Rickmers – OCBC

Uncertainty driving volatility

Vessel secures new employment. Rickmers Maritime (RMT) announced that its vessel – Kaethe C. Rickmers (formerly Maersk Djibouti) – has secured employment with South American liner CSAV. The agreement is for a one-year charter at US$8,288/day, and also gives CSAV the option to renew the charter for another 12 months at US$23,888/day (averaging to a two-year daily rate of US$16,088). We note that the vessel was earlier earning US$22,708/day with Maersk. The US$8,288 rate is below our estimate of US$10,000/day – but it is a far better alternative to not securing any employment at all (which had seemed a likely possibility a few weeks ago). We note that CSAV is a current charterer of Pacific Shipping Trust; the liner has made great strides in resolving its own financial difficulties.

Implications of the April maturity of the US$130m loan facility. RMT had US$110.7m in cash as of 31 Dec but the question is if the remaining seven lenders will be willing to release that cash to only three lenders, considering the outstanding capital commitment of US$918.6m and the very likely breached loan-to-value covenants on the existing US$773.8m loans. The key determinant of the outcome is how close the banks and the sponsor are to reaching an overall agreement (which is in approximately month 12 of discussions). We re-iterate that it is not in the sponsor's best interest for RMT to default as the sponsor will end up footing the bill for the new ships (which are perhaps worth about half of what they cost). The lenders are probably not keen to see a default situation either (especially if they also lend to the sponsor). The likely outcome is that the burden will eventually be passed to RMT's unitholders through dilution via fresh equity.

Uncertainty driving volatility – witness the 25.6% unit price decline in the last two days on what can hardly be called 'new news' . Some investors may be waiting to see if there is a positive or even neutral resolution of the April loan maturity (and hoping that this would translate to a positive market reaction). But they should be mindful that the underlying problem does not go away – and any solution is likely to come at the expense of unitholders (unless the order book disappears completely, which is highly unlikely). In what is essentially a dragged-out and uncertain situation, we do not find offering a rating on RMT productive – as such we are SUSPENDING COVERAGE of the trust.