jz

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10804 of 19961
Subject: Re: VLCCF in 2012 Date: 6/18/2012 9:37 PM
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More on VLCCF: HoHum -- I'd never have thought this would be of interest to me -- thank you -- I think.
http://beta.fool.com/blackngold/2012/05/14/when-slashing-div......


The blogger has at least one major misunderstanding that needs to be mentioned.

For 2012, the problem has NOT been on the demand side. The current situation is mostly a supply
side issue. There were two big factors that came up in the March-May interval that helped with rates-
Saudis shipping oil to Motiva and China starting to fill up stage 2 of its strategic petroleum
reserves. Motiva going off-line and China likely cooling off on the storage side has already
begun to affect VLCC rates- VLCC spot rates were above $30K daily a couple of weeks ago,
but are now about half that rate. The higher VLCC rates this year were appreciated by tanker
owners (maybe $65K daily at the peak), but low compared to historical (over $100K daily)

VLCCF do have some positives to build on- low debt, cash/credit facilities, charter coverage.
But that positive on the charter coverage is beginning to trail off. As I mentioned in the OP,
a second VLCC trades spot currently, and a third VLCC could possibly trade spot in Aug 2012.
Together with the uncertainty of one dry bulk charter, that would mean only half the fleet of
eight vessels have safe revenue. The other negative is the age of the four VLCC vessels.

It sure looks like VLCCF has revenue challenges (that HoHum has described) and even the new
lower dividend may be in danger. But out-of-business???? Hard to see that.

Yes, revenue challenges, but not survival issues. Golden Ocean closed out their VLCCF stake
a lot higher. I think that was primarily a cash management move rather than bailing out on VLCCF.

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Author: Hohum777 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 11201 of 19961
Subject: Re: VLCCF in 2012 Date: 7/31/2012 6:40 AM
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Dusting this thread again, more problems for VLCCF.

Not just the Cape vessel chartered to Sanko steamship (mentioned last month). Now another
Cape charter with problems- a vessel chartered to Hong Xiang.

http://finance.yahoo.com/news/vlccf-termination-charters-two...


On a related note, Hong Xiang have been having issues with other charters.

http://finance.yahoo.com/news/sfl-termination-charters-four-...


Ship Finance Intl (SFL) is one of my investment ideas in shipping. As noted in the link,
the contract is worth about 1.5% of SFL's backlog. But SFL has a much larger revenue
backlog. About $5.5B, spread out over 10-15 years, and across multiple sectors (tankers, dry bulk
offshore drilling, etc.)

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